Death and Taxes Blog

I've got a libertarian bent, so I'm not a big fan of UPL (unauthorized practice of law) statutes. I realize that they help me by restricting competition, but I'm not sure that they really help the general public. There are a lot of bad attorneys out there, and probably a lot of people (like your better accountants and CFPs) who could do many of the things some attorneys can do, maybe even do them better. Instead, the bar seems to pick and choose what it considers to be the practice of law, keeping the good stuff for itself and pushing down the boring or "unsexy" work to non-lawyers.

All of which brings me to the case of Landheer v. Landheer (available heer, er, here as a PDF). The case involved a dispute among siblings over whether their father's trust amendment was valid. While Landheer does not depend on the UPL statutes, it uses another statute (the Consumer Fraud and Deceptive Business Practices Act (the "Act")) to reach a horrifying result. Here's the relevant language of the Act:

The assembly, drafting, execution, and funding of a living trust document or any of those acts by a corporation or a nonlawyer is an unlawful practice within the meaning of this Act.

There are also potential criminal penalties under the Act, but the bombshell dropped by the court here is that, because it was drafted by a non-lawyer, the trust amendment is null and void, and has no effect. Note that this result would be reached even if there was extensive proof that the living trust amendment reflected the wishes of the person who signed it.

Does this sound like a good decision to you?

Posting is probably going to be light this week and next, as I adjust to my first quarter in business school. I'm only taking one class, but it's a doozy (business statistics).

I'll resist posting a picture of me in my "back to school" duds, lunchbox (or dinnerbox, since I'm an evening student) in hand, heading to the GSB.

I blogged here about estate planning attorneys storing their clients' original documents. The issue came up again today on the ISBA Transactional Law listserv. I thought about my position on why I don't keep clients' original documents, and wanted to share it here.

I don't keep any originals, for a few reasons:

1. "I'm an attorney, not a Will repository, damnit!" (Imagine me saying this in the voice of Bones, from Star Trek)

2. The biggest rationale for keeping original documents -- that you'll get the estate work when your clients die -- always has struck me as a little bit sleazy. Ditto the fact that you are making it uncomfortable for clients who want to hire a new attorney in the future. I don't know how many new clients have come to me and said, "Attorney X has my documents. Can you contact him and get them back? I feel really funny about it."

3. I like to manage risk, and am not interested in managing the risk that my Will repository is damaged in a fire or flood or tornado.

4. While we may have a formal Illinois Will repository in the future, what if we don't? Illinois law imposes a duty on anyone holding an individual's original Will to file the Will with the local probate court upon the individual's death. Do I really want to spend my time checking obits to see if my former clients have died?

Happy 2008! Let me ring in the new year with good news, bad news.

The Good News: As I mentioned a while back, I applied to business school. Last Thursday, I found out that I've been accepted into the University of Chicago's Graduate School of Business, to start in the evening program this summer.

The Bad News: I have to decide whether to accept the offer by this Friday. It's not that I don't want to (let me put it this way -- I only applied to the U of C). Rather, it's a question of coming up with the $80,000+ needed to attend. My mean employer won't pay for it. (Or, rather, he will, but I am him and he is me.)

This month's CBA (Chicago Bar Association) Record has a short note about a good cause, called "Wills for Heroes." This is a pro bono program where attorneys write Wills for firefighters (and other first responders) and their spouses at no cost. There's evidently a Wills for Heroes Foundation, and the Young Lawyers Section of the CBA has started participating, beginning with the Hoffman Estates Fire Department. Interested attorneys can contact the CBA here.

For some Friday fun, here is a Youtube clip playing a song commissioned by the law firm of Nixon Peabody, along with some commentary regarding the song's controversy (more commentary is here). If you're looking to find out how NOT to market your practice, this clip offers some clues.

Coming soon: The official theme song of Joel A. Schoenmeyer, Attorney at Law!

While I enjoy posting to this blog, it's not the best vehicle for writing in-depth articles about estate planning and probate-related topics. I'd like to spend a little time focusing on such articles, so posting around here is going to be light for a while. Hopefully you'll see the fruits of my labor either on my website or published in a journal.

