The Role of the Estate Planning Attorney

What’s the role of an Estate Planning attorney? Is it merely to document a client’s wishes? Or is it to counsel the client regarding those wishes and then craft a plan that best fits their situation? Clearly, it’s the latter.

For example, if a client walks into my office and says they want to leave everything outright to their three children, is it appropriate to draw up a plan to do so? The proper course would be to find out more information about the three children. What are their situations?

Perhaps the first child, Betty, is 30 years old and in a rocky marriage. Perhaps the second child, John, is 25 years old and has creditor issues. Perhaps the third child, Ben, is 20 years old and has Special Needs. In each of these situations, it would be best to advise the client about the possible advantages of leaving the assets to the children in a continuing trust. This could provide divorce protection for Betty, creditor protection for John, and preservation of public benefits for Ben.

An Estate Planning attorney should explain the different relevant options available and the range of consequences with each option. Explaining to the client the benefits of leaving the assets in trusts with various attributes for the various beneficiaries. Explaining the advantages and the disadvantages of the different alternatives. For example, in order to provide creditor protection in John’s situation, I’d use a trust with a third-party trustee and a completely discretionary standard. This would also require a tax return for the trust each year.

If, after a thorough explanation of the pros and cons, the client still chooses their original course, then what?

As long as the course chosen by the client is not illegal or unethical, a Trusts & Estates lawyer should carry out the client’s wishes and prepare the desired documents. An Estate Planning attorney is not a mere scrivener. Our most important product is not the documents we produce, rather our counsel which is based on a wealth of professional experience based on years of technical training.

Pandemic Relief for Employers

Congress has tried in many ways to help employers through the COVID-19 pandemic. The headline news was the Payroll Protection Program, passed as part of the CARES Act last year. But, the Taxpayer Certainty and Disaster Relief Act of 2020, enacted on December 27, 2020, made some changes to the employee retention tax credits previously available under the CARES Act, including extending the Employee Retention Credit (ERC) through June 30, 2021.

With the new changes, employers, including Estate Planning attorneys, may be able to claim a refundable credit against the employer’s share of the Social Security tax. That credit could be up to a maximum of $7,000 per employee per calendar quarter, for a total of $14,000 in 2021. Under current legislation, the credit is only applicable through June 30, 2021. The credit is 70% of qualifying wages up to $10,000 per employee per quarter. The credit is refundable. In other words, even if you don’t owe that much in taxes, you’d still get a refund of that amount.

Employers are eligible if they operated a business between January 1 through June 30, 2021, and experienced either:

  1. A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
  2. A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).

If your business didn’t exist in 2019, you’d use the corresponding quarter in 2020 for the comparison.

According to the IRS, “for an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are generally those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services.”

Further, the law now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan. In other words, you can count them as long as you’re not double-dipping.

You can obtain the credit before filing your employment tax return by reducing employment tax deposits. Small employers (those under 500 full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to Covid-19, after reducing deposits. Larger employers don’t qualify for this advancement.

If you’d like more information, see this announcement from the IRS (

Further, the IRS has extended the deadline for the filing of individual income taxes to May 17, 2021.

Using Disclaimers

It’s difficult to even think that someone might not want to accept inherited assets. But sometimes clients don’t need any more assets and a newfound inheritance simply may compound their estate tax issues.

A “qualified disclaimer” is a creature of statute. It’s found in Section 2518 of the Code. If you meet the requirements, then the disclaimant is treated as having predeceased the decedent and it’s not considered to be a gift by them and won’t use any of the erstwhile recipient’s gift/estate tax exclusion.

Section 2518 has several requirements:

  1. The refusal must be in writing,
  2. The refusal must be received by the transferor of the interest (or the representative or legal title holder) within 9 months of the date of death or when the instrument creating the transfer became irrevocable (or the date the recipient achieves age 21),
  3. They must not have accepted any of the benefits of the property, and
  4. The interest must pass without direction to the decedent’s spouse or someone other than the disclaimant.

