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1
The Most Common Flaws In
Estate Planning
And How To Spot Them
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye...
2
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com
What We Will Cover:
There are 41 points divided into 7 ca...
3
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com
Upcoming Sessions Of Our
“Thursday Insights”
Series
3
The...
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com 4
The Most Common Flaws In Estate Planning And How To Spot ...
5
Failure
To Get Started
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com 5
Everything You Always Wanted To ...
6
Failure To Get Started
Far and away the biggest mistake we find is the couple who walks in the door and does
not have an...
7
Failure To Get Started [cont’d]
It is the advisors’ job to motivate clients to put testamentary
documents in place as so...
8
Failure To Maintain
Fresh Documents
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com 8
Everything You Alwa...
9
Failure To Maintain Fresh Documents
1. Change In Dispositive Desires. [Biggest Flaw #2]
The nightmare: since the living ...
10
Failure To Maintain Fresh Documents [cont’d]
2. Change In Fiduciaries.
One of the three most common changes that occurs...
11
Failure To Maintain Fresh Documents [continued]
3. Maintenance Programs.
For every type of estate planning structure – ...
12
Failure To Maintain Fresh Documents [continued]
4. Family Counselor Program.
Rather than a simple maintenance program, ...
13
Failures
In The Documents
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com 13
Everything You Always Wante...
14
Failures In The Documents
1. Name.
Should it be simply “Bruce Givner and Kathy Givner,
Trustees, of the Bruce and Kathy...
15
Failures In The Documents [continued]
2. Trust Certificate.
What is it?
What is the benefit?
Is there one?
Does the cli...
16
Failures In The Documents[cont’d]
3. “Blanket” Assignment. [Biggest Flaw #2]
What is it?
What is the advantage?
Why we ...
17
Failures In The Documents [continued]
4. SP. vs. CP. [Biggest Flaw #3]
Should you rely on the clients to identify what ...
18
Failures In The Documents [continued]
5. Assets. [Biggest Flaw #4]
Is there a comprehensive financial statement dated a...
19
Failures In The Documents [continued]
6. Family. [Biggest Flaw #5]
Does the document spell out the names and dates of b...
20
Failures In The Documents [continued]
7. Incapacity.
Has the client considered alternative ways to establish in capacit...
21
Failures In The Documents [continued]
8. Survivor’s Powers.
Can the survivor change the trustees for both halves? Often...
22
Failures In The Documents [continued]
8. Survivor’s Powers.
New Estate Tax Planning For Estates Likely To Be Under The ...
23
Failures In The Documents [continued]
9. Successor Trustees.
Are there sufficient mechanisms to allow for a smooth chan...
24
Failures In The Documents [continued]
10. IRA Trust.
Are the retirement assets so significant and the beneficiaries so
...
25
Failures In The Documents [continued]
11. Non Pro Rata Allocations.
May the trustee fund the subtrusts on a non-pro rat...
26
Failures In The Documents [continued]
12. Personal Property.
Is the disposition of tangible personal property
detailed ...
27
Failures In The Documents [continued]
13. Memorandum Regarding Tangible Personal
Property.
Is the handwritten memorandu...
28
Failures In The Documents [continued]
14. Pot Trust.
In smaller estates, is there a “pot” trust until the
youngest bene...
29
Failures In The Documents [continued]
15. Asset Protection. [Biggest Flaw #6]
Have the parents been offered asset prote...
30
Failures In The Documents [continued]
16. Special Needs.
Are special needs provisions part of the
boilerplate?
If there...
31
Failures In The Documents [continued]
17. Ultimate Beneficiary.
Have the parents knowledgeably considered alternatives ...
32
Failures In The Documents [continued]
18. Trustee’s Discretion.
Is there a video conveying wishes to the successor trus...
33
Failures In The Documents [continued]
19. ILIT.
Is there enough insurance so that it should be owned by a
free-standing...
34
Failures
In
Asset Transfers
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com 34
Everything You Always Wan...
35
Failures In Asset Transfers
1. Younger People And Living Trusts.
Of course, it is always best to actually transfer all ...
36
Failures In Asset Transfers [cont’d]
2. Older People And Living Trusts.
With people in their 70s or older, we try to ch...