Thanks for reading!

There was an interesting article (here -- registration may be required) in Friday's Wall Street Journal by Nathan Koppel. It's entitled "Partnership Is No Longer a Tenured Position," and talks about how some big law firms have begun demoting "under-achieving" partners. The article is a nice follow-up on my post about estate planning attorneys and the Sonnenschein firm (indeed, one of the estate planning partners who left that firm, Eileen Trost, is interviewed for this article).

To laymen and lawyers alike, the demotion of partners may come as a surprise. If I'm a partner in a partnership, how can my partners decide to kick me out? This is simply a part of big law firm life, where...

-individuals newly elected to the partnership are not given the chance to review the partnership agreement before they sign. (An acquaintance of mine said that, upon being elected and given a copy of his firm's partnership agreement, he jokingly asked a senior partner, "Can I take it home for review?" The senior partner, NOT joking, said, "That depends on whether you want to work here.");

-despite the partnership being very large, a small group of senior partners essentially control all facets of the partnership (including all salary and retention decisions);

-increasingly, the emphasis is on the bottom line, with partners facing demotion or even firing.

I'm wondering when the nuts and bolts of becoming a partner will begin to enter into the equation for new lawyers. I think most people entering the profession are still a little foggy about what it means to become a partner. To the extent it was addressed at all in my law school, becoming partner was viewed as The Top of the Mountain, a sign that you had made "it." But what is "it"? That can be a very difficult question to answer, and may vary greatly by firm. Unfortunately, firms are reluctant to reveal details of how their partnerships operate, even to their own people. That's going to change, of course -- eventually young lawyers are going to demand more transparency, and firms that don't respond will find themselves unable to hire good people. Young associates need to know:

1. What specifically do I need to do to succeed here?

2. What specifically do I need to do to make partner?

3. What does it mean to make partner? Am I really a partner, or an employee in partner's clothing? When I agree to join the partnership, what am I agreeing to?

4. Who really runs things at the firm?

As a solo practitioner, I'm often asked "where do your clients come from?" In fact, I've been asked this question so often lately that I decided to check. I occasionally run some numbers, and try to keep track of my referral sources, but I don't update that information as often as I should. So here goes...

This year I have worked on behalf of and been paid by 49 clients. You'll notice how I phrased that last sentence -- I'm not counting potential clients (people who have contacted me but haven't formally retained me) or clients for whom I've done work and haven't yet been paid (there aren't many of them -- in six years as a solo, I've never had a problem getting paid).

So, where did these clients come from?

14 clients were referred to me by other attorneys (mostly other estate planning/probate attorneys). That probably surprises some people -- why would my competitors give me business? The answer: because they aren't my competitors. I previously worked at three different law firms, all of them pretty big, and made a lot of contacts at those firms and with other attorneys at big law firms. For the most part, my attorney contacts don't do work for Joe and Jane Middle Class; instead, they do work for Richie Rich and his family. So when a friend/family member/potential client who isn't filthy rich comes to them looking for an attorney, they are nice enough to send them my way.

11 clients were referred to me by other clients, which gives me a nice feeling.

9 clients came to me via the internet (my website or this blog). This number is steadily increasing -- I'll probably begin work for 3-4 more internet clients by the end of this month.

8 clients were referred to me by non-attorney professionals (accountants, financial planners).

6 clients were referred to me by friends.

That adds up to 48 -- the 49th client is the client I have represented for the longest, who was the only client I had when I began my solo practice.

The big news in the Chicago legal community this week was the announcement (see this article -- registration may be required) that the firm of Mayer, Brown, Rowe & Maw is getting rid of 45 partners. (The partners will either be fired or demoted.)

Last month I blogged about the possible death of estate planning groups at large law firms in Chicago. My plan (since Mayer Brown surely won't announce which partners have been fired or demoted) was to track whether any of the 45 were estate planning or probate attorneys. But when I went to Mayer Brown's website and did a search for estate planners, I discovered that the death I blogged about last month must have happened some time ago.

