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Chapter 12: Selection of executor, trustee, and attorney.

[Editor's Note: The pages appearing below, "How to Select an Executor, Trustee, and Attorney," by Stephan R. Leimberg and Charles K. Plotnick, are reproduced with the publisher's permission from How to Settle an Estate, by Plotnick and Leimberg (New York: Plume Book, 2001). The authors are grateful for the significant assistance of Lawrence Brody, Esq., of Bryan, Cave in St. Louis, Missouri.]

INTRODUCTION

Selecting the people to carry out the provisions of an estate plan is one of the most important and difficult tasks involved in the estate planning process. This chapter concerns three of the most essential parties in the estate planning process: the executor, the trustee, and the attorney. It will establish practical guidelines in the selection process from the point of view of the person who ultimately must make those choices, the client.

It is impossible to make a proper selection of any member of the estate planning team without understanding--in general terms--what it is that the individual should be doing and how that person interacts with others who have important roles to fulfill. For this reason, you'll find a brief discussion of the duties of the executor, trustee, and estate's attorney before the attributes and selection criteria of each are covered.

PART I--SELECTING AN EXECUTOR

Duties of the Executor

An executor is the person (and/or institution) named in a valid will to serve as the personal representative of a testator when his or her will is being probated. In bygone years, this person was referred to as the "executor" if male and "executrix" if female but now is commonly referred to as the executor or personal representative regardless of gender.

When death occurs, the executor must locate and probate the decedent's will (prove that it was the decendent's will and that it in fact was his or her last will). The executor must then collect the decendent's property; pay debts, taxes, and expenses; and distribute any remaining assets to the beneficiaries specified in the decedent's will.

An executor's responsibilities typically last from nine months to two or three years. In rare instances (such as when there is a contest of a will or the estate remains open for tax or other reasons) the executor's duties continue for a period of years.

Attributes of a Good Executor

When choosing an executor, the major attributes to consider are:

1. Sensitivity.

2. Competence.

3. An understanding of the needs and appreciation of the circumstances of the beneficiaries.

4. Knowing of the nature, value, and extent of the decedent's assets.

5. Experience in the administration of estates.

6. Business and investment experience.

7. Familiarity with the decedent's business.

8. Ability to serve.

9. Willingness to serve.

10. Geographic proximity to the estate's beneficiaries and the estate's assets.

11. Lack of any conflict of interest.

12. Integrity and loyalty.

Sensitivity. Although the intangible attribute of "caring" both about the people involved and the performance of one's duties cannot be accurately or objectively measured, this single quality is perhaps the most important of all the factors in the selection process. It is always possible for the personal representative, if lacking knowledge in certain areas, to learn more about the subject or hire others with expertise.

The highest preference should be given to the identification of an individual who is willing and able to give concerned personal attention and extra effort to the psychological as well as financial needs and individual circumstances of the beneficiaries. Often this individual will be the beneficiary with the largest share of the estate and almost always will be a close relative or friend of the decedent.

Competence. Competence encompasses both the legal ability to serve and the intellectual and emotional capacity to serve effectively.

Legal capacity entails U.S. citizenship in some jurisdictions and the satisfaction of state law requirements such as (a) age (21 or 18 in most states), (b) mental competency (generally, the same required to be a testator or in some states a higher capacity, the ability to contract), and (c) domicile (some states require that the executor be a domiciliary of the state in which the will is probated while others allow executors from other states but may require that an out-of-state executor post a bond).

Intellectual capacity in a general sense does not require that the executor be completely aware of all the decedent's personal affairs or the intricacy of the decedent's business. What is necessary is that the person selected has the ability to analyze the situation as quickly as possible under the circumstances, determine what facets of the estate administration can be handled within the bounds of the executor's personal knowledge and capabilities, and then secure the appropriate professional assistance in these areas in which the executor knows he or she lacks experience. In other words, the executor must have the ability to organize both facts and people and understand and follow through with what must be done.

Emotional capacity involves the ability to make a multitude of important decisions. Often these decisions (e.g., the selection of and negotiations with the estate's attorney and tax elections) must be made within a relatively short time span and yet may have tremendous financial significance to the estate and its beneficiaries. An intelligent individual capable of making quick, well-considered decisions will more than make up for an initial lack of experience.

An understanding of the needs and circumstances of the beneficiaries. Personal knowledge of the beneficiaries, their ages, health conditions, income requirements, strengths, weaknesses, and eccentricities is extremely helpful to an executor. One child, for instance, may need immediate and continuing medical care, while another may be a highly successful surgeon. An elderly parent may need cash to meet the daily necessities of life or be so wealthy that a delay in the distribution of assets from a deceased child may have no adverse effect.

Knowledge of the nature, value, and extent of the decedent's assets. If an executor is familiar with the specific assets that comprise the estate, that information can be of great use in performing each of the most essential of his or her duties. For example, if one of the principal assets of the estate is a business in which the executor was active in the management, the advantage to the estate of that experience and continuity could be quickly translated into dollars.

Many individuals invest in or amass collectibles for pleasure. An executor with expertise in this area would know how to safeguard, transport, insure, have appraised, and sell such items far more readily than an executor with no particular knowledge of the subject matter. This is particularly true with respect to large collections of art, precious gems, stamps, coins, and many other similar items.

One of the most troublesome responsibilities of an executor is also one that must be started early in the estate administration process-the discovery and assembly of all the decedent's assets. An executor who is privy to the extent of the estate and knows the location of all of the assets or the names of those persons who can help in this key part of the estate's probate will have great advantage. This should simplify the tasks and enable the executor to realize a great deal more from those assets. Prior familiarity is of considerable benefit if the decedent's assets were varied and located in different states or overseas.

Experience at administering an estate. Although death is a common occurrence, few individuals have experience in being executors. Obviously, if an individual has probated at least one or two estates, he or she is an ideal candidate. Note that this criterion emphasizes one of the major strengths of a corporate fiduciary vis-a-vis an individual. Few if any individuals have probated as many estates as a bank or trust company specializing in estate planning and administration. In ultra large or highly complex estates this consideration should be given high priority.

Business and investment experience and familiarity with the testator's investments and business. Intelligence and emotional maturity may not be enough to handle successfully the administration of an estate. The brightest spouse or most intelligent child may lack the business or investment experience to handle a large corporation or a sizable stock and bond portfolio. The experience-tested executor clearly will have an edge in a case where significant business or investment decisions will have to be made.

Professional executors such as banks and trust companies are in the business of collecting, managing, and investing securities. They typically have separate departments to handle, analyze, and evaluate securities, supervise and sell real estate, and run businesses. To a lesser degree, professional advisors and associates (even friendly competitors in rare cases) who knew the operation of the decedent's business can provide invaluable service to the estate.

Obviously, a buy-sell agreement can incredibly simplify the task of an executor where a business interest comprises the bulk of an individual's estate. But where there is no such agreement, the executor must-at least temporarily-assume whatever role the decedent had in the business.

