At the 2009 Heckerling Institute on Estate Planning's opening session discussing recent developments, Dennis I. Belcher of Virgina's McGuireWoods LLP asked an audience of almost 2,000 if they were affected, or personally knew anyone affected by the Bernard Madoff Ponzi scheme.
About 15 percent to 30 percent of the audience raised their hands.
The biggest news at this year's annual Heckerling conference for estate planners was financial, not legal. Along with the rest of the country, wealth management professionals, even those serving the fabulously wealthy, are impacted by America's credit crunch — and the scams it has helped uncover.
There also simply weren't many legal developments in 2008. No blockbuster cases. And not a lot of new laws or regulations in estate planning from the outgoing Bush administration. Instead, some key speakers at the conference held in Orlando, Fla., from Jan. 12, 2009 to Jan. 16, 2009, focused on helping advisors improve client relations and get back to the basics of estate planning.
"This year was like a Chinese brush painting – where what you don't see may be more important than what you do see." observed Deborah L. Jacobs, freelance journalist and Heckerling veteran who was at the conference talking up her forthcoming self-published book for both wealth advisors and their clients: Estate Planning Smarts.
While America waits to see exactly what type of legislation new President Barack Obama and his Democratically controlled Congress will adopt, there are only a few things wealth advisors know for certain:
- There are fewer WWII generation clients and an increasing number of Baby Boomers. (The cultural differences between these client groups are significant.)
- Also, if, as expected, the estate tax exemption amount stays high, fewer Americans are going to need sophisticated estate planning.
Know Your Clients
Several Heckerling presentations focused on the fact that client demographics are changing.
Professor Jeffrey N. Pennell of Emory Law School in Atlanta devoted a session to "Estate Planning for the Next Generation of Clients."
"Baby Boomers' attitudes differ from their World War II generation parents – about marriage, divorce, remarriage, family, education, work, retirement and inheritance," Pennell noted. For example, bequests by WWII generation men are more likely to identify a man to act as trustee and give the widow little or no say. By contrast, Baby Boomers' wives are more often appointed fiduciaries. The WWII generation also tends to view finance as an unemotional issue. Boomers tend to be far more psychologically oriented, more in touch with their feelings and open.
Indeed, Jacobs said she thinks advisors should specifically ask WWII generation clients whether they have a special needs child, as they are unlikely to bring up the topic themselves. She's heard estate planners complain that they found out that WWII generation clients had a special needs child only after the client had died; the plans written for these clients never accounted for the "invisible" offspring. In contrast, Jacobs said, a special needs child is among the first things Baby Boomer clients will mention as they walk in the door.
But even when clients don't have special needs children, advisors should tell them to plan — and plan immediately — for each of their children as if the child did have special needs, said Sebastian V. Grassi, Jr., of Troy, Mich.'s Grassi & Toering, in his session, "Special Needs Require Special Attention: Estate Planning For a Family With a Special Needs Child,"
You simply never know what life will bring. Grassi learned this lesson the hard way: An accident left his daughter a quadriplegic.
Grassi said five documents are needed:
- last will and testament;
- general durable power of attorney;
- durable medical power of attorney;
- revocable living trust; and
- third-party created and funded special needs trust.
Along with acknowledging the existence of special needs children and the potential for them, Boomers are, of course, more likely to be open about being gay. A highlight of the Heckerling week was Joshua S. Rubenstein's talk, "Estate Planning for Unmarried Couples: Detriment or Opportunity?"
Rubenstein, the New York-based co-managing partner of Katten Muchin Rosen LLP, noted that, for gay couples, the implications of estate planning without the protection of marriage are severe. In light of the federal Defense of Marriage Act, gay couples are afforded absolutely nothing under federal laws, even if their marriage is recognized by their state. Careful planning is essential for these couples, because the default laws will leave them with nothing: no community property, no enforcement of oral agreements and so on.
Rubenstein did a "compare and contrast" of the 10 most common estate-planning devices and whether they would help or hurt, depending on whether a couple was married or unmarried.
Back to Basics
Underlying much of the talk at Heckerling is the fact that, with the federal exemption likely to remain so high, fewer clients will need the sort of sophisticated estate-planning techniques that have been the mainstay of past Heckerlings.
Dennis Belcher noted that "In 2007, 38,000 estate tax returns were filed. The IRS is projecting that 15,000 less returns will be filed with the estate tax exemption amount at $3.5 million." And at the current estate tax exemption amount of $3.5 million, a couple will be able to take advantage of a $7 million estate tax exemption.
That, says Jacobs, "coupled with the fact that the estates of many people were depleted by 30 to 40 percent as a result of the stock market crash" will lead people to turn to what she called "low-tech" estate-planning techniques.
One such technique got attention during Marcia Chadwick Holt's session, "Do You Want Tax Free Distributions? Try Roth IRAs and Roth Accounts."
Holt presented a step-by-step guide on how to convert a traditional IRA to a Roth IRA, while emphasizing her practice pointer: "A Roth IRA is an excellent vehicle for passing on wealth to the next generation free of income tax. If the surviving spouse's goal is to leave the largest amount to their children after income tax, the Roth IRA beats the traditional IRA."
Better still is a Roth contribution to a designated Roth account in a 401(k) plan, said Holt, who is based in Denver, of counsel to Davis Graham & Stubbs and a member of Trusts & Estates' advisory committee on retirement benefits.
Another estate planning basic technique that received attention (during the recent developments session) is the notion that if you are a trustee, you should be very careful about the assets you are entrusted with and understand the consequences of keeping those assets at certain institutions.
Of course, this is estate planning 101. But Gail E. Cohen, the New York-based head of Global Wealth Management for Fiduciary Trust International, said she's not surprised that something so basic was mentioned during a panel devoted to current developments. "This reflects the impact of the terrible year in the markets and the Madoff scheme," said Cohen, a member of Trusts & Estates' advisory committee on fiduciary professions. Clearly it's time to check three, maybe four or five times that every "i" is dotted and "t" crossed.
Marketing Matters
Despite people's dwindling bank accounts and the higher federal exemption, people with any means still are going to need estate plans, because of such issues as incapacity, taxes and asset protection.
Trouble is, they may not know it. That means estate planners need to school, or re-school themselves in marketing. And that's often a difficult task for lawyers taught to sniff at mass-market outreach.
Little wonder then that, among the nearly 150 exhibitors at the Heckerling conference, Jay Foonberg, law firm marketing guru and author of How to Get and Keep Good Clients, was hawking his wares. To journalist Deborah Jacobs at least, Foonberg's message was clear. He's telling estate-planning lawyers everywhere: You guys need me, whether you realize it or not.