The website for Mayer Brown (the third-largest Chicago-based firm, according to this site) says it has 1,400 attorneys worldwide. How many in the firm's Wealth Management group (their fancy name for its trusts and estates practice)? Eleven (5 partners, 3 associates, 3 counsel).

The second-largest Chicago-based firm, Sidley Austin Brown & Wood, has over 1,700 attorneys, only 15 of whom do estate planning and probate work.

The largest Chicago-based firm, Baker & McKenzie, has more than 3,400 attorneys worldwide, and doesn't seem to have anybody who does estate planning and probate work. (Maybe I'm wrong, but I don't see anything on this list of practice groups even close to estate planning.)

Of the Big 5 Chicago law firms, only one -- McDermot Will & Emery -- has a significant trusts and estates practice (about 40 attorneys in their "Private Client" group, out of approximately 1,000 attorneys). (The fifth-largest Chicago-based firm, Kirkland & Ellis, has about 1,300 attorneys, and nine trusts and estates attorneys.)

When I posted last month, I thought I was reporting on something that would happen in the future. But it turns out -- and I wish I had a Sullivan's Law Directory or Martindale-Hubbell from 10 or 15 years ago to prove it -- that estate planning attorneys left the large Chicago law firms quite some time ago.

I was sitting in court this morning for what seemed like an eternity (1 hour and 15 minutes, actually), when it struck me that paying an attorney for probate is like buying a sandwich. (I know, it's a stretch, but bear with me.)

Despite my long wait today, I can pretty much tell you how long it's going to take for me to open a probate estate (have an intial client meeting, prepare the documents and get them signed, go to court). I can also pretty much tell you how long it's going to take to close out an estate. After all, I've been a practicing probate lawyer for almost 11 years, and I've opened and close who knows how many estates.

The breakdown for me is usually something like this:

Opening the estate: 6 hours @ $225 per hour = $1,350

Estate administration: ?

Closing the estate: 6 hours @ $225 per hour = $1,350

Here's where the sandwich part comes in. I know what opening the estate will cost. I know what closing the estate will cost. What I don't know is what comes in the middle. What do you envision having on your sandwich?

-The works? If you have a decedent with complicated assets or litigious family members, or an executor or administrator who needs a LOT of hand-holding, then maybe what comes in the middle is going to be (and going to cost) a lot.

-Just a couple slices of meat and cheese? In a "typical" scenario, the executor or administrator might handle most of the ongoing administration, and call on me only with the occasional question. Could be an hour ($225) or two hours ($450) or five ($1,125).

-Just bread? The executor or administrator handles pretty much everything, and there's really not ANYTHING in the middle.

I'm happy to put as much or as little on your sandwich as you want, and this is something I discuss with all of my probate clients.

On Friday night I attended a dinner with the partners of a large Chicago law firm. The topic turned -- as it often does at such dinners -- to "crazy" associate salaries. (Two big Chicago law firms, including my former employer Sidley Austin, have recently raised the salaries for first-year associates to $145,000. The Chicago Tribune has the story here.)

Some thoughts:

1. Maybe it's because I'm not a partner at a large law firm, but I can't get as up in arms over this issue as my dinner companions. Are first-year associates "worth" $145,000? I don't know what "worth" means here. Presumably the law firms offering these salaries aren't stupid -- they think the economic value of the associates is more than $145,000. If these associates are billing 1800 hours per year at $200 per hour (which the Tribune article mentions as a possible hourly rate), we're talking about $360,000 produced. Of course there are other costs besides salary (benefits, office space taken up) -- still, I assume the economics make sense (if not in the short term, then in the long term).

I suppose that you could separate this argument from the market, and ask whether first-year associates "deserve" $145,000, or "deserve" to charge clients $200 per hour? I don't know whether this is a worthwhile endeavor, though. People are paid based on what their clients THINK their services are worth, not on what society SHOULD think a person's services are worth. We don't pay teacher $1 million per year, even if we should, so it doesn't make sense to whine about it.

