A potential client called to ask a question that he claimed was “simple”. After a ten minute dissertation outlining a very complicated fact pattern, all I could say was, “It depends.”
He wasn’t very thrilled with my answer and I can understand why. It would seem that lawyers sell more “Depends” than Walgreens and CVS combined!
And that leads me to today’s column topic, which is why so much of what you put into an estate plan depends upon your particular facts and how everyone’s different fact pattern when applied against the same law results in different outcomes.
What do I mean by this? Take, for example, two couples, both of whom have a net worth of $4 million. Both of those couples are Florida residents, in their first marriage and have two children with four grandchildren. Let’s even throw in that both couples share the same recreational interests and socialize on the weekends.
The first couple’s assets consist of a Florida home, a northern lake front cottage residence and some stocks, bonds and mutual funds. The second couple’s assets are composed largely from a family business and 401(k) plan.
Even though the couples share the same marital history, the same number of children and grandchildren, and may even socialize together on the weekends, the first couple’s estate plan should look very different than the second couple’s estate plan. This is due to a variety of factors. Even though they have the same net worth and the federal income, estate and gift tax laws are not different for both couples, the effect that those same laws have on the different types of assets that the couples own usually will result in a different estate plan.
State laws that apply have different results as well. Some states have estate and inheritance taxes while Florida does not. When one owns real estate in a state that has such taxes, then one’s estate plan may be drafted with the anticipation of minimizing or deferring those state taxes.
And it’s not just about taxes. The couple that owns the family business might be restrained from certain types of planning avenues due to internal corporate agreements, leases, vendor agreements, employment agreements and the like. All of these should be considered when fashioning a proper estate plan.
So when the couples go out to dinner together and compare notes on what their estate planning attorneys are recommending, they are likely to discover that one says something very different than the other. This doesn’t mean that one is wrong and the other right. The attorneys are probably giving good advice, based upon the factual circumstances (and differences) between the couples.
It’s not very often that you find two couples with the so much in common. Throw into the mix different degrees of net worth, different medical histories and problems, second marriage situations, children from different marriages, children with varying degrees of need and ability, different estate planning objectives, charitable intent (or lack thereof), and the list goes on – it’s pretty easy to see why two couples who share the same amount of wealth may have vastly different estate plans.
Your factual situation and your goals are what should drive your estate plan. If you haven’t spent enough time talking about your unique set of circumstances with your estate planning counsel, then you may not have a plan that is right for your situation.
Next time you’re out to dinner with your friends and they try to tell you that what they’ve done is what you should do with your planning, pause and reflect on how different we all are, and how those differences add up when putting together something as unique as a personal estate plan.
©2013 Craig R. Hersch