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Hermeneutics presentation nj estate planning council
 

Hermeneutics presentation nj estate planning council

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Designing estate planning techniques; the human side of estate planning

Designing estate planning techniques; the human side of estate planning

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    Hermeneutics presentation nj estate planning council Hermeneutics presentation nj estate planning council Presentation Transcript

    • A Method in the Madness: The Fine Art of Designing Estate Planning Tools and Techniques and the Psychological Aspects of Estate Planning L. Paul Hood, Jr. Greater New Jersey Estate Planning Council April 11, 2012 (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 1
    • The Fine Art of Designing Estate Planning Tools and Techniques • • • • • My background: B.S. Bus. Adm. (Acct.)-LSU J.D.-LSU LL.M. in taxation-Georgetown Over 25 years in estate planning, about 20 of which were spent as a lawyer Now a consultant, author and speaker on estate planning issues (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 2
    • The Fine Art of Designing Estate Planning Tools and Techniques • I am a firm believer in Kaizen, which is a Japanese principle of continuous improvement • “After you've done a thing the same way for two years, look it over carefully. After five years, look at it with suspicion. And after ten years, throw it away and start all over.” Alfred Edward Perlman, New York Times, July 3, 1958 (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 3
    • The Fine Art of Designing Estate Planning Tools and Techniques • What follows is my attempt to reverse engineer the estate planning technique selection and design process by doing a brain dump of the process that I went through to evaluate and design estate planning tools and techniques • There is virtually nothing written about this process, leaving it to the “feel” for the subject that each estate planner must develop on his or her own • We can do better than that-much better (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 4
    • The Fine Art of Designing Estate Planning Tools and Techniques In Estate Planning for the Blended Family (Bouchard and Hood; Self-Counsel Press 2012), we identify and discuss 11 separate fears that clients can have about estate planning. Those fears are: • Fear of mortality • Fear of not doing the right thing in the planning • Fear of the unknown (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 5
    • The Fine Art of Designing Estate Planning Tools and Techniques 11 Fears of estate planning (cont.) • • • • • Fear of hurting someone’s feelings Fear of estate planners Fear of the estate planning process Fear/insecurity of running out of money Fear of law changes forcing changes to the estate plan • Fear of facing reality • Fear of loss of flexibility • Fear of loss of privacy (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 6
    • Why is a Good Estate Planning Result so Hard to Achieve? Prior Inheritance Experience Relations With Children/ InLaws/Descendants Attitude toward Wealth Attitude toward Death Mental & Physical Health Other Life Experiences Inner Child Issues Siblings / Parents/Birth Order Personality Type Client Advisor Advisor Distrust / Fear of Advisors/ Ethical Constraints Fear of Loss of Control of Planning Process Listening / Communication Skills Listening / Communication Skills Fear of Costs Feelings about Taxes Fear of Death Limitations / Teachings/Philosophy of Particular Specialty Fear of Lawsuit Need for Business “Lead Dog” Syndrome Self Interest Loved Ones, Intended Beneficiaries, Other s Listening / Communication Skills Fear of Loss of Person Self Interest Not getting whole story Fear of Collection of Fees Good Estate Planning Hood, Jr. (c) 2012 L. Paul Result © L. Paul Hood, Jr. 2001-2012 paulhood@acadiacom.net www.paulhoodservices.com 7
    • Why is a Good Estate Planning Result so Hard to Achieve? Prior Inheritance Experience Relations With Children/ InLaws/Descendants Attitude toward Wealth Attitude toward Death Mental & Physical Health Other Life Experiences Inner Child Issues Siblings / Parents/Birth Order Personality Type Client Advisor Advisor Distrust / Fear of Advisors/ Ethical Constraints Fear of Loss of Control of Planning Process Listening / Communication Skills Listening / Communication Skills Fear of Costs Feelings about Taxes Fear of Death Limitations / Teachings/Philosophy of Particular Specialty Fear of Lawsuit Need for Business “Lead Dog” Syndrome Self Interest Loved Ones, Intended Beneficiaries, Other s Listening / Communication Skills Fear of Loss of Person Self Interest Not getting whole story Fear of Collection of Fees Good Estate Planning Result 8
    • The Fine Art of Designing Estate Planning Tools and Techniques • Knowledge of how to design estate planning techniques is as important as knowledge of estate planning tools and techniques themselves • There is no “Magic Eight Ball” in how to design estate planning tools and techniques • The best that we can hope is a hermeneutic, which is a tool or method of interpretation • What are the parameters of design? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 9
    • The Fine Art of Designing Estate Planning Tools and Techniques The proper evaluation and design of an estate planning technique involves a three part consideration: • factors peculiar to the technique itself, i.e., the essential nature of the technique qua technique • factors peculiar to assets that may be involved or affected by the technique • factors relating to the “players”, i.e., persons (including the client) who are involved in or potentially affected by the technique (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 10
    • Assets Techniques Players (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 11
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible client estate planning goals • Retention of control • Asset protection • Flexibility in distribution of income • Flexibility in distribution of principal • Access to capital • Access to income (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 12
