Posts in category: Legal Technical

A quandary most estate planning attorneys encounter is whether to use individual or joint trusts when planning for a married couple.  Some argue a joint trust is simpler to administer than doing separate trusts and less paperwork.  Other attorneys contend separate trusts are simpler to track and fund assets.  The answer, I believe, lies within two core issues; the personal planning intentions of the client and whether estate planning asset protection or tax planning is the legal strategy to be utilized.

When estate planning for a couple, the primary distinction to determine whether drafting a joint trust or separate trusts is determined by the personal planning goals of the client.  Most notably, do the husband and wife intend to follow the same plan?  That is, do they intend to have the same beneficiaries, the same distribution patterns, the same trustees, and the same trust protectors?  If yes, then a joint trust holding all of the assets of the husband and wife is probably the simpler approach.  Some may challenge using joint trust when one spouse has assets that are separate property, like an inheritance from a parent.  While this adds an additional element to consider, it is not related to the overall planning strategy, but merely a funding issue.  A joint trust can easily account for separate assets by ensuring there are separate schedules on the joint trust that detail the husband's assets, the wife's assets and the joint assets.  Further, utilizing the individual spouses social security number on all accounts outlined on their separate schedule and on half of the joint schedule accounts, assures their separate assets are properly maintained in a joint trust.

The opposite situation, when clients have different plans also impacts whether an individual or a joint trust is used. This is common in a second marriage.  Typically, clients in second marriages have joint assets, but separate beneficiaries’ distribution patterns, and trustees.  A properly drawn plan will allow for the deceased spouse to provide for their surviving spouse without having to disinherit their separate children or other family members.  While this can become more complicated to administer through a joint trust, it can easily be accomplished if the trust is clear on the separation and management of the assets after death of a spouse.  For example, the LWP™ drafting system allows the attorney to clearly set out the separation of assets and distribution goals specific to each planning strategy.   For most drafting systems that don’t accommodate this level of customization, separate trusts are easier to accomplish the separate goals of the clients when distribution patterns are significantly different. 

The final consideration when deciding on separate trusts or joint trust is whether the client desires asset protection or estate tax planning.  In this distinction, the use of the formula funding clauses becomes important when utilizing joint trusts.  Separate trusts are easily distinguished as they are funded independently of the spouse assets, whereas in a joint trust, if all assets are funded on a joint schedule, you may lose some of the tax benefit by not being able to maximize your federal estate tax exemption.  For example, if one half of the total joint assets in the trust (represents the deceased spouse’s portion) does not exceed the federal exemptions and the spouse does not have other assets (i.e. IRAs) outside the trust, full utilization of the individual credit shelter amount may not be achieved.  Conversely,  if one utilizes a formula that maximizes the exemption at the first death, it may not meet the estate planning needs of the separate planning of the spouse.  The formula clause must account for joint assets and all outside assets of the deceased grantor to maximize the estate exemption on the death of the first spouse, and the planning must consider the separate assets of each spouse and their individual planning goals.  The same is true for the clients who do not have estate tax concerns, but rather, the threat of long term care costs to the surviving spouse.  In this case, the formula finding must be formulated to provide the greatest asset protection from cost of care, not taxes.

So to summarize, whether an attorney does a joint trust or separate trust, there is no legal differential on the outcome if the attorney is diligent, and the document properly instructs the trustee to get the maximum benefit for the client to meet their planning and protection goals. Clients in one long term marriage are generally able to be served efficiently and effectively using a joint trust while clients who are on second marriages or have different distribution ideas may better served separately if the attorneys software is not thorough enough to manage it.  Tax planning and asset protection goals can also be met using joint trusts if the attorney is diligent in allocating the separate assets to the separate schedules (and Social Security numbers where appropriate) of the grantors.  So the good news is there's no wrong answer but it's important you distinguish what the client’s goals are and your software flexibility to adhere them.

If you want to sharpen the saw on your estate and elder law legal technical join us for our Estate Planning Practice Enhancement Week in St. Louis, June 1st – 5th.  Below is just some of what you'll get (and this is just Monday and Tuesday)!  You can look at the full agenda and register here.

Asset Protection

Medicaid

VA Benefits

Recently we had a member complain that our system "didn't work the way he wanted it to”.  We later discovered he was on the ListServ of another major estate planning organization and referred to one of our planning templates for designing and drafting our trusts. 

Immediately, many people on the ListServ requested a copy of the template, which he kindly obliged.  Aside from violating his licensing agreement and being guilty of conversion, he did not even understand and appreciate the value of what he was providing, while those requesting it, did. 

So let's examine why templates are so powerful.  Typically, templates are used as a guide for us to create legal documents.  The challenge is, most documents are lawyer centered and the template is merely a reflection of the document “options” to ensure you know what options to include.  I believe a template should be used to guide the attorney to counsel the client on all options available to achieve the client goals, not just the specific provisions allowed or limited in a particular document creation program.  That's where properly drawn templates are extremely powerful.

A properly drawn template must match and tie to the software that actually generates the document and must allow the attorney to utilize any design choice the attorney deems appropriate to achieve the client’s goal.  Lawyers with Purpose document templates, have unlimited customization ability that integrates 100% with the software to accommodate it.  So rather than being restricted to the options in a typical document instead, a properly created template that's integrated with the software will permit true customization at every element of design in the document being created.  A proper template will not only allow you to custom design each and every document to the needs to the client, but more importantly, integrates the custom design into all of the different legal documents together with a single entry. 

Our templates integrate all legal issues for the client to consider and when used with the software generates all documents to complete the clients plan with the customizations.  This is consistent with the way clients think and more importantly, takes each of the custom drafting options of the client and properly integrates them across all different planning documents with one single entry and one single template.  This creates not only better plans, but a more efficient way of designing and drafting them to accomplish the clients overall goals. 

Perhaps the greatest benefit of a powerful template is when you make choices on it and when it's implemented into the software, it warns you of inconsistent choices that you have made that threatens the overall plan you've selected for the client.  This is where the power of artificial intelligence in the LWP client-centered document creation system is so critical.  By using the template it guides the attorney to all of the various counseling issues available to a client in each area of their life.  Thereafter choosing the options that are most helpful for the client the template is then shared with a paralegal or drafter in your office who will then translate it into the software to create the will, healthcare proxies, powers of attorney, personal care plan, revocable trust, and irrevocable trust, all from a single entry.  What's more powerful, are the custom choices the client makes are integrated into each of those documents, with a single client interview and single entry into the software.  As further protection, if the attorney chooses to elect different variable in the planning strategy that are inconsistent with the overall goal of the client the software maintains and keeps track of all choices to alert the attorney if he has created a scenario that might put the client's overall objectives and goals at risk. 

So how important and effective can templates be?  Can you imagine the power of templates when they're properly designed and integrate with the document creation system?  Discover the power of templates to you and your clients and how to utilize them to integrate the planning strategy to achieve client’s goals. 

To learn more about our templates and our systems and processes to support your estate and elder law practice, join our Practice Enhancement Event in St. Louis in June.  You can check out the full agenda here and see all that it has to offer your estate planning and elder law practice and your team.  You do not want to miss this event!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center