37
Failures In Asset Transfers [cont’d]
3. Qualified Personal Residence Trusts.
People tend to refinance their homes, take...
38
Failures In Asset Transfers [continued]
4. Family Limited Partnerships.
It is important to transfer assets to the FLP a...
39
Failures In Asset Transfers [continued]
5. Intellectual Property. [Biggest Flaw #7]
We use a separate checklist to get ...
40
Failure
To Consider
Family Issues
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com 40
Everything You Alwa...
41
Failure To Consider Family Issues
1. Living Trust: Naming A Child As Trustee While You Are Alive.
If it comes to a choi...
42
Failure To Consider Family Issues
2. Living Trust: Naming A Child As Trustee When There Are
Other Children.
Will naming...
43
Failure To Consider Family Issues
3. Living Trust: Rich Children, Poor Relatives.
You leave your children $20,000,000 a...
44
Failure
Through
Overplanning
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com 44
Everything You Always Wa...
45
Failure Through Overplanning
1. Failure To Establish Parents’ Standard Of Living. [Biggest
Flaw #8]
Unless you know how...
46
Failure Through Over-planning [cont’d]
2. Failure To Consider Increased Needs As They Age.
Even if you know what it tak...
47
Failure Through Over-planning [cont’d]
3. Failure To Consider Inflation.
Even if you know what it takes the parents to ...
48
Failure Through Overplanning [continued]
4. Failure To Consider Interruption Of Income. [Biggest Flaw
#9]
The parents’ ...
49
Failure Through Overplanning [continued]
5. GRATs Instead Of Private Annuities. [Biggest Flaw #10]
A GRAT as a way to t...
50
Failure Through Overplanning [continued]
6. QPRTs instead of Private Retirement Plans.
A QPRT for the residence means t...
51
Failure
Through
Underplanning
Givner & Kaye, 
A Professional Corporation
Owen@GivnerKaye.com 51
Everything You Always W...
52
Failure Through Underplanning
1. Advisors Don’t Advise.
The advisors see that the clients have a family trust, pourover...
53
Failure Through Under-planning [cont’d]
2. Parents Are Afraid.
The parents feel that they will “lose control” in any pl...
54
Failure Through Under-planning [cont’d]
3. Parents Don’t Understand.
That they can retain virtual control, and can chan...
55
Failure Through Under-planning [cont’d]
4. Failure To Use Attorney-Client Privilege In Estate Tax Planning.
Appraisers ...
56
Failure Through Under-planning [cont’d]
5. Failure To File A Gift Tax Return In Estate Tax Planning.
Even if the transa...
57
Failure Through Under-planning [cont’d]
6. Allowing A Real Estate Appraiser To Determine A Valuation
Discount In Estate...
58
Failure Through Under-planning [cont’d]
7. Using Any Appraiser, For Estate Tax Planning, With Inadequate
Credentials.
M...
59
Questions and Answers
Send us e-mail:
Bruce@GivnerKaye.com
Owen@GivnerKaye.com
Kathy@GivnerKaye.com
Neda@GivnerKaye.com...
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14 05-17 the most common flaws in estate planning

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The most common flaws in estate planning including the failure to get started, the failure to maintain fresh documents, the failures in many documents, failures in asset transfers, failure to consider family issues, and failures through overplanning and underplanning.

