Estate Planning for Humans

Most of the tools of estate planning (wills, trusts, etc.) are obsessed with taxes. Particularly estate taxes. Setting aside, for the moment, the fact that there is no estate tax for those dying in 2010 (see previous post), and the uncertainty of how it will return in 2011, the overwhelming majority of estates pay no estate taxes. The IRS estimates that only about 6,000 estate tax returns will be filed for those who died in 2009, when the exemption was $3.5 million. They also project that even if the applicable exclusion returns in 2011 at $1 million, only 1 percent of estates would be subject to the tax. With the estate tax affecting so few, why are estate planners so obsessed with it? Why don't planners spend more time thinking about what their documents actually say, how they are going to be implemented, how they interact with each other, and whether they really carry out the client's wishes?

Since it is much more likely than not that our clients will have no estate tax exposure (no matter what the law ends up looking like next year), perhaps now should be the time to refocus of our efforts on listening to the client, thinking about the implications of their wishes, drafting the documents to work with each other and carry out their wishes.

Let me give an example. The client has a piece of personal property that they wish to keep in family for future generations. Trust drafting considerations would be funding the trust so the property can be maintained properly, protecting the property from creditors, spendthrift children, as-yet-undetermined-future-former-spouses, etc. Perhaps these same considerations should also be addressed in the will and power of attorney, in case, for whatever reason, the house is not in the trust when your client dies. Another consideration is whether it is a good idea to keep the house in trust for future generations at all.

This is directed more at the CLE industry rather than planners themselves. We, as planners, already know that our clients have no estate tax exposure, and likely will never have such exposure. Lecturers, thinkers, and writers should perhaps spend greater efforts on the drafting component rather than the tax obsession. This would quite likely result in more readable (and likely shorter) estate plans that are much more likely to follow the client's wishes, reduce the chances of litigation, and improve the quality of our practice.

Throwing Momma From the Train(?)

I've heard twice in the past two days about an increase in deaths of rich people before December 31, 2010 to avoid estate tax when it returns in 2011.

Honestly, are people really going to off their relatives to save on estate taxes? Aren't there laws against that?

There also has been talk about Advance Health Care Directives (or health care proxies or Durable Powers of Attorney for Health Care depending on your jurisdiction) that include provisions permitting the agent to take estate taxes implications into consideration in end-of-life decisions.

Good luck enforcing that provision. Or relying on it when the one relative who isn't obsessed with estate taxes questions the wisdom of the agent to pull the plug.

I think that this will join the urban myth about estate taxes taking away the family farm (there is no known case of this ever happening, and the Internal Revenue Code is full of provisions to prevent this).

Live Blogging from the 2010 ABA STEP Conference

I'm in NYC for the 2010 ABA Skills Training for Estate Planners program. I will resist the urge to give "this is what I learned today" posts, choosing instead to post little nuggets of insight from the lecturers.

For the record, New York Law School, where the conference is held, is a mightily impressive facility. Still, it wouldn't make we want to go back to law school. A quick look at the law library alone is enough to bring on my law school PTSD. And that was 10 years ago.