Let’s look at a quick example:

Granny leaves a Will leaving Blackacre to John. The terms of the Will provide that if John predeceases Granny, the bequest goes to John’s daughter, Betty. Blackacre is worth $3 million. John already has used all of his exclusion. He’d like to see Blackacre go to his daughter, Betty. If John accepts Blackacre and makes a gift of it to Betty, he’d be making a taxable gift of $3 million, which would incur a $1.2 million gift tax. If John does a timely qualified disclaimer, Blackacre would pass as though John predeceased Granny. Since Granny’s Will provides that the property would go to Betty if he predeceased her, this would accomplish John’s wishes without needing to direct where it goes. This saves John $1.2 million in these circumstances.

If you’re contemplating a disclaimer, it’s vital to map out where the disclaimed property would go after the disclaimer. Sometimes this can be very complicated. But it’s absolutely essential since the disclaimant has no control over it. It’s somewhat like releasing water from a dam. You need to know what the course of the river is before you release the water. Sometimes it may be possible to change the course of the river by doing a double disclaimer or some other mechanism.

After you’re confident the disclaimed property would go where intended, it’s imperative you follow the requirements of Section 2518 to the letter. For example, it’s impossible to get an extension on the 9-month deadline for a disclaimer. It doesn’t matter if the disclaimant were sick or had extenuating circumstances. The deadline cannot be changed.

How to Dispose of “Stuff”

Even wealthy clients are often most concerned about the possessions which they have around them. They may have financial accounts with lots of zeros, yet they are most concerned about the things which they have collected or been given over the years. At first glance, this may not make much sense because the items may not be of great financial value. But people may have developed great emotional attachment to these items. In fact, there is a psychology of stuff and the attachment people have to their stuff. (In the extreme, it manifests as hoarding.)

Perhaps it’s the baseball card collection which he started when he was six years old. Perhaps it’s the stamp collection her father started when he was a boy. Perhaps it’s the coin collection she started when she was little when her grandmother gave her a silver dollar for Christmas. Perhaps it’s the drawings she did while recovering from a stroke. Some of these items might have financial value while others might have only emotional value.

What’s the best way to dispose of this stuff? People could give the items away during their lifetime. That has many advantages, including the client watching the joy on the recipient’s face when receiving it. But often the client won’t want to part with the items during life.

If a person wants to wait until death, sometimes they may want to include a specific bequest for each item in their will or trust (if assigned to the trust). But there are several reasons that’s not the best solution. First, the person might change their mind from time to time. While they may want to give the stamp collection to Johnny today, next year they may decide to give the stamp collection to Becky who reveals herself a philatelist. If the stamp collection had been given as a specific bequest in the Trust, the Trust would need to be revised by visiting the attorney again. Next, the person might decide to make bequests of additional items that they didn’t have before or which they hadn’t thought to bequeath when they signed their estate planning documents.

For the foregoing reasons, it’s far better to handle these sorts of specific bequests through a “Bequeath of Special Gifts” which is inherent in every estate plan that I prepare. Such a document is a valid way to bequeath property and is flexible so that the person can, unilaterally change the document without having to amend the Trust or come to me. With the Bequeath of Special Gifts, the person would then list the items, indicating a description of the items and to whom the client is bequeathing the items.

Again, if the person changes their mind, they could simply change the list. If they thought of an additional bequest, again, they could simply add it to the list. Each time they made a change, they would initial and date each entry.

The use of the Bequeath of Special Gifts has many benefits, including its simplicity. Perhaps most of all, this method gives the person a sense of more direct control over their personal property and the items which might have the greatest emotional value to them.

“Last Will and Testament” Origin

Have you ever wondered why the dispositive instrument in which you express your wishes is called a “Last Will and Testament?” Few people, including Estate Planning attorneys, know the reason. In fact, the history is a little muddy. Occasionally, clients will ask this question. Now you’ll know the answer!

