What Every Lawyer Should Know about Estate Planning
by Jacqueline Real-Salas
(County Bar Update, April 2006, Vol. 26, No. 4)
What Every Lawyer Should Know about Estate Planning
By Jacqueline Real-Salas, a partner with Calleton Merritt De Francisco & Real-Salas, LLP in Pasadena, where she practices in the areas of estate planning, trust administration, probate, and conservatorships. In addition to her J.D. degree, she holds an LL.M. in Taxation. The views expressed are her own.
1. Identify the client, and address potential conflicts of interest.
Oftentimes, estate planning lawyers are asked to represent married couples, domestic partners, friends, or relatives, whose interests are not always aligned. Although this is usually more efficient and less expensive than retaining separate counsel, for the lawyer the dual representation means conflicts lurk in the background. Therefore, before undertaking representation of such individuals, the lawyer must explain the existing and potential conflicts and must obtain each individual’s written consent to the dual representation. (Cal. Rules of Prof’l Conduct R. 3-310.) Further, the lawyer should advise these individuals of their right to separate counsel and should encourage them to seek independent advice prior to undertaking the representation.
Examples of conflicts include but are not limited to the lawyer’s inability to keep secrets among the clients, to take actions adverse to one of the clients, and to continue to represent either of them if a dispute arises. A conflict also may arise when the person who initially contacts the lawyer is not the client but rather a potential beneficiary of the client’s estate. In this scenario, the lawyer should ask to meet with the client alone and should explain that the presence of a third party may result in the loss of the attorney-client privilege. Further, the lawyer should obtain the client’s written consent to have the third party present during discussions and to share confidential information with the third party as the representation moves forward.
2. One size does not fit all.
Take the time to explain all applicable planning alternatives and their respective consequences. Many clients do not need and do not want to incur the expense of an intricate plan. Consider low-cost options such as transfers at death by operation of law, a simple will, durable power of attorney for asset management, and an advance health care directive. For each alternative, discuss the income, gift, and estate tax consequences for the client, the beneficiaries, and, if applicable, the trustee. Also explain the cost and delay of a probate proceeding, exposure to creditors, and any property tax reassessment issues involved.
3. Evaluate whether tax planning is necessary.
Planning around the uncertainties of the Economic Growth and Tax Relief Reconciliation Act of 2001 is quite challenging. Many estate planners resort to the use of “trust protectors” to add flexibility to their plans. Until further legislation is passed, give special consideration to allocation formulas, valuation discounts, GST trusts, and the timing for lifetime gifts. For clients with a high net worth, evaluate the tax benefits of a gifting plan, an irrevocable life insurance trust, a qualified personal residence trust, and other tax planning devices.
A lawyer who is not experienced in tax planning should not undertake to do this type of work alone. Instead, the lawyer should associate knowledgeable counsel or should refer the matter to a lawyer qualified to do this type of complex planning. Many seasoned attorneys are willing to provide advice to other lawyers at their hourly rate. Some kind souls are willing to mentor inexperienced lawyers. Additionally, the Los Angeles County Bar Association’s Trusts and Estates Section has a useful online forum where members of the section can post questions and seek the association of knowledgeable counsel. (Section members are automatic members of the forum.)
4. Avoid problems down the road.
If the estate plan is particularly vulnerable to challenge by a disgruntled relative (i.e., distribution does not follow the intestacy statutes), take extra steps to document the client’s capacity and the lack of undue influence at the time the plan is executed. This is best accomplished by obtaining a doctor’s declaration and affidavits from disinterested persons who know the client and are willing to attest to capacity. Other challenges may surface from the characterization of assets as community or separate property, particularly when clients have been married more than once and/or have children from prior relationships. Keep explicit notes in the file, and thoroughly document sensitive issues. Additionally, consider having extra witnesses present during the signing. This will improve the chances that a witness will be around if the plan is challenged.
5. Establish who is responsible for follow-up.
Retainer agreements should specify who is responsible for titling assets to carry out the purposes of the estate plan. It is a better practice to prepare all documents relating to asset transfers and to ensure they are recorded or filed as appropriate. Advise the client of the potential consequences of transferring assets to carry out the plan, particularly regarding business interests, real property, and retirement funds. After executing the estate plan, provide the client with a memorandum explaining how to keep the plan in place. The memorandum should include instructions on how to take title to assets, deal with financial institutions, use trust assets as collateral, update any schedules of assets, and file tax returns. It also should caution the client against revising the documents without following the original formalities. Finally, call to the client’s attention the fact that the estate plan was prepared based on current law and circumstances and that it is the client’s responsibility to contact the lawyer from time to time to evaluate whether changes in the law or the client’s circumstances require updating the estate planning documents.
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