I commonly get the question from clients: “What is the best estate plan?” While it’s a very simple question, the answer is not so simple. To be completely honest, there really isn’t a “perfect” estate plan for everyone. Plan choices will vary depending on someone’s goals, feelings, family dynamics and finances. Clients with almost identical characteristics (age, marital status, financial standing) will ultimately choose different estate planning paths. These divergent paths are common because while clients may appear similar on paper, their differing life experiences shape their decisions. As an estate planning attorney, my job is to explain the nuances of each planning option and give guidance on these matters from both a factual and emotional perspective. This guidance usually involves a client/attorney discussion that often explores whether a client CAN take a certain planning path versus whether they SHOULD take that path.
A number of years ago I had a client that was very intent on avoiding probate. During our meeting I outlined their options and suggested they use a Revocable Living Trust (RLT). In the end this client chose to use a Will plan versus the recommended RLT plan due to a bad experience with their parent’s RLT. Specifically, this client had seen their parent’s assets pass through the probate process even though they had a RLT plan in place. To be clear, just having a trust does not avoid probate. This is a common mistake but one that is very easily rectified with “funding” the trust. A properly funded RLT will avoid probate when assets are titled in the name of the trust or directed to the trust at the grantor’s death. Conversely, any assets that a grantor fails to direct or retitle to the RLT will likely pass-through probate at the grantor’s death. The parent’s trust was not a bad trust document, but rather there was a failure in implementation when the parent opted not to fund the RLT prior to death. It could be argued that my client took a very narrow view when equating the failure of his parent’s trust with the likely failure of his own trust plan. After my client evaluated their planning options, the initial goal of avoiding probate ended up taking second position behind their primary goal of avoiding the use of a RLT for their own estate plan. Ultimately their use of a Will plan may subject some assets to probate, but my client was ok with that outcome. A RLT plan would have provided greater protection and arguably been the better plan, but my client’s staunch opinion of a RLT ended up being the driving factor to identify their best plan.
In another scenario, I had a couple who had a net worth of about $17 million dollars. This was a number of years ago and due to the lower estate tax exemptions at that time, they were looking at a sizeable estate tax bill that would come due within 9 months after the second of them died. My clients already had a Revocable Living Trust in place to utilize both spouse’s federal estate tax exemptions, but that was insufficient to shelter the entirety of their assets from estate taxes. We started to discuss the next steps to further mitigate estate taxes and pass as much wealth to their children. A variety of upper-level tax mitigation strategies were discussed such as Irrevocable Life Insurance Trusts, Grantor Retained Annuity Trusts, and Intentionally Defective Grantor Trusts, just to name a few. Each of these options were complex, expensive, and irrevocable. In essence, the clients would give up control over certain assets and lose the ability to make changes to these plans in order to reduce their estate taxes at death.
Surprisingly my clients declined to take any additional planning steps beyond the RLT they already had in place. They felt that they would rather maintain full control over their assets and not pursue these complex planning options. They acknowledged and accepted the fact that estate taxes would be due when they passed away. Another factor in evaluating the best plan for these clients was their feeling that their children did not need/deserve the full inheritance. In my client’s opinion, the taxes were actually helpful in reducing their children’s inheritance. As a side note, my clients also indicated they planned on doing their absolute best to spend every last dime of their money on traveling with friends, good food, and good wine before they died. While it’s sometimes difficult as an estate planning attorney to stop short of planning options that can eliminate estate taxes, the goals and directions of the client always determine the best plan.
While some estate plans may make sense on paper, the client always makes the final decision on which planning options will work best for them. Just because we can implement higher level planning, doesn’t always mean we should implement these types of estate plans. In essence, the best estate plan for a client is always the plan that works, the plan the client is comfortable with, and the plan the client understands. If you have questions regarding creating your own estate plan or would like to reevaluate your estate plan, please don’t hesitate to contact our office to set up a meeting with a JGB attorney.