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible client estate planning goals (cont.) • Transfer of future appreciation and/or income • Transfer of opportunity • Generation skipping • Income tax deferral • Transfer tax deferral • Qualification for tax benefits (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 13
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible client estate planning goals (cont.) • Use of gift tax exemptions and exclusions • Maximize use of estate tax exemptions and exclusions • Equalization of estates • Lifetime satisfaction of making gifts • Improving or protecting lifestyle • Facilitating charitable or civic desires (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 14
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible client estate planning goals (cont.) • Tax finality or predictability in tax result • Providing tax-deferred diversification • Providing guidance and management • Encouraging or discouraging certain behavior • Leveling the playing field or providing checks and balances, including alternative dispute resolution provisions (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 15
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible estate planning risks • Risk of loss of access to capital • Valuation risks • Risk of family disharmony • Risk of tax recharacterization • Risk of loss of tax benefits qualification • Risk of loss of flexibility (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 16
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible estate planning risks (cont.) • Risk of estate tax inclusion • Risk of law change • Risk of doing nothing • Risk of use of technique that has effect contrary to client’s intentions • Risk of changes in circumstances • Risk of transfer tax overpayment (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 17
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible estate planning risks (cont.) • Risk of law uncertainty (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 18
    • The Fine Art of Designing Estate Planning Tools and Techniques What makes designing estate planning tools and techniques so hard? • Requires more than competence in knowledge of estate planning tools and techniques. • It separates “estate planners” from mere estate tax technicians . • Perils of hindsight, which is always 20/20. • Could you be held liable for poor design of an estate planning tool or technique? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 19
    • The Fine Art of Designing Estate Planning Tools and Techniques Real world examples of poor estate planning design • Martin v. The Ohio State University Foundation, et al. • Armstrong cases (discussed in the accompanying article) (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 20
    • The Fine Art of Designing Estate Planning Tools and Techniques Martin facts: • Clients were in their 60’s and had annual income of approximately $24,000 • Husband was in poor health and uninsurable by himself • Owned one piece of non-income producing real property worth $1.3 million • Clients’ estate planning goals-sell the real estate and buy a retirement home in Florida (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 21
    • The Fine Art of Designing Estate Planning Tools and Techniques The proposed estate plan: • 7% NIMCRUT funded with the real property • Purchase a $1 million second-to-die life insurance policy, with an annual premium of $45,000 • Clients paid the first year life insurance premium and made a down payment on Florida property (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 22
    • The Fine Art of Designing Estate Planning Tools and Techniques The plan quickly implodes • The NIMCRUT makes no distributions to the Martins because the real estate never sold • Clients were unable to pay second year premium and reduced the death benefit by 75%; ultimately, the policy lapsed because the clients were unable to pay the premium • The clients sue their former advisors and the charitable beneficiary of the NIMCRUT (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 23
    • The Fine Art of Designing Estate Planning Tools and Techniques Hints that the estate plan was ill-conceived from the start: • The life insurance premium was almost twice the clients’ annual pre-tax income • The real estate put into the NIMCRUT had been actively for sale for five years prior to being put into the NIMCRUT • The advisors only presented two possible plans: the NIMCRUT/insurance and a sale (which they called a “bad plan”) (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 24
    • The Fine Art of Designing Estate Planning Tools and Techniques The advisors won at the trial court level, but appellate court found the following problems with the advisors’ work: • They only presented one real plan, one that benefitted them • Their NIMCRUT illustrations showed immediate distributions from the NIMCRUT • They omitted giving the clients a memo from the charitable beneficiary that the clients wouldn’t get anything from the NIMCRUT until the property was sold, which never occurred (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 25
    • The Fine Art of Designing Estate Planning Tools and Techniques Problems with the plan (cont.) • The advisors arranged for the clients’ NIMCRUT to be drafted by a lawyer who had no relationship with the clients, who didn’t even see the NIMCRUT document until the day that they signed it (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 26
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible reasons for poor technique design: • Lack of sufficient accurate information • Lack of sufficient due diligence by the estate planner • Changes in client circumstances • Over focus on certain facts and under focus on other facts • Belief that doing planning beats doing nothing (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 27
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible reasons for poor technique design (cont.) • Poor drafting • Inaccurate valuation • Failure to adequately consider “side effects” • Failure to consider a contingency or exit strategy for foreseeable changed circumstances (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 28
