Fleming & Curti, P.L.C. - Ignore That Alarming Mailer About Your Current Estate Plan

FEBRUARY 4, 2008 VOLUME 15, NUMBER 32

Ignore That Alarming Mailer About Your Current Estate Plan

LAST CHANCE! LAST CHANCE! LAST CHANCE! The headline screams across the top of a recent mailing received in many Tucson-area homes. “What If Everything You Thought You Knew About Living Trusts Is Dead Wrong?” is the provocative message of the mailer. That, and (try to control your surprise here) an invitation to a free seminar, where you could, presumably, learn all about the errors your current attorney has made.

Apparently the mailer was sent to virtually every address shown on public records as owned by a living trust. Obviously, the law firm sending out the fright piece doesn’t actually know anything about the individual estate plans involved in those trusts. Most of us in the legal profession are embarrassed by the tactics and the hyperbole, but we think we can save you a visit with the salespersons and decipher their not-so-subtle message.

In six pages of over-the-top prose, the law firm running the free seminars attempts to plant a seed of doubt in every reader’s mind about the efficacy of the estate plan he or she may have already executed. By attending the seminar you can learn “why most living trusts don’t work and what to do about it.” But don’t try to get any of the answers from the mailing itself—if they told you anything of substance, you might not go to the seminar, learn about their special one-night-only package deal, and sign up for a personal meeting with one of their lawyers.

So what are they talking about? What is actually wrong with “most” living trusts (we doubt, incidentally, that there is anything like empirical evidence that serious problems abound)? Here are a few of the bullet-points from the mailer, and our attempt to give you information without overstating the concern:

"Why most living trusts don't work and what to do about it" We, like most lawyers, see many living trusts that have not been “funded.” Though the trust document may be fine, assets have not been retitled in the name of the trust. Sometimes assets that were properly titled have been transferred out of the trust’s name over time, as sometimes happens, for instance, in the course of refinancing a home loan. Does that mean the trust “doesn’t work?” No—but it might mean that a probate is necessary to complete the transfer of assets after the death of the individual or couple who set up the trust. So what do you do about it? Look at the titles on your home (you can check online for many locales including, for Tucson properties, at the Pima County Assessor's Office). Look at your bank statements, your brokerage account statements and other documents. If you're not sure, schedule a routine meeting with your estate planning attorney. Don't panic.

"Why almost every estate plan bungles the distribution of retirement assets to your heirs...creating thousands of dollars of unnecessary income taxes." Retirement accounts pose special problems in estate planning. Depending on family dynamics, charitable inclinations and relative values of retirement and non-retirement accounts (just to name a few of the variables), your beneficiary designations may need to be modified as part of your total estate plan. Are most retirement accounts "bungled"? No. Are unnecessary income taxes routinely paid? No--though taxes are often paid earlier than they absolutely have to be. Is that a crisis? Hardly—but it does need to be addressed. We suggest that you address it thoughtfully and in a personal session with your attorney.

"How to protect your kids' inheritance in case of a divorce...up to 50% may walk out the door" It could happen, but it doesn't take much to protect against it. Arizona is, of course, a community property state. But inheritances remain separate property unless and until the recipient does something to turn the proceeds into community property. There is no automatic right to any share of an inheritance under community property principles--or the system in effect in other states, either. Are you concerned that your son or daughter might put his or her spouse's name on the inheritance you leave? Then maybe we should talk about leaving your child's inheritance in a trust to protect against that. Or maybe you don't want to exercise that much control. We should talk about that choice.

"Why most estate plans are ill-equipped to deal with the coming changes in the death tax laws...and why 2010 is the best year to die" This one is a particularly good example of what's wrong with the mailer. "Most" estate plans will be completely unaffected by the scheduled changes in estate tax laws for the simple reason that most people die owning less than $1,000,000. If your estate is more than that amount, you may already know that there is no federal or Arizona estate tax on estates of more than $2,000,000, and that the threshold number will go to $3,500,000 in 2009. In 2010, the estate tax is completely repealed (for one year), and replaced with a "carryover basis" regimen that will be difficult to figure out and apply--but which will only affect the very largest estates. That, incidentally, is "why 2010 is the best year to die"--but only from a purely tax perspective, and only if your estate is greater than $1,000,000, and only if you value tax savings more than life itself. The next year, 2011, the estate tax is scheduled to return, at the $1,000,000 level--but you will have a very difficult time locating a planner who believes that will be what actually happens. Will the estate tax be repealed permanently by 2010? Will it return in 2011 but at a higher level? Will the one-year repeal be itself repealed? None of us knows. But we do know that it is a time of uncertainty and flux--for those with estates over $1,000,000. In the meantime, we're pretty sure that "most" estate plans deal with the confusion in a perfectly straightforward and appropriate manner. If your estate is over $1,000,000 and you haven't seen a competent estate planning attorney in the last six or seven years, you should schedule an appointment with one sooner rather than later.

Our personal favorite question from the mailer: “How to spot the type of background and ongoing education you should look for in your estate planning attorney” The mailer provides no answer (you need to attend the free seminar to get the answer, apparently), but we have a few suggestions on this score. We think you might want to look for an attorney (and law firm) that is devoted to providing information and reassurance, rather than using scare tactics and marketing techniques. We think you might want to look for an attorney who has been recommended by your friends, his or her clients and other lawyers.

There are more scare-tactic warnings in the flyer. Should you go check it out for yourself? By all means. Enjoy the presentation, take good notes, Then give your estate planning attorney a call to go over what you've learned, and figure out if you have problems that need to be addressed. Don't feel pressured -- despite the mailer, we're pretty sure it's not really your LAST CHANCE! Another choice, if you are worried, might be to skip directly to the part where you call your own attorney for an appointment. In the meantime, try not to panic.