Depending on the circumstances and nature of the business, it could be either continued or terminated. But without knowledge of the details of the business or expertise in the specific area involved, the executor or administrator would obviously be working under a considerable handicap. Even a professional executor such as a bank or trust company may not have the requisite expertise if the decedent's business was in a specialized or personalized area in which particular or unique knowledge was necessary to survive in the marketplace.

Clearly, the executor who has an in-depth understanding of the inner workings of the decedent's business or profession has a tremendous edge over the neophyte. But although there is no substitute for experience, intelligent individuals who have the ability to obtain the necessary information and experience as well as the time and inclination to administer the estate can usually do a credible and often an outstanding job, if they are willing to put time and effort into the performance of their duties.

Consider also that individuals or banks with strong investment or business expertise can be named as coexecutors or can be hired on an hourly or annual retainer basis by the estate's executor. Certainly, any executor without extensive investment knowledge should secure the services of skilled advisors and investment personnel where appropriate. An executor who does nothing-to the detriment of the estate's beneficiaries-is just as liable to surcharge as the executor who makes a mistake of commission. So it is essential for a nonprofessional executor to secure competent advice when dealing with an estate largely composed of securities.

Ability and willingness to serve. It is extremely important in selecting a personal representative to consider the ability of the chosen person (or persons) to serve. The duties and responsibilities of an executor can amount to considerable time and effort, ranging from dozens of hours to hundreds and even thousands of hours. The decendent's heirs suffer the consequences if the designated executor is unable or unwilling to perform the necessary tasks.

Most laymen are under the impression that to name someone the executor of an estate is to bestow upon them a great honor. To the extent the term executor carries with it the ultimate in trust, this impression is justified. But with that honor, the personal representative must accept an awesome measure of responsibility and potential liability.

An executor is considered a fiduciary. This means a potential lawsuit by beneficiaries for breach of confidentiality, conflicts of interest, failure to exercise due care or diligence or prudence, failure to properly preserve or protect estate assets, failure to file timely and proper tax returns or maintain adequate records, and the breach of the duty to make all major discretionary decisions personally and not to delegate such decisions. This responsibility and potential personal liability may drastically reduce the willingness of the nominee to accept the position. (For this reason, no one can be forced to accept the position of executor. And for that reason every will should provide at least one, and preferably more than one, backup executor in case the one named fails to qualify or ceases to act.)

Geographic proximity to the estate's assets and beneficiaries. Testators should consider, when selecting an executor, the physical distance the executor may have to travel and the time the executor may have to spend away from home. For example, New York state law may allow a son who lives in California to be the executor of his father's estate-but will the son be able to take the time away from his own job (not to mention his family) to serve properly? What expenses will be incurred out of the son's pocket or what nonreimbursable income will be lost by the son because he must be handling an estate on the opposite end of the continent? Quite often, the executor's fee or the size of the estate will be insufficient to economically justify the executor's expenditure of time. In such instances it may be preferable to appoint a local executor-perhaps a bank or a trust company-and to have the distant relative serve as an unofficial advisor to the executor or as a coexecutor.

Lack of conflict of interest. An otherwise logical choice of a particular individual or individuals may fail to consider potential conflicts of interest. For example, an older child may well be qualified to manage her father's affairs. But will a conflict arise between the personal interest of that older child and a surviving parent or younger siblings? Such problems can easily occur when the executor makes decisions on where to take certain deductions or other tax-oriented elections. This problem can be even worse if the relatives are stepparents or stepchildren.

The problem of a potential conflict of interest is particularly acute where a business associate is named as executor. It is imperative to consider in advance of such a nomination the effect that the associate's handling of the business ("to sell or not to sell," and if so, to whom and at what price?) will have on the testator's personal heirs. What if the most likely purchaser is the associate himself? How can the heirs be assured they have received a fair price for the business interest? Or how can they know the right decision was to sell rather than to retain the business? How do they know he did not pay himself an exorbitant salary (as well as an exorbitant executor's fee)? It is inevitable that doubt will linger when a partner or coshareholder is named as executor, regardless of how careful that person is to make decisions impartially and in the best interest of the beneficiaries.

Another area in which a conflict of interest can easily occur is where a client names the attorney who drafted the will as executor. In our opinion an attorney who unilaterally names himself or his law partner as attorney--without the knowledge or express direction of the client-has committed a breach of ethics and has clearly acted improperly.

If the attorney who drew the will is named as executor, then, technically, he or she is not an employee or agent of the beneficiaries. That means they have no power to fire him as executor if he doesn't answer phone calls or if letters requesting information about the estate go unanswered. It will be difficult for beneficiaries to challenge his actions or lack of actions. If that person hires himself or his business partner as the estate's attorney, beneficiaries have little right to question the legality. Who, aside from the court upon final audit of the estate, can question the fee that such an executor pays himself as attorney? The appointment of attorney as executor reduces the checks and balances desirable in the probate of an estate and-aside from the other issues of competency, ability, and willingness to take the time away from the practice of law to do a proper job-creates inevitable conflict of interest.

There are, of course, exceptions to the general rule that the attorney who draws the will should not be named as the estate's executor. For instance, if the attorney is a close relative of the testator or the natural object of his bounty, it is proper and in most cases appropriate for that attorney to be named as executor. If the attorney is the one individual most familiar with the decedent's assets, family, and business, then the attorney may be a logical choice, but in this case it may be best to name the attorney as coexecutor with a family member.

The very possibility of a conflict of interest may put the potential executor in an uncomfortable and even dangerous situation. In many cases such an individual will injure his own interest in the attempt to bend over backwards to avoid the appearance of impropriety. Nevertheless, he will always be conscious of the likelihood of second guessing by beneficiaries if they feel the apportionment of profits or proceeds was inadequate. Such an individual should, in many cases, properly and promptly refuse to serve as executor.

One possible solution to a potential conflict of interest is to name a business associate as an advisor or as coexecutor with a bank and to name some third coexecutor so there could not be a tie vote. In fact, wherever there is any potential for a conflict of interest a professional fiduciary should be considered. Impartiality is one of the major strengths of having a bank or trust company serve as executor.

Integrity and loyalty. These are among the duties owed by a fiduciary to the beneficiaries of the estate. But it is as essential that the testator have absolute trust in the honesty and loyalty of the executor for reasons that go beyond the obvious legal or ethical implications; an important part of the estate planning process is the peace of mind an individual obtains in knowing that his or her affairs are in order and that the financial security he has paid for during his lifetime will serve those he loves and wants to benefit in the years beyond his lifetime. For these reasons, it is essential that the testator have absolute trust that his will will be carried out as he intended to the best of the executor's ability.