It’s thought that the “Last Will” part comes from English common in which the testator was expressing what they “willed” to have happen to their realty. It appears that, originally, this was intended for those without heirs. The laws at the time devised real property according to the bloodline. So, it was only when there was no bloodline a Last Will became relevant. The “testament” was the portion intended to transfer personal property.

The term became combined with “and Testament” after the Norman invasion of England by the French Duke of Normandy, who became known as William the Conqueror after the battle of Hastings (and his later coronation) in 1066. The old English common law and the French civil law became somewhat blended and the terms were combined for clarity.

In a recent episode of Jeopardy, the clue was “After the Norman Conquest, lawyers made sure they were clear with ‘Last Will (an Anglo-Saxon word) &’ this French-derived term?” The contestant correctly replied “Testament.”

The term dates back a millennium. But the document type is still in use to this day, as we know. Often it is combined with a Trust, to avoid the process of probate, among other reasons. A Will which sends the assets to a Trust is called a “Pour-Over Will.”

Next time one of estate planning comes up asks why a “Will” is called a “Last Will and Testament” you’ll have a story to tell, dating back nearly 1,000 years. And you can weave into the story the fact that people have been doing Estate Planning long before that. The Code of Justinian recognized Wills in ancient Rome. It’s likely dispositive instruments have existed long before that.

Estate Planning and Appraisals

Many items within a household can affect the overall value of the estate. These items include art, jewelry, collectibles, antiques, musical instruments, and the house itself.

Appraisals provide a snapshot in time of each item’s value. This helps to accurately structure equitable distribution of assets as dictated by the client.

Appraising Art

There are many forms of art: paintings made with watercolors, oil, acrylic, and mixed media; prints made by lithograph, screen printing, and other techniques; photography, ceramics, and sculptures constructed of many different materials. You may have never heard of the artist, but their work might be selling for big bucks. How can you tell if what you’ve collected, inherited or are preparing to sell is worth a fortune or a pittance?

Turn to the experts at an established, reputable appraisal organization. They require members to adhere to a code of ethics, as well as the Uniform Standards of Professional Appraisal Practice. They charge an hourly rate, which can vary widely (i.e. $25 to more than $300/hour) depending on their experience and expertise.

It’s important to obtain current art appraisals for several reasons: to know the fair market value or replacement value for full insurance protection against loss or damage; for estate or divorce settlements; for charitable donation valuations; and for sellers who wish to know how to equitably price the artwork.

Appraising Jewelry

You may believe the jewelry you’ve inherited or plan to sell or insure is very expensive. Until you have a qualified jeweler examine and appraise each piece, you won’t know for sure. Make sure the appraiser is a professional qualified to appraise jewelry. They should be a graduate gemologist and affiliated with a national personal property appraisal organization.

Are the pearls natural or cultured? What’s the setting made of? How does the clarity, color and cut affect the price of gemstones? Is the gold 24K? Valuations can affect estate taxes if the jewelry is worth many thousands of dollars. Have the jeweler report on the cash value at today’s market rate. Then you’ll have an idea of an equitable selling price, or a starting point to insure the jewelry.

Appraising Musical Instruments

Musical instruments can be quite valuable, yet many people sell them for pennies on the dollar, often unknowingly. Consider the person who bought an $8,000 player piano for $250 at a yard sale. Guitars, brass horns, violins, banjos (yes, even the much-mocked banjo), and other instruments may be worth a lot more than you’d think. Or, you may over-value a mass-produced instrument.

The only way to know the value of a musical instrument, either for legal purposes such as insurance, divorce settlements or probate, or to establish a valid sale price, is to hire an informed appraiser. They will charge a fee to provide a written appraisal.

Appraising Collectibles

Collectibles can have monetary value, or perhaps just sentimental value. For those who collect images and items depicting their favorite animals, such as owls, frogs, turtles, elephants, etc., chances are, the value is sentimental.