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14 05-17 the most common flaws in estate planning

  1. 1. 1 The Most Common Flaws In Estate Planning And How To Spot Them Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com
  2. 2. 2 Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com What We Will Cover: There are 41 points divided into 7 categories. 1. Failure To Get Started. P. 5 2. Failure To Maintain Fresh Documents. P. 8 3. Failures In The Documents. P. 13 4. Failures In Asset Transfers. P. 34 5. Failure To Consider Family Issues. P. 40 6. Failure Through Overplanning. P. 44 7. Failure Through Underplanning P. 51 2 The Most Common Flaws In Estate Planning And How To Spot Them
  3. 3. 3 Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com Upcoming Sessions Of Our “Thursday Insights” Series 3 The Most Common Flaws In Estate Planning And How To Spot Them
  4. 4. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 4 The Most Common Flaws In Estate Planning And How To Spot Them
  5. 5. 5 Failure To Get Started Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 5 Everything You Always Wanted To Know About Family TrustsThe Most Common Flaws In Estate Planning And How To Spot Them
  6. 6. 6 Failure To Get Started Far and away the biggest mistake we find is the couple who walks in the door and does not have any existing estate plan [Biggest Flaw #1]: 1. no Wills; 2. no family trust; 3. no durable powers of attorney. In metropolitan Los Angeles, that is almost incomprehensible. Sometimes it is due to the fact that they do not wish to think about death. Sometimes it is due to the fact that they have only recently come into enough wealth to even consider the need to provide for proper distribution at death. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 6 The Most Common Flaws In Estate Planning And How To Spot Them
  7. 7. 7 Failure To Get Started [cont’d] It is the advisors’ job to motivate clients to put testamentary documents in place as soon as possible. The advisors should remind clients that even adult children may need estate planning-type documents. For example, an 18 year old needs a durable power of attorney for health care (advance health care directive). A 30 year old now working in a business may need a Will to provide who inherits the death benefit provided by the employer. That same 30 year old may need to thoughtfully complete a beneficiary designation for the corporation’s retirement plan. The young couple with two children under the age of 10 may be in more need of (i) Wills to nominate guardians and (ii) an irrevocable insurance trust to own a $5,000,000 insurance policy than they are in need of a family trust. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 7 The Most Common Flaws In Estate Planning And How To Spot Them
  8. 8. 8 Failure To Maintain Fresh Documents Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 8 Everything You Always Wanted To Know About Family TrustsThe Most Common Flaws In Estate Planning And How To Spot Them
  9. 9. 9 Failure To Maintain Fresh Documents 1. Change In Dispositive Desires. [Biggest Flaw #2] The nightmare: since the living trust was drawn up leaving the entire estate to his children, the client started giving (i) his sister $8,000 per month and (ii) his mother $4,000 per month. The client dies. The client’s brother becomes the trustee and the client’s children want to know why they should keep supporting their 50 year old aunt to the tune of $15,000 per month pre-tax so she doesn’t have to work. The children are less irritated about supporting their grandmother to the extent of $7,000 per month pre-tax, though it does cause the trustee – their uncle – a bit of a problem in getting an agreement to continue the distributions to grandma (his mother). Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 9 The Most Common Flaws In Estate Planning And How To Spot Them
  10. 10. 10 Failure To Maintain Fresh Documents [cont’d] 2. Change In Fiduciaries. One of the three most common changes that occurs over the course of a 10 year period. The person whom the parents trust to take care of the money for the children in 2014 is almost certainly not going to be the person that the parents trust to carry out that duty in 2034. (The other two most common changes that occur over the court of a 10 year period: specific bequests and manner of distribution to the children.) Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 10 The Most Common Flaws In Estate Planning And How To Spot Them
  11. 11. 11 Failure To Maintain Fresh Documents [continued] 3. Maintenance Programs. For every type of estate planning structure – family trust; QPRT; FLP; foundation; ILIT – we have a separate maintenance program designed to keep the documents up-to-date with both: (i) the clients’ wishes and (ii) changes in the law and facts. In each program we call the client every 6 months to review each of the decisions reflected in the documents to confirm that they still reflect the clients’ wishes. Many changes will be made as part of the basic program without extra cost. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 11 The Most Common Flaws In Estate Planning And How To Spot Them
