Scheduled Maintenance Guide

Summary: So you bought a new car and you want it to work right and last. A good first step is to check out the Scheduled Maintenance Guide. Yep, change the oil every 5,000 miles, but a lot more is recommended. Doesn’t your estate plan deserve the same care? Page references are to the 2010 Ford Motor Company Scheduled Maintenance Guide. For some reason most folks understand that their car needs TLC, but they don’t apply the same logic to their estate and financial plans.

◙  Warning: The Ford Scheduled Maintenance Guide cautions readers [p.2]: “Today’s vehicles are more sophisticated than ever and need to be properly maintained to help ensure that they operate at the highest level.” Well, Henry, your grandmother may not have drive a Model T, but her estate plan surely didn’t have split-dollar loans, trust protectors, directed trusts, unitrusts, GRATs, discounts, guarantee fees, and all the other bells and whistles your plan has.  So if your estate plan is a tad too complicated to crank out on legalzoom, then the maxim for car maintenance assuredly applies to your estate and financial plan as well.

◙  General Maintenance: The Ford Scheduled Maintenance Guide provides recommendations for different mileage markers. The basic service at a 7,500 mile marker includes expected stuff like changing oil, filters, tire rotation and performing a “multi-point inspection.” [Ford Manual p. 14]. For your estate plan, each year you should do some of the basics like: ■ Update key data including balance sheet and family/personal data.  Your advisers need current data to advise you about the adequacy of your current planning and documents, and especially in the event of an emergency. ■ Review the ownership (title) of your assets and beneficiary designations to assure that they are consistent with your plan. Values change, liability exposure can shift, tax rules change, and annual monitoring is pretty important to assure that your plan is working. Regular monitoring, just like oil changes, is pretty inexpensive and can avoid much more costly problems. ■ A quick conference call between your various advisers keeps your “team” coordinated. Often this might require modest time. Assure that your investment adviser and CPA are on the same page as to capital gains and losses, marginal tax rates, etc. With the uncertainty about estate tax repeal and carry over basis rules your estate planner needs to be in on that call too. Business succession planning requires coordination of your estate and corporate attorneys, CPA and insurance consultant. ■ Don’t forget your “multi-point inspection.” [Ford Manual p. 14]. For your estate plan, just like your car, that means running through details that your advisers deem important to assess the functioning of your planning. Consider: How is your asset allocation disbursed to different trusts and entities (asset location) and does the approach remain optimal? Is your insurance coverage adequate in light of current circumstances and are policies performing as expected. And so on.

◙  Special Operating Conditions: Before relying on just the regular maintenance schedule, you need to first determine whether you operate your car in a more demanding special condition. If you tow an Airstream trailer, that’s a “special operating condition” and you need to have some items “maintained more frequently”. Works for your car, works for you estate plan! If you’re towing a heavy load then you need more frequent maintenance.  Most plans should be reviewed every couple of years. These are plans that are for an intact non-blended family, face no estate tax issues or the tax costs are simply solved, no sophisticated trusts, etc. If you have “special operating conditions” you need to “inspect frequently, service as required.” Special conditions might include: closely held business with buy out provisions; complex blended family (unless your last name is Brady, it’s probably complex); family partnerships or LLCs (achieving estate tax minimization and asset protection goal is never normal maintenance); all but the most basic of trusts; etc.   The manual recommends much of the basic service every 5,000 miles instead of every 7,5000 miles. [Ford Manual p. 41]. Ditto you your estate and financial plan.

◙ Idle Hours: If your car is used for police, delivery or other purposes it may experience significant idle time. Idle time is like stealth miles – it doesn’t appear on your odometer, but idle time is insidious and potentially damaging to your car. Even though your odometer is not registering wear and tear, each hour of idle time can be the equivalent of 33 miles of driving. [Ford Manual p. 43].  Your estate plan can similarly be undermined by issues that are hardly registering on your radar screen. Spending rates can inch up ever so slightly such that continuing an annual gift program to the kiddies could begin to erode your financial security. Court cases could reinterpret nuances of provisions in your documents that only a professional reviewing your entire plan could identify.

◙ Deferred Maintenance: Would you ever think of like showing up at your dealer for your first oil change with 50,000 miles on your SUV? No, but why do so many clients not talk to their insurance consultant or estate planner for a decade or longer after their trust was signed? Would you blame your mechanic if you’re SUV we’re a bit cranky after 50,000 miles with no care? Why are your professional advisers somehow responsible for similar owner neglect?  When your insurance plan was formulated and implemented the estate tax exclusion was $600,000, last year it was $3.5 million (this year we’re still wondering what it is!). When you show up to the dealer 10,000 miles late for your last service call and get tagged with some extras to you accuse your dealer of bilking you or do you thank the mechanic for catching a problem before it became an even bigger and more costly issue? When you’ve skipped the recommended scheduled maintenance you expect the bills to more costly and the repairs more difficult. The moral of the story for both your car and estate plan, is service both regularly and properly.

◙ Emergency Repairs: You hit a pot hole and blow out your tire. Your car may be new, but the bottom line is you have to fix the tire. If you’re lucky you can plug the hole. If you not so lucky you have to replace the tire. If you’re more unlucky you may have thrown the alignment out of whack and have to have the tires aligned. So you just signed your will, but the unimaginable happened and Congress actually let the estate tax lapse in 2010. You really need to update it, regardless of how new your car is! Pot holes don’t differentiate the damage they’ll cause by how recent the vintage of the car driving over them is. Neither does Congress! A named trustee turns out not to be so trustworthy, a responsible heir turns out to be anything but. Your insurance company’s performance is less than stellar jeopardizing your plan. Your wealth manager changes his name to Willie Sutton. Estate and financial plans hit unexpected potholes: marriage, divorce, re-marriage, new children, significant changes in wealth, diagnosis of a major health issue, change in residency/domicile, and more. Just because you spent a lot of time, money and effort implementing a comprehensive and flexible plan doesn’t mean you can ignore emergencies any more than you can ignore the thud of a flat tire.

◙ Replacement: “In general, tires should be replaced after 6 years, regardless of tread wear.” [Ford Manual p. 9]. But how old did you say your will is? Whoever drafts your documents updates and refines their forms and drafting all the time. States adopt new laws. Courts interpret tax laws. The Treasury department issues new regulations. Practitioners write and lecture about new techniques. Forms and techniques evolve and older approaches simply become less beneficial, some could become dangerous. After some number of years your documents should be replaced even if your situation hasn’t changed. Updating existing documents is analogous to balancing and rotating tires. You can maintain your tires to increase their longevity, but at some point you just really need new tires to be safe. Ditto on your will and other planning and documents.