    • The Fine Art of Designing Estate Planning Tools and Techniques Possible reasons for poor technique design (cont.) • Failure to adequately inform clients of uncertainties in the law • Failure to properly administer or follow through • Adverse foreseeable developments in, or interpretations of, the law • Advisor self-interest (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 29
    • Assets Techniques Players (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 30
    • The Fine Art of Designing Estate Planning Tools and Techniques Asset-based factors • Valuation issues • Use and management issues • Ease of transfer/division issues • Asset as collateral issues (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 31
    • The Fine Art of Designing Estate Planning Tools and Techniques Valuation questions • Does the asset have a value that is readily ascertainable without having to resort to an appraisal? • Where is the asset’s current value in relation to its historical high and low values? • If the asset must be appraised, what is the range of possible values of the asset? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 32
    • The Fine Art of Designing Estate Planning Tools and Techniques Valuation questions (cont.) • What is the volatility of the asset’s value? What factors contribute to the value volatility and how might any of those factors be affected by use of a particular estate planning technique? • What is the asset’s present value relative to its adjusted tax basis? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 33
    • The Fine Art of Designing Estate Planning Tools and Techniques Valuation questions (cont.) • Could a technique impact, either by pre- or post-implementation, value volatility of the asset, and if so, how? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 34
    • The Fine Art of Designing Estate Planning Tools and Techniques Use and management questions • Is an asset’s value or present use tied or related in anyway to any other asset or purpose, and, if so, to what asset or purpose, e.g., closely held business entity operating on real estate owned separately by the client or by other players? • What management skills or efforts does the asset require, and how might the estate planning technique or the players involved impact the management of the asset? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 35
    • The Fine Art of Designing Estate Planning Tools and Techniques Use and management questions (cont.) • What are the costs of maintenance and capital requirements of the asset to be used in the technique? • What is the asset’s remaining useful economic life? What factors might affect the asset’s useful life, e.g., technological obsolescence, demographic shifts, real estate neighborhood trends, etc.? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 36
    • The Fine Art of Designing Estate Planning Tools and Techniques Use and management questions (cont.) • Does the asset generate current net cash flow, and, if so, how much, and is the cash flow positive or negative? • Does the asset possess, by its nature, separate management authority or control from the right to economic benefits of the asset? • What is the prospect for appreciation or depreciation of the asset? What is the expected level of appreciation or depreciation, and when might it be reasonably expected to occur? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 37
    • The Fine Art of Designing Estate Planning Tools and Techniques Ease of transfer or division questions • How susceptible to transfer is the asset? Is third party consent required? • How marketable is the asset? What is a realistically probable time to sell the asset? Who are likely potential buyers? • What transfer costs would be incurred in transferring the asset? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 38
    • The Fine Art of Designing Estate Planning Tools and Techniques Ease of transfer or division questions (cont.) • Is the client or any of the players emotionally attached to the asset to be used in the technique for the asset itself (instead of the economic value represented by the asset)? • How susceptible to division is the asset? • Has the client already promised the asset to anyone or otherwise intimated that the asset would go to someone, and, if so, to whom? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 39
    • The Fine Art of Designing Estate Planning Tools and Techniques Ease of transfer or division questions (cont.) • Is the client, or any of the players, either currently, or in the future, economically dependent upon either the income or capital represented by the asset? • Are there any income tax consequences involved in transferring a particular asset, and, if so, what are those consequences? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 40
    • The Fine Art of Designing Estate Planning Tools and Techniques Asset as collateral questions • Is the asset to be encumbered by a security interest or lien? • How difficult is it to seize the economic benefits represented by the asset? • Would a third party consider the asset to be good collateral? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 41
    • Assets Techniques Players (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 42
    • The Fine Art of Designing Estate Planning Tools and Techniques Technique related factors • Creation and separate existence issues • Valuation issues • Taxation issues • Financial and management issues • Clients and players issues • Complexity and sophistication issues (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 43
    • The Fine Art of Designing Estate Planning Tools and Techniques Creation and separate existence questions • Does the technique involve the creation of a separate entity? • Are there any governing instrument language requirements for the technique? • Does the technique have to remain in existence for a period of time to become a net benefit? If so, is it a matter of the technique either providing less benefit or actually becoming a detriment (compared to doing nothing)? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 44
    • The Fine Art of Designing Estate Planning Tools and Techniques Creation and separate existence questions (cont.) • Can the technique remain in existence for too long period, i.e., provide no benefit if it is in existence for too long? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 45