  12. 12. 12 Failure To Maintain Fresh Documents [continued] 4. Family Counselor Program. Rather than a simple maintenance program, we also offer a Family Counselor Program. Customized for each family, this program provides two half-day meetings per year and unlimited phone access. This is designed to keep the family, its estate planning structures, and its business interests up-to-date and to give the family immediate access to our team of family and business counselors. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 12 The Most Common Flaws In Estate Planning And How To Spot Them
  13. 13. 13 Failures In The Documents Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 13 Everything You Always Wanted To Know About Family TrustsThe Most Common Flaws In Estate Planning And How To Spot Them
  14. 14. 14 Failures In The Documents 1. Name. Should it be simply “Bruce Givner and Kathy Givner, Trustees, of the Bruce and Kathy Givner Trust dated February 4, 1994”? Or should it be “Howard Brand, Trustee, of the 12th Tressa Trust dated February 4, 1994”? Isn’t it always better to have a fictitious name trust? Why make it easier for someone to find your assets? The beneficiary of the fictitious name trust may be your actual family trust. Is the trust document even clear as to what the name is? As to what acceptable alternatives can be used? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 14 The Most Common Flaws In Estate Planning And How To Spot Them
  15. 15. 15 Failures In The Documents [continued] 2. Trust Certificate. What is it? What is the benefit? Is there one? Does the client know how and when to use it? Problems with out-of-state assets. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 15 The Most Common Flaws In Estate Planning And How To Spot Them
  16. 16. 16 Failures In The Documents[cont’d] 3. “Blanket” Assignment. [Biggest Flaw #2] What is it? What is the advantage? Why we don’t rely on it for “older” folks? The problem with out-of-state assets. Heggstad as modified by Osswald v. Anderson and In re Kucker. A Heggstad petition. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 16 The Most Common Flaws In Estate Planning And How To Spot Them
  17. 17. 17 Failures In The Documents [continued] 4. SP. vs. CP. [Biggest Flaw #3] Should you rely on the clients to identify what is SP v. CP? Should you refer them to a family law attorney? Is there a waiver of the conflict of interest? Is it malpractice to not get one spouse to confirm the other spouse’s SP while both spouses are competent and willing? Are there separate schedules for separate property vs. community property? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 17 The Most Common Flaws In Estate Planning And How To Spot Them
  18. 18. 18 Failures In The Documents [continued] 5. Assets. [Biggest Flaw #4] Is there a comprehensive financial statement dated as of the date that the trust is created that lists the assets which belong to the trust? Is there a program designed to update it for after-acquired assets, e.g., an annual maintenance program? Is a list of the trust assets, including values, title, people to contact, available or already in the hands of successor trustees? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 18 The Most Common Flaws In Estate Planning And How To Spot Them
  19. 19. 19 Failures In The Documents [continued] 6. Family. [Biggest Flaw #5] Does the document spell out the names and dates of birth of the heirs? Is there a family tree in the files which lists heirs who must be notified at death, including their relationship and address? What about phone numbers and e-mail addresses? Want to know about non-beneficiary heirs because they must be notified in the event of death. Probate Code Section 16061.7. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 19 The Most Common Flaws In Estate Planning And How To Spot Them
  20. 20. 20 Failures In The Documents [continued] 7. Incapacity. Has the client considered alternative ways to establish in capacity (to avoid a conservatorship)? Requiring two physicians to give statements under penalty of perjury: physicians don’t want to opine under penalty of perjury. Requiring two board-certified psychiatrists can be expensive. Difference between a board-certified psycho-neurologist and a neuro-psychologist (typo in a recent document)? Vote of a group of three trust non-beneficiary family friends? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 20 The Most Common Flaws In Estate Planning And How To Spot Them
  21. 21. 21 Failures In The Documents [continued] 8. Survivor’s Powers. Can the survivor change the trustees for both halves? Often the documents are unclear. Does the survivor have a general power of appointment over the bypass trust? Over the marital trust? Are the children and grandchildren permissible beneficiaries of the bypass trust? Great potential for conflict, as in at least two current client situations costing tens of thousands of dollars. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 21 The Most Common Flaws In Estate Planning And How To Spot Them
