Good estate planning is often NOT good tax planning!

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Too often the estate planning process short-circuits because the testators have never asked themselves, “WHY do I own what I do?” and, “WHAT should I do with it?” Having never understood their motives but only the mechanisms, they never put their estate plan into effect.

They pay the attorney for perfectly good documents, but because they are afraid (rightly) that the documents don’t actually reflect their desires, they never sign them or never fund the structures the documents are meant to create.

And so we return to the truism we hear over and over again: don’t build a house before you have a solid plan. And in this case: don’t try to create an estate “plan” without first defining and understanding your objectives (your objectives, not the attorney’s!).

I was listening the other today to David Wills, president of The National Christian Foundation. He was talking about “Planning and Your Progeny: An Heir-Raising Experience,” a presentation he has made many times, but, in this particular case, recorded in May 2005 at a conference sponsored by the West Michigan Christian Foundation.

Fairly early in his presentation, David made a comment that, he said, often raises the hackles of estate planning professionals: “Good estate planning is often not good tax planning.”

Of course he is trying to be somewhat provocative. But his comment is very purposeful and correct.

Too often, our focus is far too much upon minimizing taxes and far too little upon bigger goals. Indeed, it seems that most estate planning attorneys’ primary focus is all about minimizing taxes and maximizing flow-through to future generations. It also focuses on minimizing the risk of loss through litigation. But it rarely looks, first, at the individual and unique interests, needs, and desires of the testator and heirs.

Estate Planning Decision PyramidWhat happens, Wills said, is that we invest all our energy at the apex of the decision pyramid while ignoring the base and the midsection:

As a result, he said, too often we never ask the important questions about why we want to do what we eventually agree to do and about the specific objectives we want to accomplish. Instead, we blindly follow our attorneys into achieving the objectives they have assumptively created for us.

And so we have stories . . . of donors like our family, and so many others, who, with our attorneys’ help, produce estate plans that create maximum flow-through to future generations. And everything looks wonderful . . . until someone comes along and asks, “And how much did you want to give to charity?” And we realize that we made no allowance for charity in our state plans.

And then, worse: when someone actually does the math, we discover our plan, as written, will potentially leave millions of dollars in our children’s and/or grandchildren’s hands, far more money than we ever intended. And so we have to unwind structures and decisions that are officially irrevocable. . . .

Bottom-line: Start with “Why.” Continue with “What.” Only then continue on to a discussion of “How” you intend to achieve your objectives.

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This entry was posted on Wednesday, November 12th, 2008 at 11:57 am and is filed under estate planning, kids, legacy planning, taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.