Maximize Legal Fees and Family Strife

Summary: At a panel discussion for the NYS Foundation for Accounting Education conference all five panelists, led by the famed Sid Kess. and including Daniel Daniels, Esq. of Wiggin and Dana, LLP, James F. Kelly, Esq., of Davidson, Dawson & Clark, LLP, and Steven Siegel, Esq. of the Siegel Group, all complained that few clients heed their advice on planning. But hey, why should clients listen! Ignoring the advice of your advisers is the best way to maximize professional fees, and assure the most family strife. So if that’s what you want to do …. Fine! “We talk to clients until we’re blue and they rarely listen,” lamented Steven Siegel, Esq. So, here’s a checklist of tips to maximize the problems your family and loved ones will face gleaned from the panel discussion:


Outdated Bypass Trust: Don’t update your will merely because its 10 years old. The old formula could trigger state estate tax on the death of the first spouse. More than a score of states use an estate tax exclusion lower then the federal amount (now $3.5M) so that distributing the federal exemption amount will trigger state tax. An old will that distributes the federal exclusion amount to kids could now distribute far more than intended, perhaps your entire estate, to kids from a prior marriage instead of providing for your spouse. When your old will was done the federal exclusion might have been $1M, the increase to the current $3.5M could disrupt your entire plan.


Ignore Spousal Right of Election: State laws provide a right to a surviving spouse to demand a specified portion of a deceased spouse’s estate, regardless of the will providing for less. Ignore your lawyer’s advice to obtain a formal waiver from your spouse of his/her spousal right of election. Leave the door open for your spouse to undermine your entire dispositive scheme. The family business you wanted to go to your daughter whose been running it? Your fourth husband might instead walk off with a piece.


Qualified Personal Residence Trust (QPRT): QPRT is a special trust used to leverage a gift of your house to your children. You can live in the house during the QPRT term. When the trust ends don’t bother leasing the house, signing a lease or paying rent. That requires legal fees.  Be penny wise and pound foolish. It’s better to make the IRS’ job easier to prove you had a life estate in the house so that they can tax it in your estate and nix the QPRT plan.


Skip Annual Gifts: You can make annual gifts of $13,000/per donee/per year and in addition pay tuition or medical expenses directly yearly. That is too simple. Instead, wait until health issues make tax planning urgent. Then it will be more difficult, risky and costly to reduce your estate.


Don’t Consider Tax Allocation: Don’t worry which beneficiary pays estate tax. With a marginal state and federal tax cost of possibly more than 50% taxes may be the biggest factor in determining who nets what. Rely instead on whatever boilerplate happens to be in your will. Even better, print a cheap will off the internet that could not possibly address this issue. Be like Alfred E. Neuman … “What, me worry?” Just don’t get mad at your estate planner when the tax dollars hit the fan!


Leave Charity A Percentage Bequest: Leave a percentage of your estate to a charity, not a fixed dollar amount. The state attorney general (AG) will have to get involved. You’ll pit the charity against your heirs. The charity’s board has a fiduciary obligation to protect the charity. The more your assets are valued at the more the charity gets. Your heirs will want to value estate assets as low as permissible to minimize estate tax. The ensuing disputes will assure more costs and angst.


Don’t Review Regularly: Don’t meet with your planners annually. Why keep your plan current and catch loose ends. Better to wait until your health or competency deteriorates to the point where planning is impossible. Keep meetings years enough apart to assure your attorney can hardly remember you. That will make planning really efficient, no continuity.  But hey, you’ve saved the cost of all those annual updates.


Divorced – Don’t Change Plan Beneficiaries: The divorce agreement covers it all. Right? Wrong, so leave your miserable ex as the beneficiary under your profit sharing plan. Focus on your new paramour not protecting your desired heirs.


Ignore Citizenship: Gifts to a non-citizen spouse are limited, and there is no estate tax marital deduction without a special trust called a Qualified Domestic Trust (QDOT), but hey, save money and have the attorney who did your house closing draft a form will because it’s cheaper.


Simple Will: Why complicate matters, get a 3 page will. Don’t worry that it won’t address most issues and will result in a complex and costly probate process. You want it simple now, not simple later when it really counts. But hey, you can believe you’re right because the costs and problems will occur when you’re no longer here to know.


No will: The only thing better than an overly simple will to maximize costs and problems is no will. Kids from prior marriage not your current spouse may walk with money you wanted your. The state will distribute your assets as law provides, which is unlikely what you want. A court might appoint Attila the Hun as guardian of your beautiful kid. But think of the legal fees you’ll save!


Disclaimer Plan: Don’t worry whether your plan is practical, just make sure it’s simple and cheap. Given all the uncertainty concerning the estate tax, and the complexity, just give your surviving spouse the right to determine how much of his/her inheritance will go into a tax advantaged bypass trust. Practitioners only see 5-20% of surviving spouses ever address this. So while it sounds good, it’s generally not effective. That will assure less control, more tax and more problems.


Rely on a Safe Deposit Box: Stuff everything important in a safe deposit box so that you increase the chance of needing court proceeding to access the will and other key documents. That will maximize stress and probate costs. Better yet put the only living will in your box so that all decisions concerning end of life and funeral will have to be made in the dark.


Advisers Shouldn’t Meet: Too expensive to have all those folks billing hourly at the same table. You’re right. It’s better that your plan not be coordinated. Why should your accountant review harvesting gains and losses before year end with your wealth manager, or your attorney assure that the corporate kit for the family S corporation be consistent with what your CPA reflects on the 1120-S K-1s and what your will says. Save money. Don’t coordinate.


Bank Teller Does your Planning: You’ve changed wealth managers and banks in light of lousy performance (supposedly 70% of investors have done this in the past year) but in the move all the accounts that were carefully titled by your estate planner to conform with your plan morph into joint ownership circumventing your will and undermining all your planning. That’s OK, rely on the clerk at the new bank or brokerage firm to make these determinations.


Neglect Complex Blended Family: Even if your family tree is as complex as a Banyan tree don’t worry about the implications to your estate plan. Don’t have a will detailing all persons to be included and excluded and clarifying family relationships. And certainly don’t use a revocable trust to minimize probate complexities your complex family structure will cause. Be sure to use standard beneficiary designations that cannot encompass the range of people involved.


Name Uncle Harry as Executor: Don’t name an institution or someone with the real qualifications to be fiduciary. Pick your poker buddy or someone who doesn’t get along with your heirs. That will assure more fireworks. Name your son-in-law without addressing what happens in the event of divorce.


KISS The Guardian and Trustee: Keep it Simple Stupid. Why name multiple fiduciaries so that you have check and balances. Name the same person to wear multiple hats.  This is great to increase the likelihood of mismanagement, theft or worse. If the guardian is the trustee who can sue who if there is a problem?


Beneficiary Designations Don’t Send them to Your Planner: Change them each time you change accounts and don’t show your planner. These documents govern distribution of retirement assets, insurance, etc. not your will. So you can easily undermine your entire plan by handling them wrong and your planner’s recommendations are likely to be incorrect if he/she has incorrect information.


Remarriage: Don’t bother with trusts, they’re costly and complicated to operate. It’s better to have your 4th spouse run off with the assets you intended your children to eventually inherit.


Joint Accounts: Don’t do a revocable trust as you age, just title all accounts as joint with the kids. This will almost assure that monies won’t be divided as you wish on death since you cannot predict which accounts what will be spent from. That’s always good for a family fight. If the child is sued, divorced or dies first, your simple joint account approach will assure a battle with the claimant, ex-spouse or IRS as to who really owned the account.

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