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There is a great deal of advertising done that various wills, trusts or other steps have to be taken by folks in order to save taxes.  The clear message and impression given is that saving taxes is the most important activity. 

The problem with all of this media and advertising hype is that the cost of saving taxes is rarely stated.  This is not just a cost in money, but also the intangible cost inherent in all tax savings schemes - namely, the giving of control over the person's property.  In our experience, this is a very real concern and a very real cost in estate planning that is often not given the attention it deserves.  In this article, we will describe an actual experience that we encountered and the cost - emotional and psychological that the situation presented.  This situation involved perfect estate tax planning.  All of the proper legal steps had been taken to accomplish the goal of minimizing estate taxes.  There was no problem with the legal work or financial analysis.  The practical cost of this plan, however, was so high that it had to be changed. 

Business Owner Creates a New Partner

A forty year old man and his wife both established the classic A-B Marital Trusts.  In addition, in order to assure that the maximum estate tax savings would be realized, he transferred fifty percent (50%) ownership of his business to his wife (she had only a few other assets).  His brother was the Trustee of his Trust and his brother-in-law was the Trustee of his wife's Trust.  We reviewed the plan with this client and told him that upon his death, his brother would become the Trustee of his Trust, that half of their assets would be in the Trust and that his wife got a lifetime income from these assets and if she needed more money that she had to go ask his brother for the money.  Upon the wife's death, everything in his trust then went to his daughter from a previous marriage.  This was fine with the client.  It was what he wanted.  We then told him that if his wife died all of her assets would go into a trust and her brother would be the Trustee.  At this point, he stopped me and asked me what assets his wife had that would go into her Trust.  We told him half of the stock of your business and ... He again stopped me, this time looking quite white and said, there is no way that my brother-in-law is going to control half of my business.  I want this changed now.  We fixed the problem quite simply.  We just had all of the stock of the business transferred back into his name and established an Irrevocable Life Insurance Trust funded with a life insurance policy in an amount sufficient to pay any estate taxes.  Transferring the stock back to him solved his problem with having a "new partner", if his wife predeceased him and the Irrevocable Life Insurance Trust provided money to pay any estate taxes so the business would not have to be sold at a "fire sale" to generate the money to pay the estate taxes.  This was a very workable solution for this business owner's concern. 

A side bar to this story is the fact that our client never met the lawyer that originally drafted his estate planning documents.  He talked to the lawyer on the phone, filled out the lawyer's questionnaire, and signed the documents.  The lawyer never got to know the client and the issues and concerns that the client had apart from saving estate taxes.  And, of course, this whole process was done this way because it was cheaper than if the lawyer had to meet with the clients. 

The Moral of the Story

The above experience that we encountered taught us two very important facts.  Fact one is that tax savings is not the "raison d'etre" of estate planning.  It is an important factor but the most important is to make sure that the plan that is implemented reflects the needs, desires and goals of the client for the rest of their lives.  An estate plan that changes the way people live that saves taxes in our opinion is no good.  Fact two is that the lawyer/planner has to know the client and what is important and not important to the client and his/her/their needs, desires and goals.  In our experience, try as you might, these items cannot be determined by a checklist or questionnaire - it requires person to person meetings.  In such meetings, it is important for the client to express his/her/their views clearly to the lawyer/planner and to make sure that he/she/they know what the plan involves - the advantages and disadvantages, and that they are comfortable with the plan.  It is also important that the plan be reviewed periodically to make sure that the goals, needs, desires have not changed or that the plan still meets the earlier stated goals, needs and desires if they have not changed. 


As with all planning, an experienced, competent professional can steer you through all of these issues and make sure that your estate plan does not impact the way you want to live the rest of your life.



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