Don’t Get Your Legal Advice from the Janitor–Redux

Introduction
The Retired Attorney
Moral–Do We Have a Qualified Attorney
The CPA
Moral–Don’t Rely on Forms without the Proper Expertise
The Conflict of Interest
Moral–Costs are More Than Just the Service Fee
Conclusion–Will They Work

Dear Mr. Miller:

Introduction: Several months ago you wrote an article about not getting your legal advice from a CPA regarding an estate in which the father had died. What about estate planning, you know, while people are still alive?

Planning an Estate on the Cheap

Dear Planning:

The last two weeks have really brought this issue to the forefront. I have been presented with three different estate plans (Trusts and Wills) that were written by the janitor, or at least the equivalent.

The Retired Attorney: I was presented with a Trust and Will for review that was written by a “retired attorney.” From what I saw I have to believe that this retired attorney was not an estate planning attorney. In this case, the typed Will had no witnesses but was notarized. California requires two witnesses. The testator (the person whose Will it was) had died. Maybe we could count the notary as one of the two. But who is the second? Although there are court procedures to validate a Will that is missing a witness, who wants to go to court; and the procedure is anything but a slam dunk so who knows whether the judge would even agree to validate the Will. As far as I know, every state in the country requires at least two witnesses. I guess the retired attorney did not know that.

There was also a Trust. It is customary to have the Will “pour over” all financial assets to the Trust so that there is one unified vehicle for transferring assets to the beneficiaries when the owner dies. I guess this retired attorney didn’t know that, as the Will did not pour over. What if the beneficiaries in the Will are different from those in the Trust. Who is supposed to get what?

We can probably fix all of this but the result is that the attorney gets more and the beneficiaries get less, $1000’s less.

Moral–Do We Have a Qualified Attorney: The attorney may have been the world’s foremost anti-trust lawyer but that does not make him qualified to draft a competent Will or Trust. And even if he was an estate planner during his working life, one needs to keep up with changes. And if an estate planner, was he a California estate planning attorney or from another state as each state has its own rules and idiosyncrasies.

The CPA: A few days after the retired attorney production, I was presented with a Trust written by a CPA. And, no, he wasn’t also a lawyer. All it took was a quick look. The creators (Trustors, Settlors), were married. They had several children. The Trust left everything to the children on the death of the FIRST spouse, as opposed to the second. I’m reasonably sure that the couple did not wish the surviving spouse to be disinherited. What was the cause: the use of the word “predeceased spouse” rather than “surviving spouse” in one of the paragraphs.

The result is that the surviving spouse could wind up penniless and a pauper or, at the least, having to go begging to the kids.

Then there was the fact that there were no powers of attorney for finances done at the same time. I see that latter problem a lot when the drafter is inexperienced in the field. What occurs if one of the spouses loses mental competence and we need to take various actions to qualify for Veterans benefits or Medi-Cal? I will have the solutions but no one in the family will have the necessary authority to carry out those solutions.

The result is that the well spouse could, again, wind up penniless and a pauper because ten’s of thousands of dollars wind up going to the nursing home.

Moral–Don’t Rely on Forms without the Proper Expertise: I’m sure to this CPA it looked easy, just paste together a few forms and voila, we have a Will and Trust. I told the couple that no matter how little they paid the CPA, they overpaid him!

The Conflict of Interest: Getting services for free or low cost is attractive to everyone. But the amount you pay the service provider may not be the only cost. I was presented with a Trust for a somewhat limited net worth client. One of the gifts provided for a religious institution. In and of itself, that’s ok. But the gift was being made by way of a complex charitable trust for a very small percentage of the estate. It provided for 5% of the value of the trust assets to the children for 20 years and then what is left over goes to the religious institution. One would use this approach on a larger estate where significant amounts of money were going into this charitable trust. On a small amount, the cost of administering the trust would destroy it.

I’m not overly concerned about any bias of the service provider (provided by the religious institution) as long as that was disclosed to the client. More importantly, do we really think the religious institution went out and obtained the best estate planner available or just whomever they could find who would work on the cheap.

The result is that even if it is $100,000 going to the charitable trust that trust might earn, at best, $3000 per year. The costs associated with this trust in tax returns and other reporting requirements as well as paying someone to administer it and paying out $5000 to the children each year are going to be at least $10,000 per year. In other words, the trust will be eaten alive by expenses so that there will be nothing left over for the religious institution at the end of the 20 year term.

Moral–Costs are More Than Just the Service Fee: Consider all the costs, not just the service fee.

Conclusion–Will They Work: Most of these problems can be fixed if caught early enough, sometimes even after someone has died. But it usually costs more, much more, to fix them then to get them done right at the outset. On Wills and Trusts and the ancillary documents, the only time it really matters whether they are written correctly and well is, typically, when someone dies or becomes mentally incompetent. We call that, “will they work?” So if you cut the price of the Will and Trust by half and it doesn’t work, how much have you really saved?

9/21/2014