Fees. Although fees are not among the listed attributes of a good executor, they are an important consideration in the selection process. The amount of fee a personal representative is entitled to may be determined by (1) the statutory law of the state where the estate is probated, (2) local county rules or customs governing what the personal representative is entitled to charge to services rendered to the estate, or (3) in the case of professional executors such as banks or trust companies, an advertised fixed and scheduled fee (for a large estate the scheduled fee may possibly be lowered by negotiation, in which an attorney specializing in estate administration can be invaluable), or (4) provisions in the will or in separate contractual agreements between the testator and the nominated executor.

An executor is entitled to reasonable compensation for services rendered. Fees should not be determined solely on the basis of the monetary amount of the decedent's probate assets but should take into account the nature of the executor's tasks, the time spent, the complexity of the problems and decisions that have to be made, the professional background and competence of the executor, and the ultimate results and benefits obtained for the heirs.

There are valid tax and nontax reasons why an executor who is a relative or friend of the testator may or may not accept a fee. Although the selection process should encompass the likely course of action the executor will take in this regard, it is important that this factor not override or take the place of the other selection criteria.

In many cases testators expect that family members named as executors will charge no fees but that professional fiduciaries will. Although in many situations this assumption will be correct, this selection criterion should be tempered by considering the mistakes the nonprofessional may make that the professional would not and the opportunities the nonprofessional may miss that the professional would not.

Summary. The choice of executor(s) and backups (there should always be at least one and preferably two backups) is complicated by a combination of family, personal, tax, and nontax considerations both tangible and intangible. All of these must be considered and balanced, for the executor's tasks and responsibilities are often complex and their successful and prompt completion is always-from the heirs' viewpoint-crucial.

PART II--SELECTING A TRUSTEE

Duties of the Trustee

A trustee is the person (and/or institution) named in a trust agreement to carry out the objectives and follow the terms of the trust. A trustee can be an individual (professional or nonprofessional) or a corporate fiduciary. It is also possible and common to appoint both individual and corporate trustees for reasons that will be discussed below.

It is useful in enumerating the duties and listing the attributes of a good trustee to consider the typical objectives that a trust is designed to accomplish. These goals include the following actions:

1. Reduce or eliminate income or estate or generation-skipping transfer taxes at the federal or state level.

2. Reduce or eliminate probate costs.

3. Provide a vehicle that will serve as a receptacle for both probate and nonprobate assets and facilitate attainment of other estate planning objectives through unified administration.

4. Provide for minor children in a manner more flexible and custom-tailored to the grantor's desires than the Uniform Gifts or Uniform Transfers to Minors Acts allow.

5. Provide for recipients who are legally of majority age but who lack the emotional or intellectual maturity or physical capacity or technical training to handle large sums of money or an investment portfolio or a family business.

6. Provide for individuals who have the capacity to handle large sums of money or an investment portfolio or a family business but choose not to make the necessary investment decisions or deal with the constant problems or devote the degree of attention required.

7. Postpone full ownership of trust assets until the beneficiaries of the trust have attained ages specified by the grantor or until events specified by the grantor have occurred.

8. Enable the investment of an asset that does not lend itself to fragmentation. This often occurs where the grantor desires to spread the beneficial ownership among a number of individuals. Life insurance policies and real estate are just two examples of assets that are difficult to split up or are worth substantially more if held together.

9. Limit the parties who can obtain the assets and achieve particular dispositive objectives. For instance, where family control of a business or a specific asset is important, the grantor will want to limit the class of beneficiaries and prevent recipients from disposing of property to persons outside the family. A common example is the desire to protect assets from the consequence of an unsuccessful marriage.

The duties of the trustee may therefore include the satisfaction of a number of tax and nontax objectives that include but are not limited to the investment, management, and protection of trust assets and compliance with the dispositive intentions of the grantor.

To a great extent the selection process and decision criteria for selecting a trustee will follow the same pattern as in choosing an executor; premium will be placed on many of the same attributes. But there are several significant distinctions.

Unlike the role of the executor, which is typically concluded within a year or two, the trustee's responsibilities commonly last for at least one generation and often last beyond two or three generations. This fact should have a significant effect on the choice of trustee or on the decision to name both cotrustees and successor trustees (or to provide a mechanism for their appointment by a resigning trustee or by the beneficiaries).

A second distinguishing factor is that the choice of trustee, unlike the selection of the executor, is tax sensitive. In other words, there will be situations in which tax consequences will vary widely (results ranging from success to tax disaster) according to whether the grantor, the grantor's spouse, the beneficiaries, the grantor's business associates, the grantor's professional advisors, or a totally independent third party is named as trustee.

The decision is further complicated by a multiplicity of personal, family, business, investment, and nontax considerations-which must all be weighed by the grantor and the attorney drafting the trust. Quite often, a tradeoff between flexibility and tax-saving objectives will be required. And even with the aid of skilled counsel, some compromise may be necessary.

Attributes of a Good Trustee

When selecting a trustee, the major attributes to consider are:

1. Availability.

2. Impartiality and lack of conflict of interest.

3. Financial security.

4. Investment sophistication, policy, and track record.

5. Business sophistication.

6. Accounting and tax-planning expertise.

7. Recordkeeping and reporting ability.

8. Knowledge of and sensitivity to beneficiaries and their circumstances.

9. Fees.

10. Tax-neutral impact.

11. Decision-making abilities.

12. Competence.

13. Standard to which trustee will be held.

14. Integrity.

15. Flexibility to meet changing circumstances.

16. Willingness to serve throughout the term of the trust.

17. Experience as a trustee.

18. Neutral state law impact.

Availability. This criterion has two aspects, permanency and proximity. Corporate trustees are often considered because they possess one attribute that individuals (even individuals who are professional trustees) do not possess-perpetual existence, at least in the sense that a bank (or its successor) is likely to be in business during the entire term of the trust even if it lasts for generations, whereas individuals, even professional trustees, may with unpredictable frequency retire or make a career change or die or become disabled. Although banks may take holidays, they never take vacations. So to some extent it can be said that corporate fiduciaries have an availability advantage over individuals.

This perpetual-existence theory must be considered in perspective; only change lasts forever. The real issue is whether the trustee will be able to serve effectively long enough. The briefly considered answer to this question would still seem to give unparalleled advantage to a bank, especially when the possible senility or emotional instability or physical disability of an individual trustee is considered. It is particularly difficult to protect beneficiaries against these human frailties, since there is no automatic retirement mechanism for superannuated or mildly incompetent trustees.

But consider that with change in personnel at senior management, professional, and clerical levels, even if the same legal entity is involved, both the personalities and the principles on which money is managed and invested may have changed so drastically as to constitute a new entity for all practical purposes. Surely, in the time span of a trust running for two or more generations, turnover in most banks will effect a drastic if not revolutionary change in people dealing with and policies affecting trust beneficiaries. The bank that was so friendly and competent (perhaps because its senior management gave great priority to trust business in the years in which the trust was established) may be cold and less than satisfactory to a second generation of beneficiaries.

