Do you need a will and a trust? What kind of lawyer is needed?
If you or someone you're helping has any assets whatsoever -- a checking account, life insurance policies, a house, automobile, and so on -- you'll need a will and a revocable trust. If you have assets of several million dollars or more, have a will drawn up by a professional who specializes in estates.
A trusts and estates attorney specializes in drafting wills , revocable and irrevocable trusts, and related tax planning. A revocable living trust is a legal vehicle into which you can place assets. You'll serve as trustee until you're unable to manage your own assets, at which time a secondary trustee -- perhaps a sibling or another relative -- takes over.
One of the primary benefits of a revocable trust is that it lets estates avoid probate. An irrevocable trust can be used for many purposes, including the avoidance of estate taxes. Both types of trusts should be written up by an attorney.
Hiring a trusts and estates attorney, by the hour or at a flat rate?
Drawing up a trust is an area where experience counts, but that doesn't mean that you needs to go to a large national law firm. On the contrary, many large firms have dropped this practice, and some of the savviest trusts and estates attorneys have their own firms or practice in small and moderate-size law firms.
If you're unsure how to find the right lawyer, start by asking friends for recommendations. Who have they used -- and liked? You can also ask other lawyers who they would use.
When it comes to legal costs, some attorneys bill by the hour, while others charge a flat rate for a package of services. Typical legal fees run from $200 to $500 an hour. Urban areas will likely have higher rates, and attorneys at larger law firms usually charge more than those at smaller law firms, although that's not always the case.
An average flat fee for a basic revocable trust plan may run from $2,500 to $10,000, depending on the complexity of the trust and the size of the estate. Flat fees, howeve r, aren't necessarily a better deal than hourly rates. And the most expensive lawyer isn't always the best.
Ask at the outset for the lawyer's rate. It's better to know upfront, so that neither of you wastes the other's time if there's a huge discrepancy between what an attorney charges and what you're willing to pay. Generally, the more assets a person has, the more complicated his estate is likely to be, and the more it will cost to put together a thoughtful estate plan.
Choosing an attorney and signing an agreement
Most lawyers offer an hour-long complimentary session to introduce themselves and their services and explain some of the process. Even if you end up paying for that hour, it's a good investment.
"I wouldn't want to start down the road with someone I haven't met personally," says Philip Feldman, head of the trusts and estates practice at Coblentz Patch Duffy & Bass in San Francisco. "Clients need to get a sense of who their lawyer is going to be. It's important to look someone in the eye. This should be one of the most personal professional relationships you'll have."
For Feldman, the most important issue is compatibility. If a couple is consulting the lawyer jointly, "both spouses should feel they're getting equal respect in the relationship," Feldman says. Consider personality types as well. If one spouse is, say, is an impatient person, he may not want an attorney who considers every question a chance to rehash an arcane interpretation of the law. On the other hand, if the other spouse feels the need to understand the fine points, they shouldn't hire an
attorney with a "just let me handle these details" manner.
If you feel that the attorney is a good match in terms of style, pricing, and comfort with risk, you're ready to hire him. Expect to pay for at least some of the work at the start, and to sign an engagement or retainer agreement that outlines what services will be provided.
In many states, the language in this agreement is mandated by law or the state bar association. The agreement should specify two important points: the duty of confidentiality and the duty of loyalty. For example, an attorney cannot keep a confidence from one spouse while still fulfilling his duty of loyalty to the other spouse. To ensure that loyalty, spouses will generally be asked to waive confidentiality between themselves and the attorney.
Gathering information for the attorney and minimizing estate taxes
Either before or after the initial meeting, at which a retainer or engagement agreement will be signed, your attorney will likely give you some homework. Most attorneys use a worksheet, anywhere from five to seven pages up to 30 pages in length, designed to help identify your goals, raise issues, and gather data on your estate. This should take about half an hour to 90 minutes to fill out.
It's crucial to fill out this form completely and accurately. "Most people undervalue what they're really worth," says Darlynn Morgan, a trusts and estates attorney with the Morgan Law Group in Newport Beach.
Some questions may feel intrusive, such as whether there's any alcohol or substance abuse in the family. This may, however, affect how you hold assets in trust for certain beneficiaries. "Understanding family dynamics influences the advice I give my clients," says Morgan. As a starting point, Feldman suggests bringing in income tax and gift tax returns from the past several years, as well as any previous versions of a will.
Whenever possible, assemble the names and numbers of the other professionals on your advisory team, including your accountant, life insurance broker, retirement plan advisor, and investment broker. Dig up or ask for copies of policies. "Many people don't even know what they have with regard to life insurance," says Feldman. "They simply know they have it."
Some estate attorneys will charge an extra fee for consulting on how to help minimize estate taxes. Currently, if you have a net worth of $2 million or more, the assets in excess of $2 million will be subjec t to the federal estate tax rate, which is 46 percent.
With the most basic planning, a full $4 million can be sheltered from estate taxes. Additional planning, which will include advice on how to minimize or eliminate such taxes by transferring assets to an irrevocable trust, for example, can add as little as $1,000 to the legal bill, while potentially saving your heirs tens of thousands of dollars, making it a worthwhile investment.
Reviewing estate documents and staying current
Some wills and revocable trusts require more than one draft. Often, this depends on how well you've communicated your wishes to the attorney. A revocable trust document may be as long as 40 pages. Your attorney should provide a one-page flow chart, and then a five- to ten-page summary of what's contained in the document.
Feldman gives his clients charts that show how their assets would flow to beneficiaries under various hypothetical circumstances. Read these carefully and ask questions. If you're not comfortable with certain aspects of the plan, ask for them to be changed.
Once the revocable trust and will are finalized, decide who will keep the documents and where. The attorney will give you instructions on how to fund the trust by transferring assets into it and changing title on accounts and property.
Perhaps the most important thing to remember is that a will and revocable trust can be changed and modified. "It doesn't hurt to review them every time you do your tax returns," says Feldman, particularly if you're trying to reduce your estate through gifting.
By law, each parent in a family can give away as much as $12,000 a year -- $24,000 if both parents are living -- per beneficiary before such gifts are taxed. For instance, if you have three children and seven grandchildren, a simple gifting program can reduce your estate tax exposure by $240,000 per year without any assets leaving the family. "If you have an accountant who is thoughtful, knowledgeable, and creative, that person can help you decide when it's time to call your lawyer," Feldman says.
Good lawyers will communicate with a trustee periodically by letter to remind hi m of the terms of his will and inquire whether he has any interest in making changes. They aren't trying to drum up fees; they simply know that circumstances change and that wills and trusts need modifying. If your lawyer doesn't do this, you should add "review will" to your own tickler file when tax time rolls around.