Despite a trend for attorneys to use more “user friendly” language over the last ten years or so, estate-planning documents can seem insurmountably daunting to some of our clients. Other clients are able to understand the documents, but do not understand the reason why it takes so much paper and so many words just to leave their property to their heirs.
There are three primary reasons:
- The need to communicate to other attorneys, probate courts, the Internal Revenue Service and non-probate courts in a language they are familiar with.
- Requirements to satisfy the Internal Revenue Code’s estate and gift tax rules that can significantly reduce the estate taxes imposed on the surviving spouse or other heirs or leave maximum flexibility in the plan to enable survivors to make post mortem adjustments to the plan.
- The need to plan for unintended, yet possible circumstances that may occur in the future to the clients or heirs.
The Need to Communicate
The law of trusts and estates is unlike almost any other area of human endeavor in that even the seemingly simple desires of the parties need to be stated in a manner familiar to those who make decisions regarding a decedent’s estate (i.e. Internal Revenue Service Auditors, Judges, Guardians, Attorneys-in-Fact, Government Administrators, etc.). It is a difficult task to couple centuries of precedential language and practice with more modern communication. Changes in language, format and meaning evolve slowly in the law so that practitioners and their clients can feel secure in the knowledge that what they have planned today will be consistently interpreted by those who look at it at an uncertain future date. Compare this discipline to mathematics. Mathematically, two plus two equals four. In an estate planning document, without a history of language and formalities upon which to base the explanation of a client’s plan, the document would have to explain what “two” means, what “plus” means and what “equals” means. While this protracted approach is not necessary in mathematics, in the practice of law certainty is valued above brevity of expression.
Taking Advantage of Estate and Gift Tax Rules in the Internal Revenue Code (Avoiding the Pitfalls)
One of the goals of estate planning is to avoid unnecessary estate, gift and income taxes, accordingly much of the language in estate planning documents is Internal Revenue Code driven. When Congress passes a new statute, the Internal Revenue Service releases regulations explaining its interpretation of what the Internal Revenue Code means. Much of the language in estate planning documents is taken directly from those regulations so as to ensure as much as possible, that the rules are followed for the maximum benefit of the client.
As an example, in many trust documents in the distributions to heirs after the death of the trust makers, you will see the phrase “health, education, maintenance or support” used frequently. It is quoted from Treasury Regulations section 20.2041-1(c)(2) which defines powers that a beneficiary (surviving spouse or children whose inheritances are held in trust for them) can have but which will not cause the property in the trust to be included in the beneficiary’s estate. Those four words are explained in two pages of regulations. However, by using just those four words, it is unnecessary to include the two pages of regulations. There are many such terms in your documents that are there to ensure that your estates take advantage of the rules for your particular testamentary design. This is just one of the examples of how the Internal Revenue Code necessitates much of the volume of your documents.
Planning for Unintended Circumstances
In order to protect you and your heirs, your estate planning documents must anticipate and provide for circumstances that may never occur, but you will protect your estate if they do.
One example that adds volume to your living trust is the need to plan for government benefits. Assume the trust makers have died and property is being held in trust for a child until the child reaches age 35. The child is healthy and planning for Medicaid or other government benefits is not a consideration at the time the plan is prepared. However, at age 30 the child is seriously injured and has large medical bills. If the living trust did not anticipate the potential for this catastrophe, the child’s inheritance would go to medical expenses. However, the living trust has special language, which adds three pages to the trust, that will automatically convert the child’s benefits into a format that will not disqualify the child from Medicaid, but will enable the trustee to make the child’s life as comfortable as possible, rather than spending the entire inheritance on medical costs.
In summary, there are very real and important matters that require your document to be more voluminous that you might think necessary to carry out your estate plan. However, each word is there for a purpose – to protect your estate or your beneficiaries. It is entirely possible for us to create shorter documents, but we would rather have provisions we would never need to use than need provisions and not have them in our documents. Just as a prudent traveler doesn’t embark on a long trip even to a warm climate without a sweater in the suitcase, we believe in the old adage that it is better to plan and not need, than to need and not plan.