I wrote a couple of days ago about how advisors can skew your perspective.

In the content of my post, I tried to make clear that I don’t believe any of our advisors have deliberately attempted to distort our views. But I do believe they have failed, in different ways, to call our attention to salient facts, issues we really should have addressed, actions we should have taken but didn’t. And those failures have only been revealed as a result of subsequent counselor/advisors calling our attention to the oversights in previous counselors’ advice.

Now that our nation is going through a massive economic dislocation, I am seeing that additional problems with various estate and legacy plans are being brought to light.

Just yesterday, Israel Lustig, CEO of Intergenerational Wealth Preservation, Inc., noted that, as a result of the Madoff scandal, a spotlight is being shone on “the lack of efficacy of some estate planning instruments, and inadequate risk disclosures, years before these issues would typically surface.”

As a result, he says, legal professionals are sharpening their swords in anticipation of suing investment and estate plan professionals who got their clients involved with Madoff.

The following list modifies some of the questions Lustig said he figures litigators will be asking estate plan advisors and/or gatekeepers who encouraged or “permitted” their clients to buy Madoff’s “services”:

• Did you disclose the risks of the estate planning structures [GRATs, CLATs, CRUTs, . . . whatever] you recommended?
• Did you plan for the contingency of a reduction in estate values?
• Did you encourage your clients to avail themselves of alternate instruments or hedging techniques which may have mitigated the extent of ultimate Madoff losses realized?
• What was the objective of the [estate planning vehicle your recommended--a GRAT, CLAT, CRUT, etc.]? For example: to discount the gift tax upon transfer; appreciate the asset out of the estate . . . ?
• Was the [the tool you recommended] the only such tool available? Was it the most suitable? Was it the best tool in 2008, when Estate Tax Repeal was unsettled?
• Did you factor in the possibility of decrease in asset value, when recommending [this tool]?
• And so forth.

The further I get into this business, the more I realize your best defense against problems is an armament of great questions. I think these questions, from Lustig, ought to go in our arsenals. We ought to be asking them of our advisors before our plans are agreed. And we should probably ask them in a slightly different manner. So here is my revised version of the questions above, plus a few additional questions:

• What are your objectives in urging this particular vehicle or instrument?
• What are the risks associated with this instrument?
• What happens if there is a reduction in estate values?
• What can we do to mitigate damage as a result of a reduction in estate values?
• What alternate instruments or vehicles could achieve the same or similar objectives?
• Talk to me about risks associated with these alternatives. . . .

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This entry was posted on Friday, February 20th, 2009 at 1:05 pm and is filed under advisors, counsel, estate planning, legacy planning, questions. 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.