Modern day collectibles such as vinyl record albums, Hummel ceramics, baseball cards, Pocket Dragons, and other items may have monetary value, or maybe not. With antique collections, such as clocks, irons, toys, prints, furniture, advertisements, glass, pottery, etc., you can start getting into real money.

How can you tell for sure? Take it to an expert who can verify its authenticity and establish value. But don’t rely solely on an expert who wants to buy your items, as they may offer a lowball price.

Appraising the House

Home appraisals provide an educated guess as to the actual value of your house. Banks and lenders need to know this figure to establish collateral value for a mortgage loan. If you’re selling the house, an appraisal provides a solid asking price. Appraisals also provide a starting point for obtaining a reverse mortgage, if you plan to stay in your house.

Appraisers will look at the conditions of a house’s exterior structure, interior materials and quality, amenities and upgrades, and the front and back yards. They can also do sales comparisons, also known as comps, to get prices on similar homes in your neighborhood and recent market trends in the area.

Beneficiary Designations and the SECURE: Prior Designations

Clients spend lots of time, money, and energy planning their estates. Estate Planning attorneys help them by counseling these clients and preparing various documents to meet the goals of the client, such as a Will or Trust.

An increasing part of American wealth is governed by beneficiary designations. According to Statista, Americans had over $32 trillion in retirement assets alone. That’s trillion with a “t.”

As examined in prior posts, under the SECURE Act, a beneficiary typically must take all distributions by the end of the year which includes the 10th anniversary of the Participant’s death. The prior posts also outlined how EDBs can use their own individual life expectancy. However, a minor child of the Participant only qualifies as an EDB while a minor and then falls under the general 10-year rule of the SECURE Act.

A common strategy prior to the SECURE Act was to use a conduit trust for the child of the Participant/client in order to stretch the distributions over the child’s life expectancy while dribbling out distributions to the beneficiary over the beneficiary’s lifetime. The trustee would only take out the RMDs and make those available to the beneficiary, as required to achieve conduit trust status. This would provide the child payments throughout the child’s life and would be perfect for a child whose financial maturity was in doubt.

Unfortunately, if the Participant dies after December 31, 2019, the SECURE Act would apply. Under the Act, even if the conduit trust for the beneficiary child is an EDB (because it is a conduit trust for a minor child of the Participant and named directly as beneficiary), the trustee must pull out all of the assets of the retirement plan 10 years after the child reaches age of majority. So, the beneficiary designation which was designed to spread distributions over the life of the child now would give the child access to the entire retirement plan 10 years after the child reaches age of majority.

What could be done to solve this problem? You could modify the trust so that it’s no longer a conduit trust. The trust share for the child would be under the 10-year rule (because it would not be an EDB) but it could keep the retirement plan assets in the trust and only pay them out to the beneficiary in the discretion of the trustee. Of course, to the extent the trust retains the retirement plan proceeds in the trust, the income taxation on the distributions would be taxed to the trust and would not be carried out to the beneficiary on a K-1. This could cause the distributions to be taxed at a higher marginal rate. (Trusts are taxed at the highest marginal rate on amounts above $13,500 of taxable income, whereas a single individual reaches the top bracket on amounts over $523,600 and a married individual filing a joint return reaches the top bracket on amounts over $628,300.) But at least the trustee could weigh these tax and non-tax considerations.

Beneficiary designations can be deceptively simple. Just beware the rest of the iceberg. Be sure your beneficiary designations will have the desired outcome post-SECURE Act.

Beneficiary Designations and the SECURE: Eligible Designated Beneficiaries

Clients spend lots of time, money, and energy planning their estates. Estate Planning attorneys help them by counseling these clients and preparing various documents to meet the goals of the client, such as a Will or Trust.