  22. 22. 22 Failures In The Documents [continued] 8. Survivor’s Powers. New Estate Tax Planning For Estates Likely To Be Under The Estate Tax Exclusion (Currently $5,340,000 Per Spouse): 100% To Survivor (Or Marital Trust), With Disclaimer To Bypass Trust. Probably 85% of all living trusts should be amended NOW!!!!!!! to provide this type of amendment because probably 85% of all living trusts will not result in an estate tax on the surviving spouse’s death. Without this amendment surviving spouses will be stuck with unnecessary bypass trusts and the related complexity. At that point – after the first spouse’s death, if the document has not been amended - the bypass trusts can only, legally, be eliminated by a court order. Avoid that problem now by having the clients meet with us and consider if that amendment is appropriate. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 22 The Most Common Flaws In Estate Planning And How To Spot Them
  23. 23. 23 Failures In The Documents [continued] 9. Successor Trustees. Are there sufficient mechanisms to allow for a smooth change of trustees after the parents are dead or incapacitated? Can a majority of children remove the trustee and name a new one after the survivor dies? Or is it a majority of the adult beneficiaries? Or are they limited to corporate fiduciaries? (There are good reasons to limit successor trustees to corporate, or at least professional, fiduciaries.) Can existing trustees also name successors? Is there a clear order of priority among these alternatives? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 23 The Most Common Flaws In Estate Planning And How To Spot Them
  24. 24. 24 Failures In The Documents [continued] 10. IRA Trust. Are the retirement assets so significant and the beneficiaries so numerous and of the right ages so as to make a separate “living” trust for the retirement assets appropriate? When the estate is $5,000,000 and is disposed of by a 70 page living trust, should the $2,000,000 IRA be disposed of by a one page IRA beneficiary designation form? Can you really insert on that one page form all of the possibilities? For example, what if one of the three children dies and is survived by children? What if you want the three children to only be able to take out your required minimum distributions? What if you want each of the children to be able to make their own decisions, e.g., one wants to take out all the money immediately and one wants the longest possible stretchout? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 24 The Most Common Flaws In Estate Planning And How To Spot Them
  25. 25. 25 Failures In The Documents [continued] 11. Non Pro Rata Allocations. May the trustee fund the subtrusts on a non-pro rata basis (more flexible than pro rata)? What if one child is to get the business as part of his or her share? Is that “off the top”? Or does it just count as part of that child’s share, and if that asset is “too much” that child owes an equalizing note back to the estate? Have you considered Prop. 13 implications if a property is to be distributed other than to children? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 25 The Most Common Flaws In Estate Planning And How To Spot Them
  26. 26. 26 Failures In The Documents [continued] 12. Personal Property. Is the disposition of tangible personal property detailed enough to avoid post-mortem disputes? Is a failure to agree handled by a hypothetical auction? Is the recipient of personal property subject to debt responsible for the debt? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 26 The Most Common Flaws In Estate Planning And How To Spot Them
  27. 27. 27 Failures In The Documents [continued] 13. Memorandum Regarding Tangible Personal Property. Is the handwritten memorandum in the Will limited to $25,000 in value (no one item over $5,000)? Probate Code Section 6132(g)? If there is a memorandum, is there a copy in the lawyer’s file? Has it been updated? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 27 The Most Common Flaws In Estate Planning And How To Spot Them
  28. 28. 28 Failures In The Documents [continued] 14. Pot Trust. In smaller estates, is there a “pot” trust until the youngest beneficiary attains age, for example, 25 or graduates from college or graduate school? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 28 The Most Common Flaws In Estate Planning And How To Spot Them
  29. 29. 29 Failures In The Documents [continued] 15. Asset Protection. [Biggest Flaw #6] Have the parents been offered asset protection alternatives for distributions to heirs? Example: trustee has complete discretion as to distributions of principal and income. Probate Code Sections 15306.5 and 15307. Can be coupled with (i) giving child the ability to remove the trustee and name a new one; and (ii) authorizing trustee to contribute assets to a single member LLC of which the child is the non-member manager. (Beneficiary controlled trust.) Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 29 The Most Common Flaws In Estate Planning And How To Spot Them
  30. 30. 30 Failures In The Documents [continued] 16. Special Needs. Are special needs provisions part of the boilerplate? If there are current special needs, then consultation with an Elder Law attorney is mandatory. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 30 The Most Common Flaws In Estate Planning And How To Spot Them
