The Full Story

We were recently engaged by new clients following the death of the patriarch of their family. The patriarch had hired one of the top ten law firms in the country to create an estate plan that would ensure that his assets were protected during his lifetime, passed to the desired individuals at his death, and were sheltered as much as possible from estate taxes. Shares in the family business with a total value in excess of nine figures were thought to pass free from estate tax at the time of the patriarch’s death, given the sophisticated plan that was masterfully implemented a decade before. However, this estate plan was never revisited, nor properly administered. The Trustees did not title assets into the name of the trust and inadvertently made distributions to the wrong individuals. On top of these mistakes, gift tax returns were never filed.

As a direct result, the family faces an estate tax bill in excess of $50 million. Instead of the family business passing to the next generation and escaping taxation, it must be sold to cover the enormous estate tax liability. The saddest part is that this is not the first time we have seen this horror story, and it could have been easily avoided had the estate planning attorneys assisted with ongoing administration of the trust. What's more, even those with much smaller estates and fewer mistakes can still have a massive problem if the estate plan is not administered appropriately on an ongoing basis.

How could this happen, you may wonder? By and large, individuals feel a great sense of accomplishment after executing their estate planning documents. However, it is crucial that these documents not be filed away in a drawer and forgotten. Instead, proactive steps must be taken to continually administer, review and revise estate plans from the moment they are signed, in order to ensure that they comply with inevitable changes in assets, the law and family circumstances. The problem is that many individuals do not take the time or make the effort to do this. The end result is that their plans do not ultimately work at an undefined point in the future – at the time of the individual’s incapacity or death. We will never be able to accurately predict when this critical point will arrive, but we can do our best to be continually prepared.