An increasing part of American wealth is governed by beneficiary designations. According to Statista, Americans had over $32 trillion in retirement assets alone. That’s trillion with a “t.”

This post examines “eligible designated beneficiaries” who are exceptions to the standard 10-yr rule of the SECURE Act. The next post will examine how beneficiary designations done prior to the Act might not work as intended after the Act.

As examined in the prior posts, under the SECURE Act a beneficiary typically must take all distributions by the end of the year which includes the 10th anniversary of the Participant’s death. However, not all beneficiaries are covered by this requirement of a more rapid distribution. Some beneficiaries are “eligible designated beneficiaries,” otherwise known as “EDBs.” An EDB could take distributions based on their own life expectancy, just like prior to the SECURE Act.

EDBs under the Act are:

  1. The surviving spouse of the Participant. (The surviving spouse could also do a spousal rollover and thereby consider the assets as in their own retirement plan, like under prior law.)
  2. The child of the Participant under the age of majority. However, once the child reaches age of majority, they fall under the general 10-year rule of the SECURE Act. It’s important to note that a minor child of someone else, such as a grandchild, niece, or nephew, is not an EDB.
  3. Someone less than 10 years younger than the Participant,
  4. Someone who is “disabled” (within the meaning of Section 72(m)(7) of the IRC), or
  5. Someone who is “chronically ill” (within the meaning of Section 7702B(c)(2) of the IRC)

Note that the disabled or chronically ill beneficiary must meet the definitions as of the death of the Participant in order to be an EDB.

A trust for the benefit of an EDB also qualifies as an EDB. However, with the exception of a disabled or chronically ill beneficiary, the trust share of the EDB must be named directly and that trust must be a “conduit” trust.

After the SECURE Act, planning to stretch retirement plan distributions is much more difficult. One way to do it is to have retirement assets go to an EDB, such as a disabled beneficiary, and other assets go to other beneficiaries.

However, one group of EDBs is rather illusory. The minor child of the Participant is an EDB, however, they lose their EDB status upon adulthood and fall under the 10-year rule. Therefore, if the child of the Participant is the beneficiary, they’d have all the assets typically at age 28. Often, clients would prefer not to have their retirement assets go outright to their children at an age when they may not have suitable discretion. Unfortunately, leaving the assets in a trust for the child’s benefit won’t help because, by its nature, a conduit trust would give the beneficiary control or access to the funds upon distribution from the retirement plan. Again, that means the Participant’s child would have control of the assets at age 28.

Beneficiary designations can be deceptively simple. Just beware the rest of the iceberg.

Beneficiary Designations and the SECURE Act Basics

Clients spend lots of time, money, and energy planning their estates. Estate Planning attorneys help them by counseling these clients and preparing various documents to meet the goals of the client, such as a Will or Trust.

An increasing part of American wealth is governed by beneficiary designations. According to Statista, Americans had over $32 trillion in retirement assets alone. That’s trillion with a “t.”

The SECURE Act passed in December 2019. First, the SECURE Act changes the age for lifetime Required Minimum Distributions (“RMDs”) from age 70½ to age 72. This change is generally good for savers since it delays the date at which distributions must be taken from retirement assets. This is helpful in two ways. First, it allows the assets to grow tax-deferred. Second, for that additional 18 months from 70½ to 72, the account holder won’t have the tax liability of the distributions.

Once the owner of the IRA (the “Participant”) reaches that age (their “Required Beginning Date”), generally they must take out distributions under the Uniform Table, which represents the joint life expectancy of someone their age and a fictitious spouse 10 years younger (whether or not they are married). If they have a real spouse who is more than 10 years younger, they’d use a joint life expectancy using the real spouse’s age.

The biggest change of the SECURE Act concerns the rules for distributions by those whom the Participant names as the beneficiary to receive the assets after the Participant’s death. Prior to the Act, non-spousal beneficiaries could take distributions based on their own single-life expectancy. So, the younger the beneficiary, the longer the permitted distribution period.