2. Big law firms have a "vicious circle" problem:

Law firms raise salaries

Law firms expect more from associates, often raising billable hour requirements and hourly rates (and always raising expectations). Put another way, law firm partners don't want to pay for increases in associate salaries; rather, they want to pass these costs on to the clients

Associates rebel against the pressure, and leave -- for less demanding jobs or for a bigger paycheck elsewhere ("after all, if I'm going to work all the time, why not get paid as much as possible?")

Law firms, reacting to the loss of associates,... raise salaries, and the circle begins again

3. Note the link between increasing associate salaries (and increasing billable rates) and my post from a few weeks ago re. the decline of estate planning departments at big law firms. My former colleague Richard Brown made that link explicit in Peter Lattman's article on the Wall Street Journal Law Blog :

Because individuals, and not corporations, pay [trust and estate, or T&E] lawyers’ bills, it’s often more difficult for them to raise their billable rates. “You can charge a company whatever you want but if you do the estate planning for a CEO he’ll look at every line charge,” said a T&E partner at big Chicago firm. Also, T&E clients are often fiduciaries – such as a trustee or an executor to an estate. “Those fiduciaries have obligations to the beneficiaries,” said Sonnenschein’s [Robert] Cockren. “So expenses are something they have to careful about.”

Consider the case of [Richard] Brown, who says he was asked to leave Sonnenschein after more than five years as a partner. Brown, 61, who worked for more than two decades at Jenner & Block before joining Sonnenschein, says his rates were recently raised to $525 an hour, an amount he couldn’t justify to most of his clients. At his new firm, 17-lawyer Harrison & Held in Chicago, he bills at $395 an hour.

“When you’re doing cutting-edge work, those hourly rates are justified,” said Brown. “But when you’re doing very vanilla documents, the client isn’t getting the best value.”

4. Why do law firms engage in the vicious circle mentioned above? Mostly because of ego, I think, which manifests itself in a couple different ways.

a. Law firms want to be the best. If a top-tier law firm raises its salaries, and another firm is (or thinks it is) in competition with that top-tier law firm, then doesn't that firm also need to raise its salaries?

b. Note that starting salaries aren't raised for ALL first-year associates, just for first-year associates with the resumes to get into big law firms. Law firms can justify big salaries for first-year associates to their clients if the associates in question are from Harvard Law or schools with similar reputations.

5. Is there a solution to this craziness? Of course, but it's going to involve a change in culture. You have to start with the end in mind, which is to get good first-year associates that you can train and turn into more senior associates and, eventually, partners. I would suggest some of the following ideas:

a. Don't just recruit from "name" law schools. Look at the best students at law students that aren't typically associated with big law firms. Do the best students from Chicago-Kent or DePaul or Loyola or NIU compare with the best students from Harvard and Yale? Even if they don't, I bet the differences aren't as big as many law firms think. Take a Moneyball approach to recruiting associates -- look to add quality players to your team by exploiting market inefficiences.

b. Offer different tracks for success. Yes, one track can be "maximum hours and maximum salary." But also be willing to embrace the associate who wants to work from home some days, or who wants to work 3/4 time (or even 1/2 time). Don't be afraid to alter salaries accordingly -- I think you'll be surprised how many associates will appreciate your efforts.

My sources tell me that the Chicago-based firm of Sonnenschein Nath & Rosenthal LLP has decided to get rid of its trusts & estates practice group. I assume this is true -- a quick internet search reveals that top partners have left the group:

Eileen B. Trost left in late December (Chicago Tribune article)

Roy M. Adams has just left (hat tip: Professor Beyer's blog)

[added: 1/12/07 at 12:18 pm -- An update: I talked to another source who says that Sonnenschein isn't getting rid of its entire group, just 6-8 of its top T&E attorneys. My point in reporting this news is not to get into a dispute with Sonnenschein over the extent of its cutbacks in trusts and estates personnel, only to focus on the fact that there ARE cutbacks being made, which leads to the next part of my post, below.]

I wouldn't be surprised at all to see other big law firms start to follow suit (an exception might be firms like McDermott, which are built around their estate planning and probate practices). I enjoyed my experience at Sidley & Austin, but it was clear that the estate planning department generally was treated as second class citizens. My understanding is that compensation for estate planning partners is lower than for litigators and corporate attorneys. I suspect this is true at a number of big firms, many of which view estate planning as a "service group" (there to provide support to other groups, or planning to the firm's attorneys).