Availability must also be considered in geographic terms. An individual trustee is likely-over a long period of time-to move from the city in which the trust or its beneficiary is located. Of course, although banks generally remain and in fact are becoming regional in scope, since beneficiaries often move (or perhaps did not live in the same city or state or country as the grantor to begin with), dealing with the bank selected by the grantor may no longer be convenient. Consider provisions giving beneficiaries the power to change from one corporate fiduciary to another. (See discussion below of removal and replacement of trustees.)

Impartiality and absence of a conflict of interest. How will the trustee react when faced with a choice that favors him at the expense of other beneficiaries-or favors others at his expense? What are the intrafamily implications of those choices? For instance, will he alienate one family member by (even properly) denying a distribution, or ingratiate himself to another by being liberal in his policy of making distributions? Can he say no to one child and yes to another without causing a never-ending family feud? A trustee who is also a family member may be forced by conscience or by duty to make choices injurious to the harmony of family relationships.

Will the trustee (such as the grantor's spouse) be subject to the influence of one or more children (or a second spouse or lover) to make distributions that may not be in the best interest of other beneficiaries? Is the family member-trustee easily persuaded or likely to show favoritism? The remarriage of a spouse or child who is named as trustee may result in less than impartial decisions-especially where the trustee has been given discretionary powers over trust income or principal-even if the new spouse is not included in the class of possible recipients.

A child/trustee may take on the role of a parent to his or her remaining parent or siblings. This may be positive, but is also may result in an attempt to control the lives of family members through the family finances as if that person were a parent rather than a child.

An independent professional trustee is not subject to such problems. Since the choice between no and yes may be one of the most important duties of a trustee, this ability of a professional trustee to be objective and impartial should be given high preference in the decision-making process.

Conflict of interest can occur even where there is no issue of impartiality. For example, assume that grantor names his attorney as trustee. The attorney/trustee would most likely be objective and impartial as between the conflicting interests of family members. But consider these questions:

* Once the grantor has died, who will negotiate with the attorney to ensure that fees are reasonable?

* Who could fire the attorney (or trustee) if services were not performed properly or in a timely manner?

* Can the attorney remain impartial as a trustee if he represents the business of one of the beneficiaries?

* Is it appropriate for an accountant serving as trustee to continue in the dual capacity if he also represents a business owned by the trust?

* What if there is an argument between the attorney/ trustee and the grantor (or the trust's beneficiaries) that is entirely personal or is on the attorney/client level and has nothing to do with the relationship he has as a trustee?

* Is it possible for an attorney/trustee to fairly represent the beneficiaries, the grantor, or co-trustees in a trust-related situation?

* Will the attorney or accountant be willing to allocate appropriate time to the trust or will at the same time that the person is concentrating on obtaining and servicing professional clients (especially if the fees for serving as trustee are substantially lower than that charged in the professional's practice)?

Conflict of interest problems would plague a business associate or partner who was named trustee. For instance, if the trust held stock in one or more businesses in which the trustee was an officer or shareholder, his salary, or his stock interest would be affected by his actions taken as a trustee. What if the trustee was the art dealer for the trust of an artist who trusted him and had the highest degree of respect for the dealer's integrity, judgment, and marketing expertise? Assume the trust's assets consisted mainly of the artist's paintings. The dealer/trustee would be bound to obtain the highest price possible when selling trust assets. But as a dealer, he would want to pay the lowest possible price. Would it be appropriate to continue as trustee under those circumstances? It is risky to name anyone who is likely to buy or lease assets from or sell or lease assets to the trust or have any other dealings with trust property.

Some of these impartiality and conflict-of-interest problems can be overcome or minimized if anticipated in advance. But in most cases, if such problems can occur, they will. Often, the problem is not that an unethical transaction has occurred or an improper decision has been made. Rather, it is that the parties are uncomfortable merely because the beneficiaries know it could happen and the trustee knows the beneficiaries may distrust, second-guess, or sue him merely because they suspect a conflict of interest could have occurred or might occur.

Financial security. This refers to the security of the funds entrusted to the trustee and the "depth of the trustee's pockets" in the event of a successful malfeasance or misfeasance suit by beneficiaries. A nonprofessional trustee will not have an internal audit staff to review the acts of the person administering the trust. This lack of a system of checks and balances is one of the major shortcomings of an individual nonprofessional trustee. Conversely, banks and trust companies are audited both internally and (usually by the state) externally. All investments made by a corporate fiduciary must be approved by a trust investment committee, and the portfolio, which is typically diversified, is reviewed frequently.

If sued, will the fiduciary be available to answer for and be able to pay damages for a wrongful act? The answer is likely to be "no" with respect to an individual trustee but "yes" with respect to a corporate fiduciary. For example, in the event of an embezzlement or some other impropriety or breach of trust, the odds of a recovery from a bank or trust company are significantly higher than from an individual trustee merely because of the relative sizes of the fiduciary's own assets. Banks serving as trustees are required to meet minimum amounts of capitalization requirements.

An individual trustee can acquire physical security for trust assets by hiring safe deposit and other facilities. Banks and trust companies have such protection on site but of course build charges for their use into their fees. Investment sophistication, track record, and investment policy. The trustee's ability to successfully invest and reinvest trust funds is one of the more important attributes to consider in the selection process. In this regard, many professional and even nonprofessional individuals have proved more astute or competent than their corporate counterparts. In some cases the grantor's opinion of a spouse or child as "financially inept" has proved to be an incorrect perception.

But the highly computerized and experienced investment departments of banks and professional individual fiduciaries do have an advantage over anyone who is not a professional investor. A further advantage of the professional trustee is that trust assets can be invested in a bank's common trust funds, which increases the safety of trust investments through diversity.

The ultimate decision in this category should not be made until the various track records are compared. The performance of commercial trust departments has varied considerably from bank to bank and from the investments returns of other investment managers.

Investment policy is an important consideration in the selection process. Corporate fiduciaries tend to be conservative. This may be either attractive or a drawback depending on how aggressive the grantor's own style or personal objectives are.

The investment decisions of an ultraconservative trustee may not be suited to the beneficiaries' risk-taking propensities or their growth and income objectives. But this in turn may be more in keeping with the grantor's long-range goals of restraining the lifestyle of income and principal recipients.

So the ultimate decision is not between professional and nonprofessional or between individual and corporate fiduciary; it must be made on the basis of the type of investment policy the grantor of the trust desires and the particular trustee that will come closest to matching that policy.

Business sophistication. Where one or more businesses are held in the trust, it is extremely important that the trustee have expertise in running that type of business. Even if the trustee should and will sell it, knowing when and how best to dispose of it is a very important skill. If the business is large or large relative to other trust assets, or if it is a specialized or personal service type of business, this may mean that a family member, business associate, professional advisor, or even a former competitor may have to be considered in spite of impartiality issues or potential conflicts of interest.

