14 05-17 the most common flaws in estate planning

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The Most Common Flaws In
Estate Planning
And How To Spot Them
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com

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Givner & Kaye,
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
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The Most Common Flaws In Estate Planning And How To Spot Them

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Givner & Kaye,
Owen@GivnerKaye.com
Upcoming Sessions Of Our
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Givner & Kaye,
Owen@GivnerKaye.com 4

5
Failure
To Get Started
Givner & Kaye,
Everything You Always Wanted To Know About Family TrustsThe Most Common Flaws In Estate Planning And How To Spot Them

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,

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,

8
Failure To Maintain
Fresh Documents
Givner & Kaye,

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,

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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,

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,

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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,

13
Failures
In The Documents
Givner & Kaye,

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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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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,

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Failures
In
Asset Transfers
Givner & Kaye,

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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,

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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,

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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,

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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,

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,

40
Failure
To Consider
Family Issues
Givner & Kaye,

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,

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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,

43
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,

44
Failure
Through
Overplanning
Givner & Kaye,

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,

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,

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,

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,

49
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,

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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,

51
Failure
Through
Underplanning
Givner & Kaye,

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,

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,

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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,

55
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,

56
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,

57
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,

58
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,

59
Questions and Answers
Send us e-mail:
Bruce@GivnerKaye.com
Owen@GivnerKaye.com
Kathy@GivnerKaye.com
Neda@GivnerKaye.com
Givner & Kaye,

14 05-17 the most common flaws in estate planning

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14 05-17 the most common flaws in estate planning