Why Estate Plans Fail Without Ongoing Asset Alignment
Remember those 1990s infomercials for the Ronco slow-cooking rotisserie oven? “Set It and Forget It” became a popular catchphrase and a game-changing convenience for working families. But when “set it and forget it” is applied to estate planning, it’s easy to get burned.
How many of your clients finally get around to creating a will or trust, stick it in a drawer and assume they’re covered for life? How many estate plans are designed in a vacuum, intended to be used at an unknown time, with unknown assets, unknown laws and unknown circumstances?
The rule of thumb is for clients to review their estate documents every three to five years. There’s no rhyme or reason to that rule, except for attorneys needing a way to remind clients to come see them periodically. But what happens if a client’s life circumstances or assets change and there’s an untimely death before we reach the 5-year window? That’s why people tell me all the time: “My parents spent a lot of time and money to set this trust up, but nothing is funded. Did they waste their money?” My answer: “Kind of!”
If your client doesn’t fund their trust and keep the assets funded or aligned, then the trust can’t be used as intended. Major life events should trigger immediate reviews, including marriage or divorce, birth or adoption, death of family members or named fiduciaries, significant asset changes, health diagnoses or relocation to a new state. A child’s struggles with substance abuse might necessitate special provisions to protect their inheritance. These are serious issues. An estate plan is designed to transfer assets at your client’s passing, but all the traditional triggering events fail to acknowledge the assets. The assets are the meat and potatoes of the estate plan, and that’s where the mess often starts. The larger the mess, the more legal fees in the administration.
When clients don’t have an ongoing relationship with an estate-planning law firm, asset alignment falls through the cracks, and when the assets finally resurface, families often experience a crisis, which could have been prevented with better planning.
Don’t expect clients to be proactive about reviewing estate documents, by the way. Research shows four out of five Americans haven’t updated their estate documents in the last five years, leaving them vulnerable to major life changes, personal tragedies and changing tax laws.
As a financial advisor or estate planning attorney, you should set up a client care program to review their trust documents with your clients more often than every three to five years, especially after age 50, even if they haven’t had a major life event. It’s not just the documents that matter; it’s making sure the assets matter. If the goal is to take care of the family when mom and dad are gone, and you’re offering estate-planning services to clients directly or via a trusted referral relationship, make sure you’re working with a firm that provides an ongoing client care program, or at least has a consistent client follow-up process.
Benefits
Here are some of the benefits:
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Plans stay current with changing case laws.
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Trust funding follow-through. This ensures clients never forget to retitle assets into their trust.
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Peace of mind. Clients know that someone is always monitoring their plan and looking out for their family.
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Easier access to advice. Many client care programs include consultation time that allows clients to ask quick questions without feeling like the billing meter is always running.
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Better experience for heirs. Because documents, asset titling and beneficiary designations are kept current, the family administering the estate faces fewer surprises, delays or probate complications down the road.
Resistance to Offering Programs
So why aren’t more firms offering client care programs? Proper client care programs require a firm to invest in infrastructure (staffing, technology, scheduling and process creation). They also require attorneys to think beyond the hourly billing model. Then, there’s the challenge of solicitation. Ethics and solicitation rules structurally discourage attorneys from continuous, relationship-based follow-up. When clients hire an attorney, they typically sign a limited-engagement retainer that allows the attorney to draft only the will and trust. Once the documents are completed, the client becomes a “past client” under most state bar ethics rules. Attorneys generally aren’t permitted to reach out to past clients for ongoing work without triggering solicitation rules. Finally, if a plan isn’t kept current, probate fees typically paid to the firm often exceed the revenue earned through an ongoing client care program.
However, firms that overcome the above challenges serve their clients better and build stronger relationships that last for generations to come.
My mentor, Vinnie Bonnazelli, founded the Client Care Academy, specifically to address the issues above. In fact, he coined the term “asset alignment” because the goal isn’t just funding a client’s trust with title changes but also making sure all the assets are properly aligned to flow through the estate plan in the event of an untimely death.
Real World Example
I once worked with a widow whose bank account was properly titled into her trust. But after she died, we were surprised to see statements suddenly coming in her own name. No one changed the title, but the bank records listed her name personally and claimed my firm had to go through probate. However, we were able to produce the bank’s month-by-month statements showing the trust as the owner (not the widow) up until the date of her death. Then we were able to show the bank’s current statements coming in her own name.
I asked for bank records showing who authorized the change out of the trust. After an internal review, the bank sheepishly blamed a computer update that changed the title unilaterally. When the bank realized the internal error, the title was quickly returned to the trust, and we were able to avoid the probate process.
If we hadn’t handled the initial trust funding and hadn’t had an ongoing relationship with the widow’s family, we wouldn’t have noticed the bank’s error, and the family likely would have gone to probate.
Titling matters, whether it is community property, separate property, marital property or tenancy by the entirety. Each approach has pros, cons and outcomes. Each must be handled differently in the retitling process, so you can’t rely on a one-size-fits-all approach.
Once an asset is deemed community property, it remains so even if the client moves to another state, unless the spouses sign a transmutation or separate property agreement that erodes the community property designation. Some states only allow TBE with real property, while others, like Florida and Delaware, allow it for real, tangible and even intangible property. The TBE designation brings a level of asset protection that other forms of ownership don’t provide.
When we’re funding trusts, we often have clients open new bank or brokerage accounts and retitle them as TBE first. We ensure the assets are properly protected under TBE before retitling them into the trust. This approach, however, only works if the trust is drafted properly to handle TBE assets. Once again, it comes down to follow-up and follow-through. If the client’s goal is both asset protection and probate avoidance, we must ensure the accounts are properly set up along the way. That’s hard for attorneys to do when they don’t have an ongoing relationship with the client.If you’re a financial advisor reviewing a client’s estate documents, make sure everything’s properly titled or aligned to flow to the trust. If a client needs a limited liability company to protect assets inside the trust, make sure the LLC is properly aligned with the trust. That’s where the client care program comes in to protect the family legacy.
