By Rod Hatley, J.D., LL.M.
When I meet with prospective clients, I invariably tell them that my path to becoming a tax and estate planning attorney began with a 7-year probate.
My father, who had been a successful business owner, had been ill with leukemia for a few years. At the time, I was on active duty in the U.S. Navy Judge Advocate General’s (JAG) Corps. As a criminal defense attorney representing the accused at courts-martial, I knew enough about estate planning to be dangerous, but I at least knew that my father needed to undertake to do more planning since all he had was a simple will. As my sister and I later painfully learned, wills guarantee probate.
When my father passed, I took two weeks emergency leave and went back to my hometown of Memphis, TN. During week number one, my sister and I arranged for his funeral and got him buried. During week number two, we met with our father’s business attorney, who opened up a probate of the will. What we didn’t know, and hadn’t the slightest inkling about, was that the probate would last over 7 years.
In the midst of the probate, I knew that there had to be a better, smarter way to structure an estate so that a family wouldn’t have to endure a public, expensive, and multi-year probate. After I came off of active duty, I pursued a master’s (LL.M.) degree in tax law from the University of San Diego and shifted into tax and estate planning. While I had enjoyed trial work in the JAG Corps, as a criminal defense counsel I was always operating in a reactive mode, attempting to limit the amount of punishment that a servicemember would receive. While I became adept at criminal defense, I was invariably starting off behind the eight ball. With tax and estate planning, I am almost always able to be proactive, which I like eminently better.
As I meet and counsel with clients, I draw upon my experience with my father’s probate to educate them about the pitfalls of either no planning (also known as dying intestate, or without a will) or poor planning (just a will and nothing else). My goal is to educate them to take action now to avoid compounding the pain of loss later. Along those lines, I thought it would be valuable for the readers to share my insights about what constitutes a good estate plan and how it can make a difference for the family that’s left behind. Also, we’ll take a look at actual case studies that illustrate examples of a great planning result, a good planning result, one that’s not so much, and the lessons derived from each of them.
Disclaimer: If I have any bias, then it’s toward a trust-based estate plan. As I now live and practice law in San Diego, CA, my comments are geared to California residents. If you live in another state, then I encourage you, after reading this article, to consult with an estate planning attorney in your city for guidance as to the best estate plan for your particular circumstances. If I’ve learned nothing else over the course of my legal career, then it’s that one size does not fit all when it comes to estate plans. Your estate plan needs to be tailored to fit you and your family.
Before I dive into what makes a good estate plan, it will be helpful for the reader to understand what estate planning is. I will define it below. I can’t take credit for this definition; it was created by a national estate planning group to which I belong. Nonetheless, I think it is a good synopsis of what estate planning is and why my clients undertake to do it.
Definition of Estate Planning
- I want to control my property while I’m alive and well;
- I want to provide for myself and my loved ones if I become mentally disabled;
- when I die, I want to leave what I have to whom I want, it gets to them when I want and, more important, the way that I want; and
- I want to be able to do all of these things with fully disclosed and controlled settlement costs.
I don’t think estate planning as a concept can be better defined or explained. Let’s take a look at what a good estate plan for a typical client would include.
Revocable Living Trust (RLT)
An RLT is referred to as the foundational estate plan. During clients’ lifetimes, they are the Trustmakers (i.e., the ones who made the Trust), the Trustees, and the Beneficiaries. The clients have the power to amend or revoke the RLT at any time.
One of the most significant reasons for creating an RLT is to have it own the client’s property (real, tangible, and intangible). The RLT then directs how that property will be managed during the client’s lifetime. The client has nominated successor Trustees to manage the assets owned by the trust, should the client no longer wish, or be able, to serve as Trustee. Essentially, the client’s assets will never be subject to a conservatorship (essentially, a guardianship for a grown person) or probate as long as they are owned by or made payable to the RLT.
I can also add provisions for loved ones so that when the Trustmakers have passed on, the assets will be protected from creditors and predators (i.e., lawsuits and divorcing spouses).
A Pour-Over Will acts as a safety net for a client’s personal belongings and assets. After death, the Pour-Over Will directs any property or assets owned in the client’s individual name to the RLT.
General Durable Power of Attorney
A General Durable Power of Attorney (GDPOA) is provided in case a client becomes incapacitated and needs an agent to act on his or her behalf regarding financial matters. A GDPOA agent will only deal with property and assets that are not owned by the RLT.
Advance Health Care Directive
An Advance Health Care Directive (AHCD) is a California-specific document through which clients have nominated agents to make minor medical decisions during their incapacity. Additionally, clients may elect to donate their organs and not to have their lives prolonged by artificial means through this document.
I recommend that clients have copies of this document on file with their personal physicians and any medical institutions that they visit on a regular basis. That way it will be available if and when needed. In my practice, every client receives a complimentary three-year membership in a service called DocuBank, so even if the client doesn’t provide the AHCD to his or her doctor or hospital, the document can be faxed to the doctor or hospital via DocuBank.
Federal law requires that a medical provider have authorization from a patient before releasing any of his or her medical information to another person. A HIPAA release authorizes a client’s medical providers to release medical information to the agents nominated in their AHCDs, GDPOAs, and their successor Trustees.
I recommend that clients also have copies of this document on file with their personal physicians and any medical institutions that they visit on a regular basis, as well. As with the AHCD, even if the client doesn’t provide the HIPAA to his or her doctor or hospital, the document can be faxed to the doctor or hospital via DocuBank.
Personal Property Memorandum
I provide all clients with a Personal Property Memorandum. If they have items that they would like distributed to certain individuals upon their deaths, then they simply provide a brief description of the tangible personal property and state to whom that property is to be distributed.
