COMMENTARY: The future of estate planning: a reason for optimism

By Harry S. Margolis
BridgeTower Media Newswires
 
DETROIT—When I began writing this article, I was relatively pessimistic about the future of estate planning. The growth of online services and the elimination of the federal estate tax for all but the top 0.1 percent of families in terms of wealth are dampening the market for estate planning.

But now I’m feeling much more optimistic, buoyed by the demographics — the large number of baby boomers needing estate plans) — and the nature of this demographic — most baby boomers feel more comfortable meeting with a trusted advisor than trusting an online service. So far, the interaction that happens during an in-person meeting can’t be replaced by artificial intelligence.
Nevertheless, the practice of estate planning will change significantly over the next 10 to 20 years. Here are some the factors that will drive those changes and steps that a practitioner can take to stay ahead of these changes:

Online services

Online services, such as Nolo, LegalZoom, Rocket Lawyer and Willing, offer relatively easy-to-use and very inexpensive do-it-yourself services for estate planning. LegalZoom and Rocket Lawyer also offer connections to inexpensive attorneys to answer legal questions, though these lawyers will not prepare estate planning documents for their clients through these services.

Since they are all private companies, we don’t know the number of customers who use their services. LegalZoom’s website claims that 1.5 million of its consumers have created wills, which amounts to an average of about 100,000 a year since the site’s founding, though undoubtedly it’s selling many more now than it was in its early years.

My guess is that many more consumers start the process, and perhaps pay for the service, than actually complete their estate plans.

Questions involving difficult decisions, such as who should serve as executor of an estate or guardian of minor children, can derail an estate planning session. Once derailed, many clients will not get back on track.

These online services undoubtedly will get more comprehensive as they develop over time and respond to questions and situations raised by their customers. However, there can be a problem of balancing sophistication and ease of use. The more detailed the questions the programs ask and contingencies they cover, the more likely it is that their customers will get bogged down and fail to complete their estate plans.

Machine learning

In theory, a law firm could automate all its estate planning through a smart system. The best way to do that would be record the situations of tens of thousands of clients and the estate planning solutions well-regarded attorneys devised for them. Based on that data, a machine-learning algorithm could then recommend estate plans for clients in similar situations and automatically prepare at least preliminary documents for them.

The main reason this hasn’t happened yet is that estate planning firms have neither the volume of business nor financial resources to merit an investment in machine learning. In addition, it would require either the law firms or consumers to input a lot of data about their situations and the ultimate plans developed. Neither will likely feel that it’s worth the effort.

It’s more likely that a company such as LegalZoom could take advantage of machine learning. However, as its programs become more sophisticated, it will run into the same challenge mentioned above: Customers will become bogged down with the level of detail necessary to engage in a more sophisticated estate plan.

In short, though machine learning could revolutionize estate planning, there are significant barriers that have delayed and will continue to slow its development.

In-person meetings

Fortunately for estate planners, there’s no substitute for in-person meetings. The quality of the interaction in terms of depth of understanding, and the ability to build rapport, respond to questions, correct misconceptions, clarify goals, and develop an optimal strategy cannot be matched by alternatives.

There are, of course, some clients who would prefer not to take the time to meet with an attorney or who feel more comfortable revealing confidences to an inanimate machine than to another individual. Both are truer of younger clients than of older ones.

But the major competitive advantage of attorneys over machines is that attorneys are human (despite the charges of some critics) and can engage with other humans at a level that, so far, can’t be matched by other means.

Taxes

Avoiding or reducing estate taxes has long been a driver and goal of estate planning. With the threshold for federal estate taxation now at $11.2 million for individuals and $22.4 million for married couples, federal estate taxation now only applies to less than 0.1 percent of the population.

The challenge is that without the driver of taxes, it is more difficult to motivate clients to do their estate planning. One silver lining is that while estate tax planning is on the wane, other types of tax planning are rising in importance, particularly the reduction of taxes on income and capital gain.

