5 Toxic Lawyer Schemes

It's unfortunate, but there are numerous estate planning practices that have become standard operating procedure at law firms that are not necessarily the best thing for the clients or their families. In fact, they seem designed specifically to make more money for the law firm than they are to take care of what the clients hired the firm for in the first place. While there are many more, there are the top five we have seen come from the more lucrative law firms that handle more probate administration than they do estate planning to avoid probate.

 1. “You Don't Need a Trust.” This is a common response from many attorneys when prospective clients ask about using a revocable living trust. Avoiding the government and court-supervised process of probate in settling an estate is a big goal of many for my clients, but there are a lot of other firms that will downplay or outright advise against using a revocable living trust as the base of an estate plan. Some of the reasons given are your estate is not big enough, or you don’t have to worry about taxes. However, there are many more estates that can benefit from a revocable living trust, but once an estate has passed the “small estates” threshold, the smaller the estate, the greater the percentage of the estate wasted on probate because there are some minimum work requirements. If you want to see what the breakeven point is for the cost of setting up an estate versus administration, then total up 5% of your assets (yes, everything), and unless that amount exceeds the cost of a good revocable living trust, then it is likely more cost effective to avoid probate with a revocable living trust.

2. Holding Originals Hostage. When someone passes on, a Last Will and Testament is required to administer a probate estate. However, the original Will is needed to provide to the probate court. Many attorneys will offer to “store” the originals in their office. This means the clients are only provided with a copy of the Will, usually unsigned, with a stamp that the original is on file with the law firm. Now the family is forced to go to the law firm to get the original and they are often subjected to the full court press to hire them to handle the probate work.

Let’s be clear here, though. Families do lose track of documents all the time. That is why my firm executes estate planning documents with duplicate originals and we only keep one set while the clients are provided another set. This way the family can choose to come to us with help settling their trust, or they can work with professionals they are comfortable with.

3. Naming Themselves as Executor. There is a less common but more blatant practice I have seen in estate planning, and that is lawyers pushing to name themselves as executor of your Last Will and Testament. While it is bad enough when law firms push to have the only original kept at their office so they have the opportunity to push for the probate business, once the attorney is named as the executor in the Will there is no need to “persuade” the family. The attorney is the actual named executor and just jumps in to administer the estate without the family’s approval. Basically, the family can count on 5% being deducted from the estate for the attorney handling probate, and that is at a minimum.

4. Naming Beneficiaries in the Pour-Over Will. This one is a bit more subtle, and my belief is that a lot of attorneys are just doing this because that is the way they were always taught. When a revocable living trust is used to avoid probate, there is a "Pour-Over Will" that accompanies the trust in case anything does end up in probate. However, there is usually only one beneficiary of a Pour-Over Will, and that is the revocable trust. Then why do attorneys "duplicate" all of the beneficiaries laid out in the trust to also be in the Will, even if it is just for personal items? It's because now all of those beneficiaries have to sign paperwork related to the probate estate, which means more billable hours work. If the only beneficiary of a Pour-Over Will is the trust, then only the Trustee needs to sign that paperwork. 

5. Ignoring Trust Funding. This is probably the most common of all, and that is attorneys who do estate planning with revocable living trusts will gloss over or ignore that a trust needs to be funded. This process of retitling accounts and assets, or changing the pay on death beneficiaries to work with the trust, is what makes the trust effective in avoiding probate and not the document on its own.  However, many firms that help their clients set up revocable living trusts either ignore trust funding altogether or hand them a short report on funding their own trust, and that is the end of the discussion. In my firm, we have a separate meeting after the signing in order to fully review the accounts and assets so we can provide an actual homework list for the clients. Trust funding is also a main topic of conversation during the annual review meeting, and the Trust Funding Course is part of the Client Resource Center we offer to our clients.

There are a lot of shady, and even toxic, practices out there when it comes to estate planning lawyers and firms. However, knowing what to look out for can help you distinguish between a self-interested business practice on the part of a law firm versus an attorney generally being helpful. For more information on estate planning, check out the program at www.FreeTrustCourse.com.