by Michael Vallone
We at Heritage never cease to be amazed at the continuing one-sided approach to estate planning generally promoted by the legal profession. Although we will very rarely find an article promoting the virtues of estate planning with a living trust that is written by an attorney, the vast majority of articles concerning the living trust that are written by attorneys are slanted against the devices. Consider a recent article published in the American Bar Association Journal entitled "Shooting Down Living Trusts", by Edwin G. Fee, Jr. (a fitting name for an attorney). Remember, this is an article written for attorneys - not for layman.
Why would attorneys be interested in learning how to "shoot down" living trusts? You should consider that it has been estimated that during the next 20 years somewhere between 5 and 8 TRILLION dollars will change hands from one generation to the next. Furthermore, the AARP has stated that the cost of probating an average estate can easily run to 10% of the gross size of the estate ("A Report on Probate: Consumer Perspectives And Concerns (1990)). Since the majority of those costs are attorney fees, the legal profession is looking at fees of 500 to 800 BILLION dollars if they can pass those estates through probate! If, on the other hand, those estates are placed in living trusts and probate is avoided - the legal profession will LOSE 500 to 800 billion dollars in legal fees. Now the legal profession would probably be quick to say that their own pockets are of no concern to them. You have to decide if that is a reasonable presumption.
Returning to the ABA Journal article, what does Attorney Fee recommend to his fellow attorneys as ways to "shoot down" a living trust? He puts forth two "myths" which he feels are responsible for the growing popularity of living trusts. The two "myths" are: "No. 1: Living trusts reduce taxes." and "No. 2: Living trusts will rescue you from probate." The fact that Mr. Fee would refer to these two statements as "myths" is appalling! Both statements are 100% correct, and Mr. Fee never even attempts to say otherwise in his article. Instead, he merely clouds the issues with irrelevant material concerning estate planning with a Will.
Under his statement entitled "Myth No. 1: Living trusts reduce taxes.” Mr. Fee says, "All of the traditional methods of minimizing the federal estate tax, such as use of the $600,000 estate tax credit, the unlimited marital deduction and charitable deductions, can be incorporated into either a will or a living trust. Thus, there is no income or estate tax advantage to establishing a living trust."
First, there is NO SUCH THING as a "$600,000 estate tax credit". Until January ë98 there was a $600,000 estate tax exemption equivalent which was based on an estate tax credit of $192,800, which has now been raised to $625,000. Excuse the technical jargon, but the fact is that any estate planning expert would immediately see that such a statement as this indicates that Mr. Fee is NOT an estate planning expert, and certainly not proficient in the estate planning benefits of living trusts. Also, concerning his statement that you could incorporate the use of the $600,000 estate tax exemption into a will, he is correct. However, what he doesn't point out is that to use the exemption with a will, the first spouse who dies would have to leave half the estate to the heirs immediately upon the death of the first spouse - and not when they both pass away. This would deprive the surviving spouse of half the estate. Now the surviving spouse would have to live off of half the estate rather than the full estate! This could result in a very substantial change in the lifestyle and standard of living of the surviving spouse.
With an A-B living trust (the kind which is typically used by married members of Heritage), the $625,000 exemption is preserved, BUT, the surviving spouse does NOT lose the use of half the estate when the first spouse dies. This is a substantial benefit of the living trust over the use of a will - but Mr. Fee does not tell his fellow attorneys of this benefit. Hmmm?
Under his statement, "Myth No. 2: Living trusts will rescue you from probate.", Mr. Fee says, "Probate provides certain benefits that are unavailable with living trusts. It allows supervision of estate administration by the probate court and provides notices to beneficiaries who are given an opportunity to object." It is amazing that he would make such a statement. Mr. Fee is actually suggesting that having the probate court control the estate, and creating the opportunity for the beneficiaries to fight over it, is a GOOD THING! Well, it's certainly a good thing for the attorneys who are employed handling the probate, but most people who are concerned about their estate going to their beneficiaries - and NOT to legal fees - do not believe that such "supervision" and beneficiary fighting is a good thing.
You should also realize that the mind-set behind such a statement indicates that Mr. Fee, and perhaps the majority of the legal profession, think that you are too stupid to decide on your own estate plan, and that the people that you would choose to administrate your estate can not be trusted. Poor stupid you and your family full of crooks! The legal profession wants to come to your rescue with wills and probate. Fortunately, it's not a rescue that is forced upon you! The use of the living trust will allow the people that YOU feel confident in to administrate your estate. Those people DO have a legal and fiduciary duty to follow the instructions of your trust and to distribute the trust assets accordingly. Furthermore, if your living trust has an "In Terrorem" provision then your beneficiaries will forfeit their inheritance if they start a legal battle over it (all Heritage living trusts have such provisions)!
We feel very confident that most Americans are NOT too stupid to know what they want to happen to their estates when they pass away - and that those plans CAN be carried out without the supervision, or the expense, of the courts or the legal profession.
WHO IS HERITAGE AMERICA?
Heritage is a private membership organization formed as a not- for-profit Washington, D.C. Corporation. Our representatives educate people on the benefits of estate planning through Heritage membership. The clients purchase a membership in Heritage, which allows our attorneys to prepare an estate plan for them. Heritage has its own staff lawyers. They work for the Heritage members. Our attorneys can legally serve any member - in any state. Every member receives a phone call from our attorney & an office paralegal. We prepare the plan and you assist your client to implement the plan. We pay a commission to our representatives for recruiting people into membership of Heritage, NOT for providing "legal services".
Since our beginnings in 1987, we have been a unique association. We are dedicated to educating the American people regarding the unfair, confiscatory taxation and expense of their estates, to work politically to change those laws, and to providing, for the mutual benefit of our members, different forums of assistance by which they can avoid or mitigate the effects of those oppressive laws. The principles of professionalism, quality work, good value, and teamwork have made Heritage America what it is today - a fast growing membership of people who have the common goal of protecting their estates through mutual assistance of our association, and promoting the public welfare through education regarding these vital issues.
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