Demographics and  wealth distribution

In terms of demographics, we are living in the golden age of estate planning. With 76 million baby boomers between 54 and 72 years old, most of whom need to do estate planning if they haven’t already, there’s more than enough potential business for all kinds of estate planning, whether over online services, at traditional law offices, or through some form of hybrid.

Baby boomers are estimated to control $30 trillion of wealth that they will pass on to their heirs over the next 30 to 40 years (unless they spend it down in the meantime on living and long-term care expenses).
A big factor dampening this boom in estate planning is the wealth inequality among baby boomers (not to mention the rest of the U.S. population). Ten percent of baby boomers own 68 percent of that $30 trillion of wealth, the next decile owns 12 percent, and the remaining 80 percent of baby boomers share the remaining 20 percent.

That means that only one out of five baby boomers may feel that they have sufficient assets to be concerned with estate planning, but that’s still a larger number of potential clients than ever existed before.
Differentiation

Faced with increased competition from online estate planning services, few clients being motivated by estate tax planning, and ever more attorneys graduating from law school, what is an estate planning attorney to do in order to thrive? The answer is to differentiate herself from her peers. There are many ways to do that in terms of specialization, service and marketing. Here are a few options:
Long-term care and special needs planning. These are growing fields with significant barriers to entry due to the expertise required. They also offer unique marketing opportunities through other professionals and organizations that work with seniors and individuals with disabilities.

International estate planning. While the Trump administration may limit both lawful and unlawful immigration into the United States, tens of millions of non-citizens live here and millions of American citizens live overseas. They have unique estate planning, property and tax issues.

Income-tax planning. With the decline of estate taxation, reduction of income taxes has become more central to estate planning. The new Ryan-Trump tax law also opens new tax planning opportunities, such as recharacterizing certain income so that it qualifies for the 21-percent deduction on business income or lifetime funding of qualified special needs trusts that can now qualify for a higher personal exemption and avoid the “kiddie” tax.

Retirement planning. While the main thrust of retirement planning is the job of financial planners, it also involves planning around the distribution of IRAs and 401(k) accounts to minimize and postpone taxation, as well as protect the retirement assets from creditors and the risk of divorce.

Asset protection. It’s a financially dangerous world. Clients can take steps to protect their own assets and those they leave to their spouses, children and grandchildren from creditors, ex-spouses and financial predators.

Evening and weekend hours. The practice of law is a service business. Yet, most lawyers only partly treat it that way. Why do we make clients take time off from work to get their estate planning completed? Shouldn’t law firms have evening and weekend hours to make it more convenient for our clients?

Web-based services. Most law firms are behind the times in terms of offering web-based systems for engaging with clients, whether exchanging drafts of documents, scheduling meetings or telephone calls, billing and payment, or gathering necessary information. Firms that offer online services will have a competitive advantage over firms that continue with more traditional ways of practicing law.

Home visits. Just as evening and weekend hours and web-based services can differentiate an estate planning practice from its competition, so can home visits. For some clients, especially those who are older or infirm, this can be the difference between carrying through on their estate plans and leaving them on the backburner.

Client maintenance plans. A number of successful law firms have broken away from the transactional nature of most estate planning practices by creating service packages that include an annual retainer. This serves many purposes, including the creation of a recurring revenue stream, a stronger connection with clients and their families and other professional advisers, a quicker reaction to changes in the law or client circumstances, and better implementation of estate plans, especially with regard to trust funding and beneficiary designations.

Conclusion

While many potential estate planning clients will take advantage of online solutions, many others will still feel the need to interact with a real person rather than a bot.

In addition, the very nature of law practices in the United States — with the laws different in each state and no large firm with extensive resources existing to invest in smart systems — will continue to delay the development of smart systems that might take the place of lawyers.

Certainly changes in technology have already affected how lawyers practice and communicate with their clients, and will continue to do so. But at least for the next 20 years, as baby boomers avail themselves of estate planning, much about the traditional practice of law in this field will remain the same.

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Harry S. Margolis practices elder law, special needs and estate planning with Margolis & Bloom LLP in Boston and is the founder of three related websites: www.ElderLawAnswers.com, www.SpecialNeedsAnswers.com and www.AskHarry.info.