More Than Pushing a Button

We can accomplish so much these days simply by pushing a button. I just returned from a conference in Washington, DC, where I pushed many buttons using apps on my iPhone. It was simply amazing when you think about it.

I pushed buttons to check into my flight and to display my boarding pass. Another button informed me if my flight was on time, while yet another button tracked my bags onto the plane. Upon arrival at Dulles International, I pushed a button to summon an Über to take us to our hotel.

Rather than wait in a long line to check into our room, I pushed a button to check in, reading the assigned room number on my screen. We ascended in the elevator, and, after finding our room, I proceeded to punch another button to unlock our door. Once in our room we used buttons to read restaurant reviews and make a reservation.

We even pushed buttons to enroll in the conference break-out sessions, find the location of those sessions around the conference center, and communicate with the conference organizers.

There was virtually no interaction with a human being to accomplish all of these tasks. It seems that we can do a lot pushing buttons.

Even construct an estate plan.

But not a good one.

You see, unlike many transactions, a good estate plan is only developed through a meaningful interaction with a knowledgeable professional. Sure, you can access web-based estate planning programs, but those can only perform one minor function in an estate plan—that is preparing a legal document that would say who gets what in the event of your death. Even then it probably doesn’t do a thorough enough job.

Why is that? Because there is so much more thought that should go into constructing an estate plan. Consider, for example, that you have several different baskets of assets. Some carry taxable income with them (such as annuities, IRA and 401(k) accounts), while in others you might achieve a step up in tax-cost basis that eliminates capital gains to your beneficiaries.  Without a thorough understanding of the complexities surrounding these issues, it’s likely that you don’t maximize your plan, and that Uncle Sam becomes a larger beneficiary than he should.

How about those in blended families? A computer program won’t provide any insight into the problems associated with economically tying your spouse who is not the parent of your children to those children through marital trust planning. Sure, the program will describe the benefits of providing income to your spouse for the rest of her life, and then how the trust will distribute principal to the children upon her death. Seems pretty straightforward.

Except it’s not.

Will that computer program reveal how to maximize family harmony when every dollar your spouse spends following your passing will result in one less dollar that the children inherit? There are strategies to consider beyond what the cold calculations that artificial intelligence can master.

How about protecting your children’s inheritance from divorce or other economic maladies? Will those computer buttons know how to give your children the greatest amount of freedom in choosing their investments, distributing the trust income and principal, and ultimately deciding who should benefit from the inheritance following their deaths? I usually have lengthy conversations with my clients about the hopes and wishes that they harbor for their loved ones. Can you do that with Siri?

No. You can’t.

Selecting your trustee in the event of your disability is usually another in-depth conversation that I engage in with my clients. There’s so much to it, in fact, that I wrote a book exclusively on that subject. If you’d like a copy of that book please email me at info@sbshlaw.com. Once you receive it please read the preface where I described how shocking I found the crushing responsibility to be when my mother contracted leukemia and I became the trustee of my parents’ trusts. Reflect on the fact that I’m a board certified wills, trusts and estates attorney and a licensed CPA, and I found the responsibilities overwhelming. This is my career. Think about that for a moment.

There are so many variables to a good estate plan that every person’s plan will be unique to that individual. Sure, if you have less than $100,000 in assets and a house you probably don’t need the best estate planning attorney out there, and perhaps a computer program will suffice.

If you’ve taken the time to read this column, chances are you’ve accumulated somewhat more than that.

Yes, it’s great that we can do so much by pushing a button on our Smartphones. But do you really want to put that small amount of thought into constructing a plan to protect you and your loved ones with what took you a lifetime to accumulate?

The Sheppard Law Firm is located in Fort Myers and Naples by appointment.

© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Heavy Lifting and the Do-it-Yourselfer

Twice a week I train with a personal trainer to help keep myself physically fit. During the training sessions, I will often bench press free weights. For a guy approaching 54 years of age, I don’t do too badly. But my trainer always “spots” me, making sure that if the weight I’m lifting is too much, he’s there to keep it from crushing my chest.

Sometimes I lift when I’m alone and not in a training session. When I do this, I tend to lift less weight than I know I can handle because I don’t want to be crushed when no one is there to help me if I find myself having unexpected trouble.

Which leads me to today’s estate planning topic – do-it-yourself estate planning. I have come across many intelligent people who have invested quite well for themselves over the years and have diverse and complex family situation and intent for their assets. They shun financial advisors, estate planning attorneys and CPAs. “Why should I pay them to manage and plan for my money and my family when I do a better job on my own?” they often state.

I’m here to tell you, though, like the guy who tries to lift too much weight without a spotter, it’s probably a mistake to go it alone with your estate and financial planning, especially as one ages.

Allow me to illustrate with two examples. First, we’ll consider Marcus and Diana who have been married fifty years. Marcus has always done well investing in the market, and is adept at moving in and out of certain stocks and bonds when he should. He understands the capital gains ramifications of his decisions, and knows what he wants to sell if he needs cash to pay larger or unexpected expenses that arise from time to time.

Diana has never been involved in any of those decisions. In fact, she enjoys the freedom of leaving these matters to Marcus. So guess what happens if Marcus has a sudden stroke and can’t carry out his normal duties anymore? Where does Diana turn? Who can step in and show her everything that Marcus knows so she can carry forward on her own? What costly mistakes might Diana make without Marcus’s guidance?

Next let’s consider Peggy the widow. After her husband died she actually did quite well for herself. She studied the markets and maintained her estate plan, read The Wall Street Journal regularly and managed her money quite conservatively. She didn’t see the need to employ a financial advisor or an attorney since things were working out quite well on her own.

