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  • Writer's pictureJenny Rozelle, Host of Legal Tea

Cautionary Tales - Five Mistakes Other Professionals Make Relating to Estate Planning - Episode 145

Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, so you don’t turn into a cautionary tale on my Legal Tea podcast one day! Well today is more of the latter – I recently asked on Twitter, or X, some general topics to dive into on this podcast (I felt a little uninspired for topics – so thanks for all who chimed in!) … anyway, someone mentioned doing like a “Top Five Mistakes that Other Professionals Make Regarding Estate Planning” – and I was like, “Oh! That’s a good one!” I said at the end of my last episode that I think that person suggested doing financial advisors only … I usually script these episodes out, but today, I’m going au natural, so we’ll see where things go or how things go.

Alrighty, so in total, I’m going over the top 5 mistakes I see and hear other professionals make or say about my estate planning world – and I hope this episode really inspires all of us, including my own profession, to be more collaborative and more holistic with our planning – at the end of the day, that is just going to benefit the client the most. So, let’s dive in!

Mistake number one is assuming a client needs “something basic” or needs “just a Will.” You can imagine the look of surprise I get, or even perhaps the frustration that a client experiences, if they share something with me that perhaps involves something more than just a really basic Will. So, say, for example, I’m working with a young family that may want to control distribution say based on age so that a child come-18 doesn’t get their inheritance outright at 18 years old (I know what I would have done with money at 18…).


Or, say I’m working with someone that has a special-needs beneficiary or even someone that has a beneficiary that may be experiencing some personal things going on, personal problems, personal issues … such as drug or alcohol addictions, gambling addictions, spendthrift issues, on governmental benefits like Medicaid, etc. Sometimes, even clients that appear to have very basic needs disclose something to someone like me … that may be able to protect that beneficiary through, say, types of planning that is … more than just a basic ol’ Will. Rather, they may benefit from Trust planning to allow control of how that beneficiary inherits.


What I would encourage professionals to do is merely emphasize the importance of estate planning, generally speaking, and not really say “I think you need a Will” or “this client just needs something really basic.” Do you really know that? Or are you just making assumptions? I consider myself a lifelong learner. So if you ever have a client that you thought going into that estate planning conversation would warrant a very basic plan and the client comes back and says they’re doing something more than just a basic plan, what I would encourage you to do is pick up the phone or shoot an email to the attorney to better understand why they may be recommending something. You could have a blind spot or it may be an opportunity for you to better understand my world and what options exist and what best options exist for YOUR clients.


Mistake number two is setting expectations with clients of what they need or the approximate cost. So yes, this is very similar to the first one, right? Here’s an example .. this may be similar to, you know, from my seat if I someone asks me my opinion on a reverse mortgage or an annuity product. Both of these are a bit controversial, I’d argue, in the financial space. Though, I’m certain there are examples where a reverse mortgage or annuity is a perfect product for someone. Those are both far outside my legal lane, right? So it’s very similar in that regard that I am not going to recommend (or even not recommend) any type of financial product to a client, because that’s not my world. That’s not my lane.


Same exact thing with legal fees and general costs. I think at the end of the day most professionals would be most comfortable with them controlling the conversation as it relates to fees and the cost of things, right? I think that’s fair to say. I would say we could probably all agree that part of our job is explaining the various options “on the table” but also the value of all the options. A lot of the time in these conversations, it’s really explaining pros and cons and consequences and benefits of each option … and of course, many clients, if they just see the dollar figure, they just see the fee, they may not just yet understand what is all embedded in that fee. Like, why Option C, which is the most expensive, may be the best one for them. Or, Option A, which is the least expensive, would be perhaps fine and dandy.


Mistake number three is assuming that specifically irrevocable trusts are the same irrevocable trusts that existed 20+ years ago. So, this is a little bit of a personal frustration of mine. My office does a lot of trust planning specifically with irrevocable trust to gain asset protection against long-term care, or asset protection against, say, lawsuits and creditors. Sometimes, when I talk to a client about an irrevocable trust for asset, protection purposes, they will share what they’re considering with their advisor or their tax professional, and often those other professionals think of irrevocable trust from 20+ years ago. They’ll say, “Oh you don’t want to do that!” and it’ll talk the client out of the plan that they were gung-ho to do (and perhaps the best option for them!). And, clients may get squirmy, back out, and then get his with some major consequences down the road … all because the other professional did not fully understand the irrevocable trust. Often, it’s that they think that irrevocable trusts today are the same types that got setup 20+ years ago. And they’re not.