Often, attorneys would advise clients to name the youngest beneficiary possible to get the maximum stretch. For example, if the client/Participant named their newborn grandchild, the distributions could be stretched over more than 82 years!

Generally, it’s better to defer retirement plan distributions as long as possible. Deferring distributions allows the assets to grow tax-deferred (or tax-free in the case of a “Roth” account).

Under the SECURE Act, non-spousal beneficiaries must withdraw all the assets by the end of the year which includes the 10th anniversary of the Participant’s death. Under prior law, the beneficiary could take distributions each year over the beneficiary’s life expectancy. So, this is a much more rapid distribution of the retirement benefits.

Let’s look at an example:

John dies leaving $1 million to his daughter, Beth, who is 25 years old. John dies in February 2021. The SECURE Act applies to the distributions to Beth since John died later than December 31, 2019. The 10th anniversary of John’s death occurs in February 2031. Beth doesn’t need to take any distributions for the first 10 years, but she needs to take everything by December 31, 2031.

As a practical matter, often the beneficiary won’t want to wait until the last possible date to take all the assets. If they waited until the final year, all of the income from the distributions would be taxed in that one year. Often, it’s better to spread the income over several years in order to obtain a lower marginal tax rate.

Beneficiary designations can be deceptively simple. Just beware of the rest of the iceberg. The next blogs in this series on beneficiary designations will examine the exceptions to the SECURE Act’s 10-year rule and how beneficiary designations which might have been ideal before the SECURE Act might now have unintended consequences.

Beneficiary Designations

Clients spend lots of time, money, and energy planning their estates. Attorneys help them by counseling these clients and preparing various documents to meet the goals of the client, such as a Will or Trust.

All too often a client forgets to mention and the attorney forgets to ask about assets that pass via beneficiary designations. This could be disastrous for all concerned.

An increasing part of American wealth is governed by beneficiary designations. According to Statista, Americans had over $32 trillion in retirement assets alone. That’s trillion with a “t.”

Experienced Estate Planning attorneys know there can be a great deal involved in deciding to whom the retirement assets should go and how. But let’s look at a simple example of a retirement plan designation screw up.

John was married to Betty. John had a small IRA on which John had named his mother as the beneficiary many, many years ago. John didn’t think much about the IRA. It only had $30,000 and he hadn’t touched it in many years. He also had a retirement plan at work which had several hundred thousand dollars. The retirement plan at work named Betty as the beneficiary.

John and Betty consulted an Estate Planning attorney who helped them with a plan leaving everything to the survivor of them with appropriate distributions to their children after the death of the survivor of them. The small IRA would still go to John’s mother.

When John retired, he was considering what to do with his retirement plan. He was frustrated by the investment options available under his work retirement plan. He knew an IRA had much more flexible investment options. So, John did a rollover of the retirement plan into his IRA.

John had forgotten that he had named his mother as the beneficiary of his IRA. The assets which had been in his retirement plan, which comprised the bulk of his assets, now would go to his mother instead of his wife at his death. Worse yet, while Betty had assets of her own from her employment, John’s children likely would lose out on the bulk of the assets going to his mother. His mother had 35 grandchildren and her estate plan left assets to them equally.

This beneficiary designation snafu thwarted the planning which had been done for John’s assets. Maybe John’s mother would agree to give the assets to John’s widow and children. But maybe she would not or could not due to incapacity. This highlights the need to examine beneficiary designations each time there’s any change. It also highlights the need to examine beneficiary designations periodically, when the plan is reviewed.

The Estate Planning attorney in this situation might get dragged in through no fault of their own. However, if they miss this designation snafu upon a review, they could have increased liability. It’s a best practice to get a copy of the beneficiary designation on each such asset and provide it to your attorney. Client’s often forget the designation they made because it could have been years earlier.

Beneficiary designations can be deceptively simple. Beware of the rest of the iceberg.