  31. 31. 31 Failures In The Documents [continued] 17. Ultimate Beneficiary. Have the parents knowledgeably considered alternatives to the intestacy laws in case they are not survived by children and/or grandchildren? Otherwise everything goes to their parents, if dead, to their siblings, if dead, to their nieces and nephews, if none, back up the chain to their grandparents, etc. This is the part of the document where people can feel generous (since it is not going to happen anyway). Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 31 The Most Common Flaws In Estate Planning And How To Spot Them
  32. 32. 32 Failures In The Documents [continued] 18. Trustee’s Discretion. Is there a video conveying wishes to the successor trustee? Is there a letter describing what the parents view as the appropriate standard of living to be maintained? Remember that the trustee is acting in loco parentis, so the more the trustee knows about the parents’ wishes, the easier it will be for the trustee to make decisions in the parents’ absence. Separate video for great-grandchildren: otherwise what will they know about you. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 32 The Most Common Flaws In Estate Planning And How To Spot Them
  33. 33. 33 Failures In The Documents [continued] 19. ILIT. Is there enough insurance so that it should be owned by a free-standing irrevocable trust? Even term insurance is enough reason for a separate ILIT? A children’s trust can be an ILIT. A name is irrelevant. A children’s trust which owns an interest in an FLP is an excellent ILIT. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 33 The Most Common Flaws In Estate Planning And How To Spot Them
  34. 34. 34 Failures In Asset Transfers Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 34 Everything You Always Wanted To Know About Family TrustsThe Most Common Flaws In Estate Planning And How To Spot Them
  35. 35. 35 Failures In Asset Transfers 1. Younger People And Living Trusts. Of course, it is always best to actually transfer all of the assets. However, with younger people we do not have a good faith belief that they are going to own the same assets when they are in their 80s. So we tend to (i) transfer the real property into the trust’s name and (ii) rely on the “blanket” assignment of assets for the personal property. We do the latter because the time and expense spent transferring bank accounts and partnership interests is usually not worthwhile given the wide acceptance of the “blanket” assignments. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 35 The Most Common Flaws In Estate Planning And How To Spot Them
  36. 36. 36 Failures In Asset Transfers [cont’d] 2. Older People And Living Trusts. With people in their 70s or older, we try to change the name of each and every asset into the name of the trust. And an update or maintenance program is mandatory. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 36 The Most Common Flaws In Estate Planning And How To Spot Them
  37. 37. 37 Failures In Asset Transfers [cont’d] 3. Qualified Personal Residence Trusts. People tend to refinance their homes, take the homes out of the name of the QPRT, and forget to transfer title in after the refinance has been completed. This is a big mistake. This is an advantage of the QPRT maintenance program. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 37 The Most Common Flaws In Estate Planning And How To Spot Them
  38. 38. 38 Failures In Asset Transfers [continued] 4. Family Limited Partnerships. It is important to transfer assets to the FLP as soon as the FLP itself is formed. Delays have been cited by judges in cases striking down FLPs as estate tax planning vehicles. Also, it is important to monitor FLP assets over time to make sure that they remain in the FLP’s name. Likewise, it is important to be sure that inappropriate assets are not transferred to the FLP. Inappropriate assets include (i) personal residences of any family member and (ii) loans to family members. Also, the parents should not be reliant on FLP income to maintain their standard of living, and the children should not need the FLP assets to pay the estate tax. For all of these reasons, asset transfers must be scrutinized and monitored, and the maintenance program is highly recommended. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 38 The Most Common Flaws In Estate Planning And How To Spot Them
  39. 39. 39 Failures In Asset Transfers [continued] 5. Intellectual Property. [Biggest Flaw #7] We use a separate checklist to get the client to list all types of digital assets. There are two main categories: online accounts that require a username and password; and files stored in places (computer, mobile phone, server, local DVD or CD-ROM) or at online storage sites. There are files you create and files you buy. Make a list of all of them; who is to get them; provide access; provide copies to counsel, CPA, successor trustee; update. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 39 The Most Common Flaws In Estate Planning And How To Spot Them
  40. 40. 40 Failure To Consider Family Issues Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 40 Everything You Always Wanted To Know About Family TrustsThe Most Common Flaws In Estate Planning And How To Spot Them