But then Peggy became forgetful. The neurologist’s report indicated that she had some form of dementia.  Peggy already had a revocable living trust drafted online that named her daughter Ursula as the trustee. Peggy had the utmost confidence in Ursula, and explained everything that Peggy knew about investments and her intent to her. But Ursula was busy raising her children and had a busy career.

Managing her mother’s money and paying her bills became a much bigger job than Ursula anticipated, so as Peggy regressed into further dementia, Ursula decided to engage the services of a financial advisor on her mother’s behalf.

The recommendation was through a friend of a friend, and you can guess where it headed. The financial advisor didn’t do well at all, with Peggy’s portfolio suffering. It’s likely that had Peggy been well and was convinced that she needed a financial professional on her team, she would have chosen a more seasoned advisor to manage her money and perhaps even have reflected on the advantages of having a qualified estate planning attorney review her plan before it was too late.

In both cases, wouldn’t it have been better had the “do-it-yourselfers” engaged the services of a professional? That way the financial advisor would know what their client would do in a certain situation, and have knowledge as to the investment strategies followed, the unrealized capital gains that existed in the account, and a host of other facts that would likely result in a more successful outcome? And the attorney would be able to draft the documents that properly reflected and carried out Peggy’s intent.

One never wants to “transition in a time of crisis” and that’s exactly what happens in many do-it-yourself scenarios. There is no “spotter” there who can help with the heavy lifting if the do-it-yourselfer becomes too weak to act for one reason or another. When there is no spotter there’s always the danger that the weight of the job and responsibilities crushes the do-it-yourselfer or their spouse or adult children.

So if you see any part of yourself in these stories, please consider engaging the services of a professional that you take the time to interview and select. It will make life easier on you if anything should happen, and certainly will make life easier on your spouse or adult children who depend upon you to do the heavy lifting in your financial life.

The Sheppard Law Firm is located in Fort Myers and Naples by appointment.

© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Is Your Estate Plan a Contract or a Covenant?

When considering your estate plan, I ask this question: do you consider it a contract or a covenant? How you view your estate plan makes a difference in how you approach it and, ultimately, the results you hope to achieve.

Many consider the words “contract” and “covenant” synonymous; they’re anything but. A contract is defined as an exchange which is to the mutual benefit and self-interest of both parties. There are two types of contracts – a commercial contract and a social contract.

A commercial contract is where two parties agree to an exchange that benefits each financially. A social contract is where the individual cedes liberties to the king or the state in exchange for protection from external forces and the implementation of an internal rule of law. Three Enlightenment thinkers, Thomas Hobbes, John Locke and Jean-Jacques Rousseau, are credited with establishing a standard view of the theory of the social contract. A commercial contract creates the market while a social contract creates the state.

A covenant, on the other hand, isn’t like that. A covenant is more like a marriage than it is an exchange. A covenant is where two or more parties, each respecting the dignity and integrity of the other, come together in a band of loyalty and trust to achieve what neither can accomplish alone. A covenant isn’t about interests rather it is about identity. A covenant isn’t about me the voter or me the consumer, instead it’s about us. In a broad sense, a covenant does not create a market or a state, rather it creates a society. In relation to a family unit, a covenant frames core values.

Many describe a revocable living trust as a contract between the grantor of the trust – the person who creates the trust’s governing provisions – and the trustee of the trust – the person or party who is responsible for carrying out the trust terms. The interesting thing is that in a revocable trust the titles of grantor and trustee are often initially held by the same person. But when the grantor dies, the trust terms dictate to the successor trustee how the assets are to be used and enjoyed by the trust beneficiaries. So we do have two contracting parties, the deceased grantor and the trustee responsible for carrying out the deceased’s wishes. The beneficiaries’ enjoyment is subject to the contractual obligations between the deceased and the trustee.

The trust might be extremely liberal in the sense that the beneficiaries receive the trust assets outright and can do with them as they please, or it might be restrictive imposing many rules and conditions on the consumption and use of those assets.

But is it a commercial or social contract that we’re after? Most of my clients don’t like to think of the bequest of their hard-earned assets as a commercial transaction. It’s not “I’ll work hard for my entire life, deny myself certain luxuries, goods and services so you may lose your ambition, become an unrestrained consumer and live off the inheritance for the rest of your life.”

Nor do many of my clients believe that the inheritance they leave behind constitutes a social contract, although this is where many clients mistakenly believe they should go to avoid the feeling that their plan is nothing more than a commercial transaction. An estate plan with social contract elements might contain restrictive language where the monies can only be used for very specific purposes. Financial protection is offered but only under strict preconditions.

I believe that many desire something beyond a contract. We want to create a covenant between the generations. We want to instill a unique legacy. This is more everlasting than any transaction could be, and it speaks to clients’ core values. We hope that our progeny not only rise to what we ourselves have achieved, but also excel beyond our capabilities. We accomplish this, however, not by overly restricting our family’s direction, but by building a framework of love and trust.

Taking this to an estate planning context, what covenant do you wish to build within your family? What is it that each generation, fully respecting the dignity and integrity of the other, can come together in a band of loyalty and trust to achieve that neither can accomplish alone? What family core values do you wish to cultivate? Is it to produce highly educated, engaged members of society? Is it instead to continue an entrepreneurial innovative character whether in business or social works? Is the promotion of religious or spiritual aspirations important? Are there charitable or societal goals that you’ve achieved and hope your family surpasses? Such covenants can be built inside of an estate plan in such a way as to give each generation leeway to find its own path.

Ultimately it’s not about the interests of the individual beneficiaries; instead consider what language you’d like to include in your estate plan to foster the identity your family has spent generations building.

The Sheppard Law Firm is located in Fort Myers and Naples by appointment.

© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.