I think it is hard to overstate how dramatic the recent developments in the federal estate tax law are in terms of the practice of estate planning. It marks the end of tax based planning for the vast majority of Americans, and the end of the traditional model of estate planning practice for a generation (or two) of planners. The ability of those planners to shift their thinking to the new school of estate planning will be the key to their continued ability to survive and thrive.
The A/B Trust was the bread and butter of those generations of attorneys who made a living as estate planning attorneys, a document that “protected” their clients from the death tax by dividing their assets so that the unified credit of each would be fully exercised. It included magical division language options, credit shelter trusts, family trusts, marital trusts, even at times QTIP provisions. In the world where the unified credit amount was only $600,000 and there was no “portability” of un-used credit from the first spouse to die, it served an important function and justified a handsome fee.
But with the ever increasing unified credit amount of the last 10+ years, and certainly with the adoption of the portability of unused credit rules, the age of the A/B Trust is over. With the permanent adoption of the $5,000,000 (plus COLA) unified credit and permanent adoption of portability rules, there are almost no clients who could benefit from such planning. For estate planners, this is a historical moment. For old school estate planners this may be a time of insecurity, reevaluation and reinvention.
As with most changes, this change was anticipated in some corridors. Over the same 10-15 years that old school planners watched and worried about the ever increasing unified credit amount diminishing the ranks of those who could benefit from A/B trust planning, a new school of estate planners was developing. For those planners who were looking down the road, the shift to the new way to practice began years ago and is well-developed today. For those who have delayed accepting the change, the time for delay is over.
Whether the new school is perceived as elder law or estate planning is somewhat of a red herring. Early in my tutelage into the profession, my mentor, John Bos, told me that elder law is a subsection of estate planning. I have since grown to conclude that estate planning is a subsection of elder law. But the argument is academic. However you slice it, there is a new way to practice, and fully engaged new school planning firms are bustling. The work is out there. The population is aging, wealth is passing, important decisions about complex legal issues are being made and lawyers who know what people want to talk about and what they need to know, are having a hard time keeping up with the demand.
Some years ago, I took an informal poll of estate planning colleagues about whether they considered themselves elder law attorneys. The majority did not. They equated the term “elder law” with Medicaid planning and did not feel they were qualified to advise clients on Medicaid planning. I found this perception misguided. While lawyers may equate elder law with Medicaid planning, the public does not. And in fact, check with any successful elder law firm and you will find the work is very familiar to the traditional estate planning lawyer: including estate planning and estate settlement.
Here’s the first step: Give up the idea that your value is about saving taxes. And if you’re still stuck on the idea that “avoiding probate” is enough, move on. Beneficiary designations are available for about every type of asset, and if all you want to do is avoid probate, they work just as well. Certainly qualified money is important, and while every planner must make sure their documents address qualified money treatment in a favorable way, planning for qualified money will never replace the estate tax in terms of amount of work it can generate.
Changing your practice means new language, new hot button issues, new documents, and a whole new way of thinking about the role of the lawyer in the aging and planning process. Now, a dose of reality: it doesn’t happen in a year or two. It takes years and hundreds (maybe thousands) of cases to really get it – to be able to spot issues, smell rats and ferret out what is going on and what really needs to be done.
The new school planner not only has different skills and knowledge, but a different focus. It is less about numbers and formulas, much more about understanding the aging process and family dynamics. Government benefits are part of it, but so is dementia, care-giving, caregiver burnout, housing options, family dysfunction, financial exploitation, special needs, and lots of litigation. In some ways, the new school planners are more touchy feely than the old school authoritative planners who could ponder which funding formula to adopt in a specific situation. For that reason, I have long perceived that women are inherently better planners in this new age than men. They tend to connect to those intuitive pieces more easily than do many men – but that doesn’t mean men can’t do it.
Conclusion: The bell has been rung. Estate planning primarily focused on tax issues is no longer a sustainable practice model for the vast majority of attorneys. But the work is there for planners who are willing to change.