    • The Fine Art of Designing Estate Planning Tools and Techniques Valuation questions • Does use of the technique require a valuation, and, if so, how many and when? • Does the valuation volatility of the asset used affect the technique, and, if so, how? May valuation volatility be minimized, and, if so, how? • Does the effectiveness of the technique depend upon the subsequent appreciation of the asset and, if so, how, and may the risk of depreciation be minimized? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 46
    • The Fine Art of Designing Estate Planning Tools and Techniques Taxation questions • Does the technique require filing of a tax return, and, if so, how many? • Is the technique a tax-reportable transaction, and, if so, what taxes are involved? • Does the technique offer any transfer tax finality? • What is the level of tax law uncertainty of the technique? How vulnerable is the technique to law changes, either through legislation or jurisprudential/regulatory developments? Can these risks be minimized and, if so, how easily? How easy would it be to minimize these risks? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 47
    • The Fine Art of Designing Estate Planning Tools and Techniques Taxation questions (cont.) • Are there risks of gift tax audit of the technique, and, if so, how severe are they and can they be minimized? • What is the risk that the technique can be recharacterized, and what effects would likely flow from recharacterization? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 48
    • The Fine Art of Designing Estate Planning Tools and Techniques Taxation issues (cont.) • Is there a risk that the technique will implode if the client does not survive for a specific period of time, and, if so, what are those risks and how can those risks be minimized? • If the technique does not involve a gift tax reportable transfer, what is the ultimate transfer tax risk of the technique? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 49
    • The Fine Art of Designing Estate Planning Tools and Techniques Financial and management questions • Is the technique use impacted by the cash flow of the asset used, and, if so, how? • If the technique requires payments back to the client, what form of payment does the technique permit? • How is the technique affected by interest rate fluctuations or levels? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 50
    • The Fine Art of Designing Estate Planning Tools and Techniques Financial and management questions (cont.) • Does the technique itself offer any appreciable level of asset protection? • Does the technique depend upon the creditworthiness or cash flow of the client or of any of the other players? • What is the cost of implementation of the technique? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 51
    • The Fine Art of Designing Estate Planning Tools and Techniques Financial and management questions (cont.) • What ongoing administration will the technique require and what will that administration cost? • Does the technique require the use of assets that are liquid or that produce cash flow? • Does the technique offer any asset diversification possibilities for the client? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 52
    • The Fine Art of Designing Estate Planning Tools and Techniques Financial and management questions (cont.) • How does the technique impact the classification of property as separate or community? • If the technique requires payments back to the client, what timing of payments are permitted (immediate only, deferred, etc.)? • If the technique requires payments back to the client, what flexibility does the technique offer relative to the amount of payments back to the client? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 53
    • The Fine Art of Designing Estate Planning Tools and Techniques Financial and management questions (cont.) • Does the technique permit the client to retain continuing control or security over the economic benefits represented by the asset used in the technique, and, if so, what and how much control? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 54
    • The Fine Art of Designing Estate Planning Tools and Techniques Clients and players questions • Does the technique meet the client’s goals and objectives? • Does the technique require disclosure of personal financial information of the client or any of the players to third parties, and, if so, to whom and how extensive must that disclosure be? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 55
    • The Fine Art of Designing Estate Planning Tools and Techniques Clients and players questions (cont.) • Is the technique impacted by the age or health of the client or that of any other player? • How will the technique help or hinder players other than the client who might be affected after the client’s death, and, if so, how? • Are there any risks of mortality of persons other than the client who are involved in the technique and, if so, what are those risks and what can be done to minimize those risks? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 56
    • The Fine Art of Designing Estate Planning Tools and Techniques Flexibility questions • Can the technique be undone if circumstances warrant and, if so, how easily can the technique be unwound and what will it cost? Will there be any tax consequences? Can an exit strategy be devised in advance? • What retained flexibility does the technique offer relative to changing needs of the client and the other players? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 57
    • The Fine Art of Designing Estate Planning Tools and Techniques Complexity and sophistication questions • How complex is the technique to design and implement? • How complex is the technique to explain to clients and other players? • How important is it that the client obtain continuing professional advice with respect to the technique after it is implemented? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 58