All of this makes sense, I suppose. Law firms have increased their focus on profits, and estate planning simply isn't as profitable a practice area as corporate or litigation. You can probably get away with charging Microsoft of AT&T $1 million a year (or more) for representation. Needless to say, I've never charged $1 million to do an estate plan, or to administer an estate.

It may be that big firms don't need estate planning groups (or don't think they do -- big firms, like Kirkland & Ellis, are famous for changing their minds on this point). But I think that goes both ways -- good estate planners don't need big firms, either. We're probably going to see more T&E boutique firms (like this one) spring up in the near future, which is a good thing.

According to this article, a North Carolina judge has ordered a company called American Family Prepaid Legal Corp. (and what looks like a sister company called Heritage Marketing and Insurance Services) to stop hawking their wares in the state.  The "wares" in question are estate planning services, and a lawsuit is pending against the company (the North Carolina Attorney General filed suit against the companies back in May).  According to the article:

American Family Prepaid Legal would solicit customers to buy legal services plans to create living trusts to avoid paying probate costs, the lawsuit says. The company billed its living trust, which cost $1,995, as a bargain when compared with probate costs, the lawsuit says. But for someone to pay almost $2,000 in probate costs, his estate would have to be worth more than $500,000, the lawsuit says. Once the consumer signed up for the living trust, a Heritage sales agent visited the home, ostensibly to have the consumer sign paperwork but really to try to sell deferred annuities.

This is pretty much the same rationale that was used in Pennsylvania earlier this year (see this article), when Pennsylvania's attorney general filed suit against American Family and Heritage, and American Family was kicked out of The Better Business Bureau of Western Pennsylvania.

A few months ago I had some not-so-nice things to say (here and here) about a group of "legal reformers" called HALT.  Sure enough, HALT recently defended American Family Prepaid Legal (here).  Part of HALT's argument is true -- I agree with the statement that "[s]tate and local bar associations use unauthorized practice of law statutes to prevent affordable alternatives to lawyers from being able to do business."  However, these statutes do also have a valid purpose of consumer protection.  Unfortunately, the folks at HALT, in their quest to make consumers safe from evil lawyers, appear to have succeeded only in making consumers more vulnerable to evil non-lawyers.  Nice work!

For the past two years I have rented office space in Oak Park (at 1101 Lake Street).  However, my lease ends on July 31, which means that a move is in order.  After looking at a lot of other office space, and doing a lot of thinking about my needs and the needs of my clients, I've decided not to go with a formal office arrangement.  The reasons are fairly simple:

1. I don't have a lot of client visits.  I neither have nor seek walk-in traffic, and I interact with my clients a lot via e-mail and telephone.  It seems a little silly to maintain a permanent office when I probably have one client meeting per week.

2. I have always made "house calls," and I think that's one of the things clients -- especially elderly clients, and clients with small children -- like about me.  I'll continue to do that.

3. The rents for the office space I looked at were almost double what I am currently paying in rent.  I'm not willing to eat that increase myself, and I'm reluctant to pass it on to my clients by raising my rates.

4. I was able to work out a virtual office arrangement with a company called HQ.  This allows me to schedule client meetings at what will be my main office (One Westbrook Corporate Center, Suite 300, Westchester, Illinois 60154).  I can also schedule meetings at other Chicago-area HQ offices (and there are a lot of them).

My biggest concern in getting rid of my office is that it creates an unprofessional look for my practice.  I don't want to be perceived as "the lawyer who works out of the back of a van," or some such thing.  On the other hand, I'm not interested in spending "money for nothing" just so I can create a certain image for myself -- I'm more concerned about doing good legal work.

If you're an estate planning attorney looking to avoid malpractice claims and other problems, it's a good idea to meet with and/or talk to your client before preparing a Will for him.  Seems like common sense, doesn't it?  Apparently not to Ohio attorney Steve M. Soltis -- according to this article, Mr. Soltis prepared a Will and other estate planning documents for a man named Calvert M. Porter.  But Mr. Soltis never met or even talked to Mr. Porter; instead, he spoke only to Mr. Porter's girlfriend.  Needless to say, Mr. Soltis was asked to (and did) prepare a Will naming the girlfriend (Imogene Crouch) as Mr. Porter's sole beneficiary. 