Typically, corporate fiduciaries do not continue businesses left in trust. The business is quickly sold and the proceeds are reinvested. In most cases that will be the appropriate course of action, since few banks have enough of the right type of personnel to continue the success of a growing business, and a failing business should usually be liquidated as quickly as possible. Nonprofessional individual fiduciaries rarely have the time to run a business even if they have the expertise and experience.

Accounting and tax planning expertise. Corporate fiduciaries have a definite advantage over nonprofessional individual trustees when considering the myriad accounting procedures, tax compliance, and tax planning opportunities that must be handled by a trustee. The level of sophistication, expertise, and experience that should be applied over the lifetime of any trust is one that few nonprofessionals can provide. This means that most family members will simply be incapable of fully understanding all of the problems that must be avoided and the availability and implications of the tax and property law elections that must be weighed. Even knowledgeable attorneys and accountants do not have the requisite practical day-to-day experience unless they practice solely in this field.

It is possible and in many cases appropriate for a trustee to hire agents for advice and assistance. Most trustees will communicate regularly with outside attorneys and accountants. But planning policy and decisions must be made by the trustee; these are among the duties that cannot be delegated. Thus, the trustee must have a working knowledge of the accounting laws and both federal and state tax laws (income, estate, gift, and generation-skipping). Will an untrained trustee know whom to call or if the advice received is both legally correct and practical? Will a nonprofessional understand the interplay between tax, trust, and property law well enough to interpret provisions in the trust and adequately inform beneficiaries about the tax and other legal effects of various choices?

Recordkeeping and reporting ability. A trust is a long-term arrangement under which accountings must be made periodically over many years to a number of parties that may include the grantor, the beneficiaries, the appropriate federal and state taxing authorities, and the supervising court. This requires regular statements of the receipts, disbursements, and assets of the trust in an intelligible form, and careful long-term record storage.

Knowledge of and sensitivity to beneficiaries and their circumstances. In some cases an understanding of the family involved and their special needs or desires and how they relate to the grantor's objectives should properly take priority over many of the other objectives on this list. If the financial encouragement of a handicapped child, for example, is not provided through the trust, the trust may fail in its purpose regardless of how much tax it saves or how closely the trustee meets both the letter of the law and the terms of the trust itself. Sensitivity here is therefore used interchangeably with flexibility. If flexibility in dealings with trust beneficiaries and a high degree of personal sensitivity are primary considerations, a nonprofessional trustee is indicated.

Fees. Corporate and other professional fiduciaries charge a fee for their services. Usually, this fee is based on a percentage of the income and principal of the trust. A distribution fee equal to a percentage of the principal disbursed from the trust is also often charged (upon termination or otherwise). Although this fee is typically set according to a standard schedule of fees, it may be possible to negotiate the fee in the case of a trust with a large amount of assets. This may be an amount agreed on or may be a flat hourly charge. Where trust assets consist solely of unfunded life insurance trusts, unimproved real estate, or closely held stock, the nonprofessional may be the best choice for a trustee. Likewise, trusts with assets of less than $200,000 in value are often discouraged from using corporate fiduciaries because of the fees.

Many individuals name their spouses or relatives or close friends or even trust beneficiaries because they will serve as a personal favor or as an accommodation and will not charge a fee to act as a trustee. This may be an economic necessity where the value of trust assets is small and payment of the minimum fees to the corporate fiduciary would significantly reduce the income and principal of the trust. But in most cases, the fee saved by using a nonprofessional amounts to a false economy.

There is a further aspect with respect to fees and the selection of a trustee; in selecting a relative who is also a beneficiary, will the fees charged be understood by and acceptable to other beneficiaries, or will such fees-even if reasonable for the services performed-be resented and cause conflict?

Tax-neutral impact. A revocable trust has a neutral impact on taxes at both federal and state levels. As long as the grantor has reserved the right to revoke the trust at any time, in most situations he will be treated as if he had not established a trust and had remained as the outright owner of the property in the trust. So with respect to a revocable trust, it does not matter for tax purposes who is selected as trustee. For example, the grantor will be taxed on the income of a revocable trust whether he names himself, his spouse, a beneficiary, a friend, a business associate, a professional whom he employs, or an independent corporate or other professional fiduciary.

But if one of the major reasons for establishing an irrevocable trust is to save taxes (federal and state income, estate, or generation-skipping transfer), the identity of the trustee is a very tax-sensitive decision: Inclusion of the trust's assets in income (or in the gross estate or in the generation-skipping tax base) will result if the wrong party is selected as trustee. The potential for adverse tax results increases significantly when the trustee is given discretionary powers over the income or principal of the trust if the trustee or a cotrustee is the grantor, his or her spouse, a family member (or some combination of them), or if one or more of these people becomes a trustee under a successor provision in the trust.

Consequently, the adverse tax consequences can be avoided very simply by providing that these individuals may not become a trustee or by specifying that if such a person is a trustee, he or she may not participate in a decision that will result in the to-be-avoided tax result. For example, a surviving spouse/trustee would be prohibited from exercising a broad discretionary power over principal in her own favor if the objective of the trust was to prevent inclusion of assets in her estate. But it is obvious that favorable tax results are obtained at the cost of a loss of flexibility.

The following commentary summarizes the major income and estate tax consequences of powers held by various parties. It emphasizes that before naming the grantor or anyone with an interest in the trust as trustee, consideration must be given to these implications.

I. Powers to affect beneficial enjoyment.

A. Power to distribute income to the grantor or the grantor's spouse.

1. Grantor as trustee.

a. Grantor taxed on the income of the trust since the grantor will be treated as the owner of trust assets.

b. Assets in the trust includable in the grantor's gross estate.

2. Nonadverse party as trustee.

a. Grantor taxed on the income of the trust.

b. Assets in the trust not includable in the grantor's gross estate.

3. Adverse party as trustee.

a. Grantor not taxed on trust income.

b. Assets in the trust not includable in grantor's gross estate.

B. Power to distribute income to beneficiaries other than the grantor or the grantor's spouse without the restriction of an ascertainable standard.

1. Grantor as trustee.

a. Grantor taxed on the income of the trust since the grantor will be treated as the owner of the trust.

b. Assets in the trust includable in the gross estate of the grantor if the power can be exercised by the grantor alone or with any other party (adverse or not).

2. Nonadverse party as trustee.

a. Grantor taxed on the income of the trust since the grantor will be treated as the owner of the trust (unless the power is limited to withholding distributions temporarily during legal disability).

b. Assets in the trust not includable in the estate of the grantor unless the grantor has retained the right to substitute himself as trustee.

3. Independent party as trustee.

a. Grantor not taxed on the income of the trust.

b. Assets in the trust will generally not be includable in the grantor's gross estate unless the grantor can substitute himself as beneficiary.