Revocable Living Trust Funding Instructions
Within my clients’ Estate Planning Portfolio they will find Funding Instructions that they signed along with their RLT and ancillary documents. This document provides directions as to how they should fund their RLT with their various assets. Should they have any questions about how to take title to an asset or how beneficiaries are to be listed, I encourage them to call me. Because I charge a fixed fee for my services, clients will never get a bill from me for a phone call, fax, email, or text message.
As clients transfer their assets into their RLT, I ask that they please provide me with written confirmation. I will review these confirmations to ensure that everything has been done correctly. Remember: Assets will avoid going through probate only if they are either owned by or made payable to the RLT.
Revocable Living Trust Maintenance
An RLT requires little maintenance. However, if clients should ever want to change their successor Trustees, for example, then a trust amendment will be required. I also recommend that clients review their assets annually to be certain that everything is titled properly and their beneficiary designations are current.
A percentage of my clients’ estate planning legal fees may be deductible for the tax year in which they were incurred. I recommend that clients consult with their tax professionals to determine the proper amount to deduct.
Working with a Professional
At one time, if a client wanted to get a will or trust, then the client would normally have to work with an attorney. Later, they would work with legal document assistants, who are non-lawyers authorized to prepare legal documents for people representing themselves if legal matters materialized.
With the arrival of the Internet of Things, it became even easier for clients to get legal documents from various document preparation services. While these services offered convenience, seeming simplicity, and savings, the reality is that clients don’t know what they don’t know about the law, meaning that they don’t know how to fill out the will or trust kit or execute it with the necessary formalities (witnesses for the will, a notary public for the trust). As such, these online services disclaim liability if a client purchases a will kit or trust kit and fails to fill it out correctly or execute it properly, or both.
When prospective clients ask me why they can’t just do the planning on their own, I respond that they certainly can. I tell them that I hope that they know what they’re doing because doing it badly can result in unnecessary attorney’s fees later as well as compounding the loss for the family by being tied up in an avoidable conservatorship or probate. If you wouldn’t perform home surgery on yourself, then why would you attempt to do your own estate planning? Like doctors, attorneys go through rigorous professional training in school and must pass a qualifying examination to be admitted to practice. In my experience, clients are poorly served to use online services in place of consulting with a qualified attorney to advise them on their estate planning. In this regard, I’ve reviewed plans generated by these online services. At best, the clients get a bare-bones will or trust with no protections for the family from creditors or predators; at worst, the clients get a worthless document that won’t protect them from conservatorship or probate.
How do you select a good estate planning attorney? A good starting point is your County Bar Association’s Lawyer Referral Service. Also, there are national groups of estate planning attorneys (e.g., American Academy of Estate Planning Attorneys; National Network of Estate Planning Attorneys; and WealthCounsel, LLC) that usually have attorneys in your local area whom you can contact for a complimentary consultation. I would avoid attorneys who handle a variety of different practice areas, like bankruptcy, criminal defense, personal injury, etc. Rather, work with an attorney who devotes the majority of his or her practice to estate planning. That way, you can be assured that the attorney is up to speed on estate planning strategies and nuances and relevant changes in the law. Otherwise, you’re taking a chance that the estate plan you get will not do the job for which it was designed. In my humble opinion, your family is worth every penny of the investment that you will make in an estate plan prepared by an attorney who focuses on estate planning.
1: Great planning doesn’t happen by accident; it’s a deliberate decision.
2: The earlier you plan, the better it is for everyone.
3: Keep your estate planning attorney apprised of major life events!
It is my hope that, by sharing my story and my passion for advising clients on how to plan their estates so that, regardless of disability or death, my clients are able to avoid conservatorship and probate and their families are the happy beneficiaries of the planning that we did together. I hope you’ll be inspired to contact an estate planning attorney or review your existing plan to make sure it is current. I know it will be the wisest investment you can make for your and your family’s future.
For more articles on legacy planning, click here to subscribe to Legacy Arts Magazine.
Rod Hatley is the founder of Hatley Law Group APC. He began his journey to becoming an estate planning attorney with a devastating, drawn out seven-year probate. Rod began his legal career working in personal injury litigation and then for the U.S. Navy Judge Advocate General’s (JAG) Corps, first as a Criminal Defense Counsel and Legal Assistance Attorney and then as a Staff Judge Advocate and Special Assistant U.S. Attorney. During this time, he received the Navy and Marine Corp Commendation Medal two times. In 1995, based on his experience with his father’s seven-year probate, Rod decided he wanted to learn more about tax law and to find out the best way to ensure that family wealth wouldn’t be devastated by confiscatory estate taxes and the costs and delays of probate. Rod pursued a Master of Laws from the University of San Diego School of Law’s acclaimed graduate tax program and shifted into estate planning, trust, and probate law. He is licensed to practice in California and his home state of Tennessee. Rod is an award-winning attorney. He was featured in the January 2019 San Diego Magazine as a San Diego Top Wealth Manager / Five Star Investment Professional Award Winner. And he was recognized as one of San Diego’s Best Attorneys, Estate Planning in the 2018 SD METRO Magazine. As well as a finalist, BNY Mellon Advisor of the Year, Best Estate Planning for Pre-Merger & Acquisition in 2015. When he isn’t busy with his practice, Rod enjoys scuba diving (he is open water certified), snorkeling, and surfing in San Diego. He is a fan of Mid-Century Modern architecture and volunteers his time to the American Cancer Society Community Leadership Council and the Nice Guys San Diego charity. Email Rod at firstname.lastname@example.org or visit online at https://www.hatleylawgroup.com.