DISORIENTATION
People don’t know what they don’t know. Worse, people “know” things that are demonstrably false. The sad truth is that you can’t solve a problem you don’t see.
- Every year thousands of middle-class families pay tens of thousand dollars in estate taxes not to the federal government but to the Commonwealth of Massachusetts because they mistakenly thought they didn’t have to worry about estate taxes.
- Most probates and trust settlements are more complicated and expensive than they have to be because the deceased person thought that their estate planning was done once they signed the will or the trust.
DISORGANIZATION
When people come to me for planning, I repeatedly see that they don’t know what they own, or are mistaken about how title to their property is held. When people become disabled or die without clarifying things, that disorganization becomes someone else’s problem.
- One of my clients, who was settling her mother’s trust, which had been prepared by another attorney, told me that she had to look through 27 bankers boxes of documents left by her mother because she had no idea where the important documents where.
- Another client, frustrated by the mess her father had left for her to straighten out, told me, only half-joking, that if he were still alive, she would kill him.
DISCONNECT BETWEEN LEGAL AND FINANCIAL
As part of the service I provide to families into the financial advisors I work with, I review existing estate and business transition plans. In virtually every case, I find that there will be problems because the legal and financial parts of the plan are not integrated.
- People will create a revocable living trust to avoid probate and then have it funded by a pour over will — which requires a probate!
- Business owners will create a buy sell agreement requiring one order to buy the others out without planning for where the purchase money will come from.
DISCONNECT WITH LEGACY
Stephen Covey famously said “Begin with the end in mind.” The business book Lean Startup details stories of entrepreneurs who spent a lot of time and money perfecting a product that no one wanted to buy. What does this have to do with estate planning?
- Financial planning articles tell of people who paid tens of thousands of dollars to a lawyer for a detailed set of estate planning documents, only to let the documents sit unsigned for years.
- Business owners create detailed plans to transfer businesses to children who don’t want the business, or who won’t pay anything for it.
A plan that addresses only the legal side of planning, without dealing with the human issues, is very likely to fail. Legal documents have to connect to a client’s deepest wishes and concerns, and have to allow for the human frailties of the people who will be carrying the plan out.
DISPUTES
I think it’s fair to say that most people are more concerned about their kids fighting about their stuff than they are about paying estate taxes. These priorities are not reflected in law school courses or lawyers perceptions. As a result lawyers brag about their tax expertise, but say very little about avoiding and resolving disputes, with predictable results.
- In Estate of King, a Massachusetts case from 2010, there was a will contest involving an estate with about $1.2 million in assets. By the time the case got to the appeals court the legal fees for the various parties involved were more than the entire $1.2 million.
- The financial cost of disputes pales in comparison to the human cost of brothers and sisters who will never speak to one another again.
DISTRUST
Does this sound familiar? Clients are afraid that the insurance agent is trying to sell them something they don’t need. The CPA thinks the investment advisor is too reckless; the investment advisor thinks the CPA is too rigid and narrowly focused. And, of course, nobody trusts the lawyer.
For a plan to work, client needs the coordinated, integrated, collaborative efforts of a team of professionals. When people on the team don’t trust one another, bad things happen.
- In Massachusetts, there was a reported case where hundreds of thousands of dollars in estate taxes ended up being paid when a lawyer did not include the right language for a charitable trust in the client’s plan. The reason for this: the client kept the extent of his wealth from the lawyer. The result: more than $100,000 that could have gone to charity was used to pay estate taxes.
- In Iowa, a financial advisor sent a client to a new lawyer, who was not informed about an existing plan that the financial advisor had been involved with. As a result, the family and a charitable beneficiary of the will received nothing, though the will left property to them. They promptly sued the lawyer and the financial advisor.
In these cases, there was nothing wrong with the legal documents. The problem is that the documents were not effective because of the human problem of bad communication.
DISTANCE
An estate plan will only work if it is maintained and updated.
- I had clients who moved from New York, where they had an irrevocable Medicaid trust prepared. Fortunately, they had me review it. It turned out that the trust was not effective under Massachusetts law, and we had to redo the plan entirely. While this was unfortunate, it would have been much worse if one of them had to enter a nursing home with an ineffective plan.
- It is not uncommon for business owners to agree on a buyout price or the terms of the buyout, and then do nothing for a considerable period of time, even though the value of the business and of the assets within the business change substantially. When the trigger event occurs, someone may be in for a rude surprise.