    • The Fine Art of Designing Estate Planning Tools and Techniques Complexity and sophistication questions (cont.) • Does the illustration capability for the technique accurately and completely depict the reasonable outcomes and, if not, how may of the excluded factors be illustrated? • Is use of the technique effectively precluded for use with certain persons, e.g., non-citizens, “skippersons” by the ETIP restrictions of the GST Tax and S corporation shareholder limitations? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 59
    • The Fine Art of Designing Estate Planning Tools and Techniques Complexity and sophistication issues (cont.) • Does the essence of the technique cause use of any particular asset to be either foreclosed or not attractive? • How easily undone or modified is the technique if relationships sour? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 60
    • The Fine Art of Designing Estate Planning Tools and Techniques Complexity and sophistication issues (cont.) • Does the technique require ongoing communication and cooperation after implementation between the players amongst themselves as well as with the client, and, if so, how important is it that the players and/or the client are able to communicate and cooperate? Can the technique be designed to contemplate and/or accommodate a failure in communication and/or cooperation? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 61
    • The Fine Art of Designing Estate Planning Tools and Techniques Complexity and sophistication issues (cont.) • Estate planning advisors too often persuade a client to implement a recommended estate planning technique on the ground that the “cost of doing nothing” is too high. However, the cost of doing nothing often is greater or even less than the cost of implementing the “wrong technique.” Has the estate planner estimated the potential cost of the technique where its use is improvident or improper? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 62
    • Assets Techniques Players (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 63
    • The Fine Art of Designing Estate Planning Tools and Techniques Players related factors • Financial and control issues • Personal and health issues (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 64
    • The Fine Art of Designing Estate Planning Tools and Techniques Financial and control questions • What contractual obligations exist between the client and others that can impact the planning? • Does the client want to risk loss of control of the economic benefits represented by the asset to be used in the technique, and, if so, what is the client’s comfort level with respect to loss of control? Can the technique be designed to protect against damage occasioned by the client’s loss of control? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 65
    • The Fine Art of Designing Estate Planning Tools and Techniques Financial and control questions (cont.) • Can the client risk loss of access to capital caused by the technique? • Can the client afford to pay the gift or income tax associated with implementation of the technique, including possible increases on audit, and, if so, does the client want to commit to doing so? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 66
    • The Fine Art of Designing Estate Planning Tools and Techniques Financial and control questions (cont.) • Is the client’s economic livelihood/security and/or income dependent substantially on any particular asset? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 67
    • The Fine Art of Designing Estate Planning Tools and Techniques Personal and health questions • How is the status of the client’s marriage and that of any players who could be affected by a marital dissolution? • Do any of the client’s goals potentially or actually conflict? • What is the client’s age, health and remaining expected life expectancy (considered not just from actuarial tables but also considering the particular client’s health and family history)? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 68
    • The Fine Art of Designing Estate Planning Tools and Techniques Personal and health questions (cont.) • How are the client’s relationships with the players and the relationships of the players amongst themselves? • How important is retaining future flexibility in estate planning for this client? • What are the relationships between the players (other than the client) amongst themselves and how will the technique work if those relationships change? Can anything be built in to the technique to allow for solving these problems? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 69
    • The Fine Art of Designing Estate Planning Tools and Techniques Personal and health questions (cont.) • Could the client’s death affect the technique after implementation, and, in particular, the post-death relations between the players, including the relative economic positions of the players? • Does the client have any real current charitable or donative intent? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 70
    • The Fine Art of Designing Estate Planning Tools and Techniques Personal and health questions (cont.) • How well do the client and players communicate, and how might poor communication impact the implementation or administration of the technique? • Is the client dependent upon any of the players, and, with respect to each player, are any of the players dependent upon or vulnerable to one another? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 71
    • The Fine Art of Designing Estate Planning Tools and Techniques Personal and health questions (cont.) • What is the client’s risk tolerance for uncertainty of for IRS audit and/or recharacterization with respect to the technique? • What kind of witnesses could the client, the players and other advisors make? • Do the players appreciate, accept and respect the complexity of a proposed technique? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 72
    • Assets Techniques Players (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 73
    • The Fine Art of Designing Estate Planning Tools and Techniques In conclusion, with this hermeneutic, it is possible to design estate planning tools and techniques more safely than ever Questions??? (c) 2012 L. Paul Hood, Jr. paulhood@acadiacom.net www.paulhoodservices.com 74