One stunning fact:

The Columbus Bar Association filed disciplinary charges against Soltis, saying that, had he met with Porter, none of the current litigation would exist. Soltis was cleared of ethical charges in May.

To my mind, the above fact pattern reveals some serious professional responsibility issues, involving conflict of interest (was Mr. Soltis really representing Mr. Porter's interests?) and basic competence.  How can you prepare a Will for a client when you don't know whether or not the client is competent, and don't know the client's wishes?  You can't.

I've always been a big believer in the importance of good legal drafting.  My feeling has only been reinforced since I've recently encountered the following:

1. A buy-sell agreement that tells how to value the company's shares upon the employee's death, but makes no mention of the valuation date to be used;

2. A premarital agreement that requires one spouse's estate to pay "for the support, health care and maintenance" of the other spouse, but doesn't define these terms or set a timeframe for payments; and

3. A trust (in the same case as the above premarital agreement) that includes numerous gifts to the surviving spouse, but doesn't indicate whether the gifts are in satisfaction of -- or in addition to -- the gifts required under the premarital agreement.

Good drafting is like insurance -- it can save you a LOT of time, trouble and money down the road.

Blogging is probably going to be fairly light for the next couple of weeks, first because of the Memorial Day holiday and then because of some (hopefully) minor surgery.  I hope to be up and posting again on June 6.

"How much do you charge?" is obviously an important question to ask of any attorney, but the answer can be complicated.  People want me to give them a number that fits within their idea of what the work should cost, but I'm not always able to do that, especially if I don't know anything about the client's situation.  Instead of asking "how much do you charge?" I think the better question is "how do you charge?"

Some thoughts about methods of billing:

1. I charge a fixed fee for estate planning work.  I've been doing this type of work for almost ten years, and I know what is required of me in terms of time and brainpower.  I'll meet with a client to discuss his or her situation, and quote my fee at the end of that (no obligation) meeting.  My fee won't exceed that quote except in extraordinary circumstances (like, the client completely changes his estate plan after I've already prepared it). 

2. I charge my hourly rate ($200) for probate work (including litigation).  I can't charge a fixed fee for this work because it's impossible to know from the beginning whether an estate or trust matter will be simple or complex.  I don't want to quote a small fee and then be held to that quote when the estate blows up (with Will contests, citation actions, etc.) -- that's not fair to me.  I also don't want to charge a large fee and then discover that the estate can be handled very easily and cheaply -- that's not fair to the client.

3. Every method of charging attorney's fees has its problems -- consider the Big 3:

hourly rate: can create an incentive for attorneys to spend (or bill) too much time on a matter, in an attempt to drive up fees (examples: the attorney who has 9,000 billable hours in a year, or who bills a client 10.00 hours for a matter that should've taken 5.00 hours)

fixed fee: can create an incentive for attorneys to spend too little time on a matter, in an attempt to maximize their overall fees (example: the attorney who spends 2.00 hours -- and therefore does a bad job -- on a fixed fee matter that should've taken 5.00 hours)

percentage: Some attorneys bill based on a percentage of assets in an estate -- this is how things work in California (see Sawday and Drake's excellent post on fees in California probate, here).  The problem (as I explained a few months ago) is that size of estate is a bad proxy for amount of time the estate will require.  I've worked on large estates that were handled very easily (maybe one heir and a limited number of assets), and small estates that took up a lot of my time (lots of heirs, lots of fighting, etc. etc.).

4. Every once in a while, some firm will try to introduce a billing method other than those mentioned above (like this one).  They may get some free marketing in the process, but their efforts will, I think, ultimately be worthless.  At the end of the day, if you provide good service and bill in a reasonable way, your clients will pay your bills and remain your clients, regardless of the method you use for billing. 

What do I mean by "bill in a reasonable way"?  Basically