Fourth Quarter Ideal Time To Update Estate Plan

LOS ANGELES, Aug. 5, 2013 /PRNewswire/ -- As people gear up for year-end tax reviews and to assess their financial matters, one important task is to review their existing estate plan, suggests Bruce Givner, veteran Los Angeles-based tax attorney.

Look closely at who will manage the family's estate plan when the parents become incapacitated or die. "It's a huge decision," Givner emphasizes.  "Most people name their children—one or all of them—as trustees or co-trustees.  However, doing so can, and often does, cause family disputes and other problems."

Givner points to a typical scenario: "Mom and Dad" naming one or all of their children to run the estate when the inevitable happens. "Such a decision may be the least efficient one," Givner states. Why? Siblings squabble over matters as diverse as funeral arrangements and furniture. And, if the squabble heads to court, the estate could take years to resolve, and there will likely be no more extended family holiday dinners.

Givner, who deals with varied tax issues, suggests that one wise alternative is to name the "family lawyer" as trustee.  "Let's say mom and dad have three children and name all three as co-trustees, or name one to take charge.  The children then have the authority to administer and divide the estate. Yet, in that process, there may be differences.  I have seen heirs bitterly battle over estate plans, running up millions of dollars in legal fees," Givner explains. "It rips the family apart, with a wound never to be healted." And what about the couple with one child?  If that child is not sophisticated enough, or in time needs protection from his or her own potential problems—perhaps the fallout from a bad marriage or the pursuit of unrelenting creditors—the estate could wind up a mess.

Parents may think they have the perfect independent third party to act as trustee. Perhaps an aunt, sibling, parent, business colleague, best friend, or neighbor. However, in the absence of one perfect person, they often must name two imperfect people to act as co-trustees.  Once again there is the opportunity for disputes.

Many parents believe that they do not need an independent trustee because the estate plan provides that assets are to be distributed outright, free of trust, to the children.  However, an "immediate distribution" does not occur immediately.  Even an estate not subject to estate tax may take a year to administer due to decisions about valuing assets and potentially selling some to effect a fair distribution among the children.  If the size of the estate requires an estate tax return (IRS Form 706) to be filed, the period can then stretch out to three years and nine months (if resolved at audit), up to seven years, nine months if the dispute with the government continues into tax court.

Sometimes the family lawyer is an excellent choice, Givner contends.  "Many families have a business lawyer who has advised the parents for decades.  Perhaps they have a real estate attorney who has counseled them about their investment real estate holdings.  It may even be the estate planning lawyer," says Givner, though in California there are legislative hurdles to overcome if that lawyer drafts this particular estate plan.  That is due to legislation passed in 1993 after a series of articles published in the Los Angeles Times described how probate lawyer James D. Gunderson improperly benefitted from the estates of many residents of Leisure World.

Though attorneys charge for acting as the fiduciary of an estate, that fee may be a bargain. Whether on an hourly basis, a percentage or based on an agreement with the beneficiaries, the costs can offer savings in money, time and disputes.  "Most often" Givner states, "compensation is based on what a corporate trustee would charge. For example, some charge one-percent for the first $5-million, with the percentage falling for the next $5-million, and the percentage negotiated for amounts above that.  That said, any fee is subject to a court's review."

Givner urges all individuals to choose the fourth quarter of every year to not only update their estate plans, but also reassess who will head it. "What may have seemed the appropriate choice for trustee three years ago may no longer apply," he says.

SOURCE Law Offices of Givener & Kaye