Advanced Estate Planning

The Pros & Cons of Advanced Estate Planning

Leave it simple, stupid!

You’ve heard about the KISS rule, right?

“Keep it simple, stupid.”

My advice to you is a slight variation of that theme: LEAVE it simple, stupid!

Don’t get sold a whole bunch of un-necessary bells and whistles which you’ll forget about in a few years and not want to pay your probate lawyer to maintain. Keep control and keep your money: give it away when you want; either during life or at death. But – keep your options open.

In the ’90s – when you could leave far less than $5.4 Million free of the US estate tax – tax lawyers and brokers tried to sell their clients various estate planning vehicles with silly acronyms, in all-capital letters: FLPs, QPRTs, ILITs, PRTs, LLCs, GRATs, IDGTs, GRUTs, CRTs.

All of these involved estate planning clients giving up, or giving away, either control over, or some portion of, their wealth and property.

Yes – they also involved clients giving significant legal fees to their probate or tax lawyers to set all this up.

The hoped-for, purported, or supposed, advantage or benefit to these techniques was that your estate, over your lifetime and at your death, would save on transfer taxes: estate taxes, gift taxes, and – perhaps – the generation-skipping transfer tax.

The downside, of course, was that the client had to give up something: typically, control and money – or access to money or property.

Do you really want to give away your primary residence to a family trustee, then pay rent to live in your own house after, say – five or ten years?

Do you really want to irrevocably give away millions of dollars to a charitable trust, when you can only retain a fraction of that money as an annual payout?

Wouldn’t it make more sense to keep control over the millions of dollars yourself and make annual charitable contributions to a charity of your choice? After all – what if you have a falling out with the charity? What if you change your mind or you simply need more money 10 or 20 years from now?

I always advise clients to never let the “tax tail” wag the dog. Our law firm sees a lot of these entities, trusts, and family partnerships come across our desks. Many were created years ago and, due to inattention or neglect, need to be reconciled and cleaned up in an estate proceeding and – many times – in litigation.

How do you explain to a 70-year-old client that she gave away her house to her adult daughter 15 years ago, when she created a trust and signed a deed? Oh yes – that’s the same daughter who the client subsequently had a falling out with. The same daughter who is suing the 70-year-old client now and trying to evict her.

My point is that these more sophisticated estate planning techniques, beyond the basic “stuff” or documents discussed in Chapter 1, can cause problems, unnecessary legal fees, and even litigation.

And…definitely confusion!

Simply put, in today’s estate planning world, they are largely unnecessary for most clients.

Is there really any need to make your estate more complex or difficult? Who really benefits when you do this, other than the probate lawyers, trustees, and accountants? Consider, instead, saving your money and buying a mutual fund for your grandchildren’s college education.

Have a solid estate plan: sure. But – don’t get over-sold on legal services.

Your beneficiaries may indeed have different financial needs. Consider leaving your wealth out-right to various beneficiaries or creating separate and distinct shares or trusts for children, new spouses, and grandchildren.

Even if your estate far exceeds $5.4 Million and you need some tax planning, there are ways to minimize your estate taxes over the years, with techniques that will still let you maintain control and hang onto lots of your money.

Consider – just consider – focusing on what’s in your wallet and what you get to control, rather than how much you think you might be able to short-change Uncle Sam by saving on estate taxes…as satisfying as that thought might be.

Pankauski’s Bottom line: Leave it simple. Read, and reread, your estate plan annually, to confirm and reconfirm “who gets what.” If your estate far exceeds what you can leave, free of the US estate tax, consider not only potential tax saving techniques, but the opportunity cost – giving up control and money.