  41. 41. 41 Failure To Consider Family Issues 1. Living Trust: Naming A Child As Trustee While You Are Alive. If it comes to a choice between spending $5,000 per month for you on a nursing home vs. $15,000 per month to keep you in your own home, will your child choose the former so that there will be more left in the trust when you are dead (and will that choice make the inheritance occur more quickly)? Better to name your mother or your sibling since they will not mind spending all the money on you (since they are not your heirs). Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 41 The Most Common Flaws In Estate Planning And How To Spot Them
  42. 42. 42 Failure To Consider Family Issues 2. Living Trust: Naming A Child As Trustee When There Are Other Children. Will naming one child over the other children make for bad relations after you are gone? Naming both children together creates an unworkable mess. An independent third party, e.g., the long-time CPA or business lawyer, is the best way to avoid post- mortem litigation or just plain unhappiness. The fees for an independent third party is a cheap way to avoid unhappiness, possibly litigation, and a way to make it more likely that there will be family dinners after you are both gone. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 42 The Most Common Flaws In Estate Planning And How To Spot Them
  43. 43. 43 Failure To Consider Family Issues 3. Living Trust: Rich Children, Poor Relatives. You leave your children $20,000,000 and your sister, who is a waitress, is the trustee??! You need an independent trustee who can make sure your sister’s children also get to go to private elementary and high school, and that your sister gets to move to a nice new house to accommodate your children. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 43 The Most Common Flaws In Estate Planning And How To Spot Them
  44. 44. 44 Failure Through Overplanning Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 44 Everything You Always Wanted To Know About Family TrustsThe Most Common Flaws In Estate Planning And How To Spot Them
  45. 45. 45 Failure Through Overplanning 1. Failure To Establish Parents’ Standard Of Living. [Biggest Flaw #8] Unless you know how much they need to maintain their standard of living, you cannot determine if they can afford to do a GRAT. Or even a QPRT. This should be a part of the file, a part of the due diligence, prepared by the CPA or financial planner. Similarly, after the first spouse dies, there may be friction with the children if the surviving spouse spends “too much” from the bypass and marital trusts. So try to articulate as clearly as possible the standard of living. And that applies, again, after both parents are gone if the children’s assets are held in further trust. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 45 The Most Common Flaws In Estate Planning And How To Spot Them
  46. 46. 46 Failure Through Over-planning [cont’d] 2. Failure To Consider Increased Needs As They Age. Even if you know what it takes the parents to maintain their standard of living now, what happens if one or both of them get ill? One study showed that seventy-five percent (75%) of all healthcare costs are incurred in the last decade of life. Do the clients have long-term care insurance? Should they? Related is the failure to consider increased life expectancy. The average 73 year old is going to live to 93. But most people have in mind that death occurs at 87. That is true for someone born today. But not for someone who is already 73!!! Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 46 The Most Common Flaws In Estate Planning And How To Spot Them
  47. 47. 47 Failure Through Over-planning [cont’d] 3. Failure To Consider Inflation. Even if you know what it takes the parents to maintain their standard of living now, and even if they have long-term care insurance, what will be the impact of Jimmy Carter-like hyper- inflation due to the massive budget deficits we are undergoing? Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 47 The Most Common Flaws In Estate Planning And How To Spot Them
  48. 48. 48 Failure Through Overplanning [continued] 4. Failure To Consider Interruption Of Income. [Biggest Flaw #9] The parents’ largest investment asset – a single tenant industrial building - may lose its only tenant and be empty for an extended period of time. Therefore, a GRAT based on that asset may be a disaster. Also, leaving that asset in a QTIP trust may force the trustee to sell it to provide income to the surviving spouse. It can be even worse in a second marriage situation. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 48 The Most Common Flaws In Estate Planning And How To Spot Them
  49. 49. 49 Failure Through Overplanning [continued] 5. GRATs Instead Of Private Annuities. [Biggest Flaw #10] A GRAT as a way to transfer wealth to the next generation may be a mistake since the income back to the parents terminates at the end of the GRAT term. By contrast, a private annuity provides income for life while still achieving estate tax exclusion. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 49 The Most Common Flaws In Estate Planning And How To Spot Them
  50. 50. 50 Failure Through Overplanning [continued] 6. QPRTs instead of Private Retirement Plans. A QPRT for the residence means that at the end of the term the parents must pay rent to continue living in the residence. (Note: since June, 2008, the availability of “reverse” (or “return”) QPRTs have made this less of a factor.) An alternative way to protect a residence is to: (i) sell it to a children’s trust for a note; and (ii) burden it by a lien in favor of a PRT. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 50 The Most Common Flaws In Estate Planning And How To Spot Them
