The Essence of Estate Planning

Americans spend a great deal of their lives trying to amass financial wealth. They work very hard at it. Some achieve it, while many, if not most, do not. It is the American way, or so it seems.

For those who have achieved some measure of financial wealth, a large amount of time is spent thinking about ways to keep as much of that wealth as possible. To do this, people employ a staff of accountants, financial planners, attorneys, and others to maximize the money they have, and minimize the money that they have to pay to others (i.e. taxes). These professionals spend their time (and their client’s money) preparing ways to make as much money as possible while keeping as much as possible out of the hands of the government. Sometimes, in their zeal to avoid taxes, these professionals get themselves and their clients into trouble. Sometimes these schemes are so complex that it takes a small army of government workers to figure out how they were structured.

We refer to estate taxes as “death taxes.” Trusts are structures with the primary purpose to avoiding paying taxes, or at least to minimize the tax impact. The IRS will find a particular scheme to be an illegal tax shelter if it was prepared with the primary intent of avoiding taxes, and there is no legitimate non-tax purpose. So we find ways to explain away these tools as being primarily for some other purpose. But let’s be honest, if it weren’t for taxes, there would be little or no demand for GRATs, QTIP trusts, marital deduction trusts, or QPRTS (if this alphabet soup is foreign to you, don’t worry. You are not alone).

Why am I going on about this? Because sometimes you have to just have to give it up and pay some taxes. Some really rich people have been talking about how too much effort has been spent on tax avoidance, and how the tax code is rife with loopholes that allow people to pay a proportionately low share of taxes. These people include Warren Buffett (really rich), and Bill Gates, Sr. (not as rich as his son, but still pretty rich).

Most Americans don’t have to deal with this issue in their estate planning because they don’t have that much money in their estates. Their main concern is making sure they leave some money to friends and loved ones, and making sure that their wishes are carried out properly. That is the essence of estate planning.

I have spent a lot of time talking with other trust and estate attorneys with clients who have large estates, and most of what they talk about is how the beneficiaries and heirs complain over getting “their share” of the money, and complaining about how others are getting too much, or how others are exerting too much influence over the trustee, or how the trustee isn’t doing their job properly (read: maximizing their take). It is doubtful that the person whose money they are fighting over intended such a result. As attorneys, it is our job to structure a plan that carries out the client’s wishes while minimizing potential family discord. Easier said than done, but it is the only way to accomplish the true essence of estate planning.