C. Power-subject to an ascertainable standard-to distribute income to beneficiaries other than the grantor or the grantor's spouse.

1. Grantor as trustee.

a. Grantor taxed on the income of the trust since the grantor will be taxed as the owner of the trust (unless the power can be exercised only with the consent of an adverse party).

b. Assets in the trust will generally not be includable in the grantor's gross estate since the power can only be exercised pursuant to ascertainable standards.

2. Person other than the grantor (or the grantor's spouse) as trustee.

a. Grantor not taxed on the income of the trust.

b. Assets in the trust will generally not be includable in the grantor's estate unless the grantor can substitute himself as trustee.

D. Power-subject to an ascertainable standard-to distribute principal to a beneficiary or class of beneficiaries.

1. Grantor as trustee.

a. Grantor not taxed on the income of the trust.

b. Assets in the trust will generally not be included in the grantor's estate because exercise of the power is limited by an ascertainable standard.

2. Person other than grantor as trustee.

a. Assets in the trust will generally not be included in the grantor's estate because exercise of the power is limited by an ascertainable standard.

E. Power to distribute principal to a current income beneficiary.

1. Grantor as trustee.

a. Grantor not taxable on the income of the trust.

b. Assets in the trust will be includable in the grantor's gross estate unless the power is limited by an ascertainable standard.

2. Person other than grantor as trustee.

a. Grantor not taxable on the income of the trust.

b. Assets in the trust will not be includable in the grantor's gross estate unless the grantor can substitute himself as trustee.

F. Power to distribute or accumulate income for a current income beneficiary.

1. Grantor as trustee.

a. Income of the trust not taxable to the grantor.

b. Assets in the trust will be includable in the grantor's estate unless the power can be exercised only pursuant to an ascertainable standard.

2. Person other than grantor as trustee.

a. Income of the trust not taxable to the grantor.

b. Assets in the trust will not be includable in the grantor's estate unless the power can be exercised without an ascertainable standard and the grantor can substitute himself as the trustee.

G. Power to make mandatory distributions of income or principal to specified beneficiaries other than the grantor or the grantor's spouse.

1. Grantor as trustee.

a. Income of the trust not taxable to the grantor unless trust income is used to discharge his legal obligations.

b. Assets in the trust will not be included in the grantor's gross estate because the grantor has retained no power to affect beneficial enjoyment of trust property.

2. Person other than grantor as trustee.

a. Income of the trust not taxable to the grantor unless trust income is used to discharge his legal obligations.

b. Assets in the trust not includable in the grantor's gross estate.

II. Administrative powers.

A. Power to allocate receipts between principal and income.

1. Grantor as trustee.

a. Grantor not taxable on the income of the trust.

b. Assets of the trust will not be includable in the grantor's estate unless the power can be exercised by the grantor in a nonfiduciary capacity either alone or in conjunction with another person.

2. Person other than grantor as trustee.

a. Grantor not taxable on the income of the trust.

b. Assets of the trust will not be includable in the grantor's estate.

B. Power to use trust income to pay premiums on insurance insuring the life of the grantor or the grantor's spouse.

1. Grantor as trustee.

a. Grantor is taxable on the income of the trust to extent the income is or may be used for the payment of life insurance premiums without the consent of an adverse party.

b. Assets of the trust will not be includable in the grantor's gross estate assuming the trust both owns and is beneficiary of the policy proceeds.

2. Nonadverse party as trustee.

a. Grantor will be taxed on the income of the trust.

b. Assets of the trust will not be includable in the gross estate of the grantor.

3. Adverse party as trustee.

a. Grantor will not be taxed on income of the trust.

b. Assets of the trust will not be includable in the gross estate of the grantor.

C. Power to purchase, exchange, or otherwise deal with trust assets for less than adequate consideration.

1. Grantor as trustee.

a. Grantor will be taxed on income of the trust if he or a nonadverse party (or both) can exercise the power without the consent of an adverse party.

b. Assets of the trust will be includable in the gross estate of the grantor.

2. Nonadverse party as trustee.

a. Grantor will be taxable on trust income if the nonadverse party can exercise the power without the consent of an adverse party.

b. Assets in the trust will not be includable in the estate of the grantor unless the grantor can substitute himself as trustee.

3. Adverse party as trustee.

a. Grantor not taxed on the income of the trust.

b. Assets in the trust will not be includable in the estate of the grantor unless the grantor can substitute himself as trustee.

D. Power to borrow trust income or principal without adequate interest or adequate security.

1. Grantor as trustee.

a. Grantor taxed on trust income if trust property can be loaned to grantor without adequate interest or security (income will not be taxed to grantor if approval of adverse party needed).

b. Assets in trust will be includable in grantor's gross estate.

2. Person other than grantor as trustee.

a. Grantor not taxed on trust income if person other than grantor is trustee and that person has the power to make loans to anyone.

b. Assets will not be included in grantor's gross estate unless he can substitute himself as trustee.

E. Power to vote the securities of a controlled corporation.

1. Grantor as trustee.

a. Grantor taxed on income of trust if (1) power can be exercised in a nonfiduciary capacity and (2) the stockholdings of the grantor and the trust are significant from the viewpoint of control.

b. Assets in the trust must be included in the grantor's gross estate.

2. Person other than grantor as trustee.

a. Grantor taxed on trust income if power to vote securities held by person with non-adverse interest in a nonfiduciary capacity without consent of person in fiduciary capacity, assuming stock holdings of grantor and trust are significant from the viewpoint of control.

b. Assets in the trust will not be included in the grantor's estate unless he has retained the power to substitute himself as trustee.

F. Power to reacquire trust principal by substituting property of equal value.

1. Grantor as trustee.

a. Grantor will be taxed on trust income if the power can be exercised by anyone in a nonfiduciary capacity without the consent of a person in a fiduciary capacity.

b. Assets in the trust will be includable in the gross estate of the grantor.

2. Persons other than the grantor as trustee.

a. Grantor will be taxed on trust income if the power can be exercised by anyone in a nonfiduciary capacity without the consent of a person in a fiduciary capacity.

b. Assets in the trust will not be includable in the grantor's gross estate unless he can substitute himself as trustee.

III. Powers over principal.

A. Power to revoke the trust and revest the principal in the grantor or in grantor's spouse.

1. Grantor as trustee.

a. Grantor taxed on trust income unless power can be exercised only with consent of adverse party.

b. Assets in trust includable in grantor's gross estate if power exercisable only by grantor alone or with any person whether or not adverse (unless the power can be exercised only with consent of all persons with a vested or contingent interest in the estate).

2. Nonadverse party as trustee.

a. Grantor taxed on trust income unless power can be exercised only with consent of adverse party.

b. Assets in trust not includable in grantor's estate unless power is exercisable by trustee and grantor can substitute himself as trustee.

3. Adverse party as trustee.

a. Grantor not taxed on trust income.

b. Assets in trust not includable in grantor's gross estate.

