Beware of the Large Bequest

Over the past year, I (and every other estate planning lawyer) have spent a lot of time worrying about formula bequests based on the federal estate tax exemption.  As many of you know, one of the "basic" tenants of estate planning for married couples is to establish a bypass trust (or family trust or credit shelter trust, etc.) at the death of the first spouse equal to the federal estate tax exemption.  Because the estate tax has been repealed for 2010, there is no federal estate tax exemption for someone dying this year.  Accordingly, it can be very unclear how a formula based on such exemption would work for someone dying this year.  Depending on the terms of the bypass trust, an "incorrect" interpretation could have disastrous results.  Fortunately, the Tennessee legislature has passed a law that (for the most part) corrects this problem.

But, formulas and other large bequests are often used in other contexts and the potential problems with these bequests have not received as much discussion.  I have a client for whom I prepared a will several years back.  In that will, she had made several large bequests to friends and charities with the remainder passing to her son.  I received a call from her recently stating that because of the downturn in the financial markets she did not have enough funds to make these bequests and still leave anything to her son.  Accordingly, we removed these bequests from her will.

In my experience, this client is highly unusual.  Most clients are not aware enough of their wills to realize when they have a problem like this.  It is not uncommon to meet with a client to review a past will and have the client exclaim, "I didn't realize I had left so much to _____________."  Accordingly, we can't always rely on clients to inform us of these situations.  This problem typically is only discovered when the client decides to update his will for other reasons, which could be years later.  


On the other hand, estate planning lawyers do not have up to date financial information on each of their clients.  This, plus the fact that we have so many clients, means that it is unrealistic to expect the lawyer to be aware that a problem like this has arisen.  


So, what is the solution?


Frankly, there is not a good one.  I believe the best way to combat this problem is to provide as much client education as possible when a will is executed containing a large bequest or formula transfer.  Maybe if we emphasize it enough on the front-end, the client will realize when a problem arises and give us a call.  


In addition, we should really encourage our clients to check-in with us every few years for a quick update.  I tell all my clients that they should check in with me every two to three years to make sure their estate plan still accomplishes their goals.  If the client will send an updated financial statement, this "check-up" usually only takes a short (and inexpensive) phone call.  This is a relatively cheap and easy solution to a very big problem.  It is not pleasant to sit down with a family after a loved one has died and explain to them that the inheritance will not be distributed as they thought.