  51. 51. 51 Failure Through Underplanning Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 51 Everything You Always Wanted To Know About Family TrustsThe Most Common Flaws In Estate Planning And How To Spot Them
  52. 52. 52 Failure Through Underplanning 1. Advisors Don’t Advise. The advisors see that the clients have a family trust, pourover Wills and durable powers of attorney and do not describe alternatives available in advanced planning, e.g., an irrevocable trust to own the insurance policies; a separate trust to be the beneficiary of the retirement plan assets; vehicles (LLC; FLP) to own investment assets for both estate tax and creditor protection; structures to transfer interests in investment assets (private annuities; GRATs; QPRTs; installment sales; part-gift, part-sales) to trusts for the children; clean-up planning (T-CLATs and family foundations). Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 52 The Most Common Flaws In Estate Planning And How To Spot Them
  53. 53. 53 Failure Through Under-planning [cont’d] 2. Parents Are Afraid. The parents feel that they will “lose control” in any planning. The single biggest fear. (The next is “the cost.” Another: “it’s irrevocable.”) Listen to our seminar on “How Parents Retain Control Both During Their Lives And After Death.” Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 53 The Most Common Flaws In Estate Planning And How To Spot Them
  54. 54. 54 Failure Through Under-planning [cont’d] 3. Parents Don’t Understand. That they can retain virtual control, and can change their minds. An irrevocable trust can still be flexible. Parents can remove the trustee at any time and name a new one. Parents can change the allocation of the assets among the children using a protector. Parents can retain the power to invest the assets through a single member LLC. Etc., etc., etc. Please ask to listen to our seminar on “How Parents Retain Control Both During Their Lives And After Death.” Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 54 The Most Common Flaws In Estate Planning And How To Spot Them
  55. 55. 55 Failure Through Under-planning [cont’d] 4. Failure To Use Attorney-Client Privilege In Estate Tax Planning. Appraisers should be hired by the tax attorney. What if the appraiser’s report is unacceptable and you want to hire a new one? As long as the appraiser was hired by the attorney, that report cannot be viewed by the IRS since it is covered by attorney work product doctrine. Accountants, though they have, under IRC Section 7525, something like the attorney-client privilege, do not have a work product doctrine. Also, if asset protection planning is a motive, recognize that the presence of non-clients, e.g., children, may destroy the privilege. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 55 The Most Common Flaws In Estate Planning And How To Spot Them
  56. 56. 56 Failure Through Under-planning [cont’d] 5. Failure To File A Gift Tax Return In Estate Tax Planning. Even if the transaction is a sale at fair market value to a children’s trust, file a protective gift tax return (IRS Form 709) claiming that it was a gift of $1,000. By filing that return with complete disclosure of the transaction, IRC Section 2001(f), the 3 year statute of limitations runs so that the IRS cannot later, e.g., in connection with the estate tax return, challenge the values. IRC Section 6501(c)(9) . Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 56 The Most Common Flaws In Estate Planning And How To Spot Them
  57. 57. 57 Failure Through Under-planning [cont’d] 6. Allowing A Real Estate Appraiser To Determine A Valuation Discount In Estate Tax Planning. Some appraisers who do real estate valuations are also MAIs and, as such, are appropriately credentialed to opine on tenancy in common discounts and discounts for lack of control and lack of marketability. However, be careful: many real estate appraisers have only real estate credentials, e.g., S.R.E.A. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 57 The Most Common Flaws In Estate Planning And How To Spot Them
  58. 58. 58 Failure Through Under-planning [cont’d] 7. Using Any Appraiser, For Estate Tax Planning, With Inadequate Credentials. Most transactions will not be reviewed by the IRS. However, if yours is, you want to have a highly qualified and respected appraiser in your corner. If the business appraisal costs $3,000, you are unlikely to have that quality of an appraiser. There are many good quality firms out there. If you know the valuation is likely to be challenged, make sure you have an appraiser who has a history of testifying in the relevant court. Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 58 The Most Common Flaws In Estate Planning And How To Spot Them
  59. 59. 59 Questions and Answers Send us e-mail: Bruce@GivnerKaye.com Owen@GivnerKaye.com Kathy@GivnerKaye.com Neda@GivnerKaye.com Givner & Kaye,  A Professional Corporation Owen@GivnerKaye.com 59 The Most Common Flaws In Estate Planning And How To Spot Them

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