B. Power to terminate trust and distribute principal to beneficiaries.

1. Grantor as trustee.

a. Grantor not taxed on trust income if principal can be paid out only to income beneficiaries in same proportion as they currently receive income, or if principal can be paid out only with the approval of an adverse party.

b. Assets in the trust are includable in the grantor's gross estate if the grantor can exercise the power alone or with any other person whether or not adverse.

2. Adverse party as trustee.

a. Grantor not taxed on trust income.

b. Assets in trust not includable unless power exercisable by trustee and grantor can substitute himself as trustee.

3. Nonadverse party as trustee.

a. Grantor taxed on trust income unless approval of adverse party required or unless payment must be made to current income beneficiaries in proportion to income receipts.

b. Assets in trust not includable unless power exercisable by trustee and grantor can substitute himself as trustee.

4. Independent Trustee.

a. Grantor not taxed on trust income if half or more of trustees are independent.

b. Assets in trust not includable unless power exercisable by trustee and grantor can substitute himself as trustee.

IV. Powers to discharge legal obligations.

A. Power to discharge support obligation.

1. Grantor as trustee.

a. Grantor not taxable on trust income merely because of the existence of the power unless he has the power in a nonfiduciary capacity or the power is to support his or her spouse. But the grantor will be taxed on the income to the extent it in fact is used to discharge the grantor's support obligation.

b. Assets in the trust will be includable in the grantor's estate if trust income may be used to discharge the grantor's legal obligation.

2. Persons other than grantor as trustee.

a. Grantor not taxable on income unless it is in fact used to discharge the grantor's legal obligation.

b. Assets in the trust will not be included unless the grantor could substitute himself for the trustee.

Decision-making ability. The trustee selected must be able to make many decisions, some of great significance, over an extended period of time. This entails the need for emotional maturity and wisdom as well as knowledge.

Competence. A trustee must have the legal capacity to contract. This precludes the appointment of a minor or an incompetent adult. In many states a nonresident individual can act as a trustee (although as a practical matter, geographical considerations often contraindicate selecting a person who lives a considerable distance from the beneficiaries of the trust). Some states bar nonresident corporations from serving as trustees.

Skill to which trustees will be held. A trustee will be hold to a high degree of skill and care. Under the "prudent person" rule, a trustee must use the same degree of care and skill that a person of ordinary prudence would exercise in dealing with his own property.

The Uniform Probate Code, adopted by many states, places a higher standard on professional trustees by providing that if the trustee has greater skill than that of a person of ordinary prudence, he is under a duty to exercise such skill.

Integrity. Honesty and loyalty are the watchwords of trusts. Vast sums of money and other assets are entrusted to fiduciaries who must exercise a high degree of care over trust property and act consistently on behalf of trust beneficiaries.

Flexibility to meet changing circumstances. Change in tax law and in the circumstances and goals of each of the beneficiaries is the only certainty. Since a trust is a mechanism specifically designed to meet that change, the trustee must be willing and able to change as well.

Willingness to serve throughout the term of the trust. An individual trustee could easily lose interest through the long years and even generations a trust may last. Corporate fiduciaries are more likely than individuals to continue for the full term.

Experience as a trustee. This is the most rare of all characteristics. Obviously, past experience in administering a trust is invaluable. Through experience, the fiduciary is more likely to appreciate the broad and complex multiplicity of laws involved, know who to call on for assistance, avoid many mistakes, and more efficiently administer and execute the terms of the trust.

Neutral state law impact. State trust laws must be considered in selecting a trustee. If state law trust requirements are not met, the trust will be invalid and provide none of any intended tax benefits. This is because federal laws's recognition of a trust as a separate tax entity presupposes validity of the trust under state law.

When a beneficiary is named as trustee, the Doctrine of Merger must be considered. This doctrine holds that the trust as a separate entity ceases to exist when the legal title to the property held by the trustee is identical to the beneficial interest held by the beneficiary. For instance, if the grantor's son is both the sole trustee and sole beneficiary, the trust will cease to exist.

Cotrustees

After considering each of the desirable characteristics of a good trustee, it will become obvious to most grantors that it is impossible to select a trustee that has all of the advantages and none of the disadvantages. Many grantors therefore attempt to obtain the strengths of both the corporate and the nonprofessional trustee by naming a cotrustee. Often, one or more family members and a corporate fiduciary are selected.

Combining the positive aspects of more than one trustee has a cost; certain drawbacks or issues must be considered. For instance, if two trustees are selected, what is the procedure if they do not agree on a given issue? If three or more are selected, will the majority rule? What responsibility does a dissenting trustee have for an action (or nonaction) taken by the majority?

Removal and Succession of Trustees

As part of the selection process itself, a grantor should think about the removal of current trustees and the appointment of successor trustees (typically, at least two should be named). The trust instrument itself should consider issues such as the following:

* Who, if anyone, should be given the power to remove trustees?

* Should such a power be given to the grantor, the beneficiaries, the trustee(s), or an outside party?

* How narrow or broad should a removal power be (i.e., under what circumstances should someone be able to remove a trustee)?

* How often may a removal power be exercised?

* How will succession be determined?

* What restrictions will be placed on the successor trustee?

* What are the various tax consequences of allowing the grantor or the beneficiaries to remove a trustee and without restriction appoint a new one?

Summary. The selection of a trustee is a most difficult one because of the longevity of most trusts, the complexity of the tax and other laws with which the trustee must comply, and the sensitivity a trustee must have to both the grantor's objectives and the beneficiary's needs and desires. For these reasons, one or more cotrustees (almost always professionals) is indicated where the terms of the trust are complex or the estate is large.

PART III-SELECTING AN ATTORNEY

Duties of the Attorney

The duties of the attorney will depend on the client's stage in the estate planning cycle-accumulation, conservation, or distribution. In actuality it is sometimes difficult to know where one stage ends and another begins. Clearly, the attorney must be aware in each stage of the implications of what is done at that stage for the other two stages-and of the consequences to the client and his beneficiaries. For instance, it may be easier and less expensive in the planning stage of the cycle to draft a simple will than a series of more complex trusts. But the client's family may have fared better in the later stages had the attorney done a more extensive estate plan.

An estate planning attorney must gather data regarding the client and his family or other potential beneficiaries and their circumstances; the client's sources of wealth, income, liabilities, and expenses; and the client's financial goals and fears. The attorney must then assemble this data and relate each of these objective facts and subjective feelings to each other and be able to ascertain the client's current position and the extent of his weaknesses in the following areas:

1. Liquidity: Will the client during his lifetime and his executor at his death be able to pay taxes and other expenses without the need for a forced sale?

2. Disposition of assets: Are they going to the right person at the right time in the right manner?

3. Adequacy of capital and income: Does the client have enough capital and income in the event of death or disability, or at retirement, or for special family needs such as the care of a handicapped child, or for charitable bequests?