For example, a lot of professionals think that all irrevocable trusts have their own separate tax ID number, which often yields a different or higher tax bracket. Well, did you know that there are irrevocable trusts nowadays that can be set up to be considered grantor trust, which are filed under a clients Social Security number? That means they do NOT yield the different/higher tax bracket. That is just one example of how drastically irrevocable trusts have evolved over time and so what I would encourage you to do, if you hear the term of art, irrevocable trust, certainly ask questions about how it works and I would actually ask the questions to the attorney not to the client because you may confuse the client. Also, do know that there are still irrevocable trusts that are getting set up today that are similar to the ones that were set up 20 years ago. So it’s just a matter of not making assumptions, and at the same time asking questions if you do you have concerns or you’re confused about the type of irrevocable trust is getting set up.


Mistake number four is getting stuck on taxes over everything else. So what I mean by this is I understand that a lot of financial and tax professionals that consider one of the most important parts of their job is to navigate a client’s financial or tax plan in the most tax-friendly manner. That is, setting up a plan that will minimize taxes for the client. For my seat, sometimes a client wants to do a certain type of plan that sort of reminds me of the saying “you can’t have your cake and eat it too.”


An example of this is I am working with someone that you know may have a beneficiary that is a massive spendthrift. They can’t save a dollar to save their life. Oftentimes in those cases we are setting up trusts for those individuals to inherit. That way, we can put someone else in charge of their inheritance and kind of set up a plan on how their inheritance gets distribued out. Simultaneously, a lot of folks have retirement plans, and more specifically pretax retirement plans. Sometimes we have to balance taxes against customized distribution wishes – whether we want the balance of those pretax retirement accounts going into a trust for a beneficiary like this is where we may want to control from the grave and spell out and instructions on how this person inherits, but in doing, so, it may not be the most tax-advantageous method. So, I think on this mistake, it’s really just, you know, making sure that you’re being collaborative and understanding from a 50,000 overview what the client is trying to accomplish and doing so in a way that makes sense from everyone’s seat –  from the client seat, the attorney’s seat, from the financial seat, the tax seat, etc. That’s what I mean by it is not all about taxes.


Lastly, mistake number five beneficiary designations are not the answer to everything my friends. I know, I know – beneficiary designations help clients avoid probate. But, why I consider this a mistake is .. a perfect example of this is if we place beneficiary designations on every single asset, then the person passes away, and now those assets are getting distributed to the designated beneficiaries. As many know, the assets don’t go into one big ol’ pot, at least through beneficiary designations, to be used to pay debts, expenses, etc. then distribute to beneficiaries. Rather, assets get distributed directly to beneficiaries. Think about that .. then think about how there are bills coming in, debts to be paid, taxes to be filed (who is paying the tax professional? What if taxes are owed?), etc. etc.


You can imagine a situation, where perhaps beneficiaries receive their share of an asset and since it doesn’t go into one pot to be distributed after debts and expenses, you can imagine a beneficiary who isn’t technically obligated to also share in paying off the debts and the expenses, then because they’re being that way, others have to chip in more. So, in a strange, strange way, using just beneficiary designations forces beneficiaries to agree, to share, to kumbaya – and I don’t know about you, but when money is on the table, I see things get weird sometimes. So, back to the whole 50,000 overview what the client is trying to accomplish and doing so in a way that makes sense from everyone’s seat – including the beneficiaries’ seats. This is just yet another example of making sure that we are not getting so laser focused on one particular thing (here, it’s avoiding probate) and forgetting there may be other things to consider.


That’s all! This episode went quick. Wow! Alrighty … let’s wrap up this episode. Let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that is relevant to this podcast. Well, on next week’s episode, I’m going to share a few things that I have shifted in my own law firm to make sure my team members are happy – because I firmly believe that happy employees lead to happier clients. Something kind of different, for sure. So, tune in for that next time! Until then, be well and talk soon!



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