4. Stability and maximization of value: Has the client first put a floor under and then maximized the value of the assets he currently owns? For instance, the value of a business without adequate liability or fire insurance coverage has not been stabilized; the value of a partnership without a fully funded buy-sell plan has not been maximized.

5. Excessive transfer costs: Is the client paying too much in income taxes, or will the client's estate pay an unnecessary amount of estate or other death taxes or transfer costs?

6. Special needs: Does the client have special needs or desires that must be met, such as making gifts to a charity, supporting a poor relative, or protecting a spendthrift spouse?

An estate planning attorney must not only understand these problems and their solutions but also be able to communicate them to the client in a manner that will allow the client to make informed decisions.

Often the attorney must organize the entire estate planning team. Always the attorney should work with the client and the client's other professional advisors in establishing an order of priorities and responsibilities and make sure each aspect of the plan is completed in a timely manner.

Only the attorney can draft the appropriate documents. These range in complexity and length from a simple durable power of attorney, which may run four or five pages, to the recapitalization of the client's business and the complete restructuring of the nature of the client's estate plan, which may take hundreds of drafted pages.

Attributes of a Good Attorney

Many of the same attributes important in the selection of an executor or trustee are also of key importance in the search for an attorney. For example, an attorney with business experience who is also familiar with the client's business can be invaluable. The major attributes that should be considered in the selection of an estate planning (or administration) attorney are competence, compassion, clarity, and affordability.

Competence. The level of competence necessary depends to a great extent on the nature and extent of the client's wealth and the complexity of the client's situation. Most general practitioners are competent to draft a power of attorney or simple will. This may be all that is necessary in smaller estates where all the parties involved including the beneficiaries are self-sufficient adults and there are no unusual assets, objectives, or problems.

But once the estate reaches the size at which federal estate taxes may be imposed, or if the client or any of the client's beneficiaries are under a legal, physical, mental, or emotional disability, or if there is any unusual fact pattern, it is best to find a attorney who specializes in estate planning and administration. The question is how do you find an attorney in the estate planning field, and then how do you ascertain his or her competence? Some of the ways to locate attorneys practicing in the estate planning field are discussed below.

1. Call the county or city estate planning council. Ask for a copy of the membership directory. This should contain lists of not only attorneys but also CPAs, CFPs, CLUs and ChFCs, trust officers, and other key members of the estate planning team. This list, of course, does not ensure any specific level of competence, but most estate planning councils require peer nomination for entrance, and membership fees help eliminate those who do not spend substantial time in the practice of estate planning. More important, estate planning councils make continuing education and in-depth seminars available to their members. The best attorneys active in the estate planning and administration field tend to be members of an estate planning council.

2. Many states now certify attorneys in selective areas of practice. Texas, for example, examines an attorney through a rigorous additional state bar-administered examination in the estate planning area. Attorneys who have earned the right to specialize in estate planning through certification will usually signify that in their telephone book listing and on their business cards and stationery.

3. Trust officers are excellent sources for finding attorneys active in estate planning. Visit three or four banks with large trust offices. Ask for the two or three most competent attorneys. If the same name is mentioned favorably by more than one trust officer, he or she might be a good choice. CLUs, ChFCs, CFPs, and CPAs are also excellent sources for the names of competent attorneys who specialize in estate planning.

4. Attorneys who specialize in estate planning often lecture at business meetings or adult education courses. After attending one or two sessions, a person should find it easy to tell if the attorney can communicate complex legal matter effectively.

5. Practicing attorneys who teach estate planning in law schools, in the tax masters' programs at business schools, and especially those who have taught the American College's estate planning courses for several years are excellent candidates.

6. Some attorneys write in professional journals such as Taxation for Accountants, the Practical Lawyer, Estate Planning Magazine, The Journal of The Society of Financial Service Professionals, Trusts and Estates Magazine, The Practical Accountant, or the Journal of Accountancy . Some write regular newspaper columns or do radio talk shows on estate planning.

7. Attorneys with an LLM (masters) in taxation generally have higher than average expertise in the estate planning area.

8. Friends and business associates may be able to provide referrals.

9. Bar association referral services and local law schools with tax masters programs are also good sources of estate planning attorneys.

Compassion. The single most important distinction between a truly good estate planning attorney and the average practitioner is not a superior knowledge of the tax law, nor is it the sense of combativeness that makes winners out of litigation attorneys: it is an attitude of being counselor rather than advocate. The estate planning attorney will be keenly sensitive to the importance of the client's business, for instance, not only as figures on a ledger sheet but also as a personification of the client and as part of a goal-striving behavior. Such an attorney will be extremely conscious of the circumstances, needs, hopes, and fears of the client and of his intended beneficiaries.

Clarity. An estate planning attorney must be able to communicate. Often, the attorney will captain the estate planning team. This means he or she must be able to request information from other professionals, explain to them what each member of the estate planning team is doing and what remains to be done. The attorney must also be able to communicate clearly with nonprofessionals, such as the client or the client's family, the nature and extent of problems the client may not have known existed.

Clarity encompasses not only transferring information but also the urgency of deciding and then acting. The estate planning attorney must be able to convey the importance of the client's doing certain things (such as signing a will, obtaining adequate amounts of life or disability insurance, or establishing a buy-sell agreement) now!

Affordability. Malpractice premiums for estate planning and administration attorneys are among the highest in the profession. This is indicative of the complexity of the practice and of the potential for making expensive mistakes. The point is, selecting the right attorney is a cost-saving factor. The lowest fee may be far from the least expensive.

Clients should demand a written and signed statement of the attorney's hourly fee or an estimate of the overall cost for planning or administering the estate-before allowing work to begin.

There is one more important consideration involving the relationship of an attorney to the estate of a deceased person. In most cases the attorney who drafted a will or trust or other estate planning document should be employed to help execute it. That attorney will probably know the client and his intentions better than anyone else. But if the personal representative of a deceased person is not satisfied with the deceased person's attorney or if the decedent gave no indication of his or her choice of attorney for the estate, the personal representative should, in practically every instance, make his or her own independent selection of an attorney qualified in the area of administering the decedent's estate.

Since the executor has the full responsibility if something goes wrong, the executor has the right and responsibility to personally select the estate's attorney--regardless of which attorney drew the decedent's will. In fact, a number of states protect that right with specific legislation.

Summary. The selection of an attorney who specializes in estate planning should focus primarily on identifying someone who has competence, compassion, the ability to communicate clearly with other professionals and with clients, and who is willing to work at a price that is in line with a client's means.
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Title Annotation:Part 2: Ownership and Transfer of Property
Publication:Tools & Techniques of Estate Planning, 14th ed.
Date:Jan 1, 2006
Words:11899
Previous Article:Chapter 11: Disclaimers.
Next Article:Chapter 13: Probate.

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