Estate Planning Business Update, January 19, 2024
My opinions on the estate planning marketplace
For Friday newsletters, my plan is to start discussing business challenges in estate planning. My hope is to bring practitioners together to analyze these issues from outside of the confines of our individual silos. To preface, the opinions discussed in this article are my own and do not reflect the opinions of any employer, firm, or client. Click here to skip below to an index of articles in this series.
The Shortcomings of Document-Based Estate Planning
One statistic I see repeated over and over is that somewhere in the range of 65%-70% of Americans “do not have a will.” This is a problem that attorneys, tech companies, and financial advisors have been trying to tackle for a long time. In other words, can this participation percentage be meaningfully reduced?
I wish I could find it now, but I recall early in my career running into an article from the late 1980’s or early 1990’s regarding the number of Americans without a will. I cannot cite this, so forgive me for my lack of proof and take my observation with a grain of salt, but the statistic was the same.
You may draw a different conclusion and that is OK, but I take this to mean that the “percent of Americans without a will” is a decades-old problem that has not been solved by anybody. (I will refer to this as the “participation problem” for purposes of this series of articles.) And while this may seem fatalistic, perhaps we are looking to solve a problem that cannot be solved. In other words, could it be that encouraging individuals to prepare estate planning documents simply does not work?
While as a policy I usually refrain from citing specific providers in my articles, I made an observation about LegalZoom commercials that struck me. Throughout about 10 years of seeing LegalZoom commercials on television, I observed that they rarely (if ever) advertise the preparation of wills. Instead, the focus of their advertisements seems to be business and trademark services. Could it be that they have realized the same stark truth - that the participation problem cannot be solved?
Perhaps this is also unfair, but I recall a conversation I had with a financial advisor early in my career. While I am paraphrasing from memory, the conversation went something like this: “Estate planning is part of our process. We ask the client if they have a will, and if they say no, we send them a list of three names of attorneys. I’m happy to add your name to that list.”
I will dive into that issue later - the vestiges of a compliance-based estate planning referral system for advisors who are captive to a broker-dealer, wirehouse or producer - but this approach surely contributed to the participation problem.
In any case, estate planning marketing seems to have skipped an inconvenient truth. The participation problem is one of psychology and emotion, and the problems of psychology and emotion cannot be solved by using a scaled solution or a direct-to-consumer solution that cuts out the attorney. If someone is not ready to prepare estate planning documents, there is little if anything you can do to encourage or force them to be ready.
I believe that even the preparation of documents for free would not solve the participation problem. In fact, I saw a Facebook advertisement a while back for a life insurance company doing just that for lead generation purposes. I clicked on it (which usually prompts Facebook to tag you as a “sucker” and start bombarding you with the same or similar ads), but it is an ad I never saw again. In this article, I cited quotes from another document service that launched as a direct-to-advisor offering, and it folded soon thereafter (even after engaging in a seemingly-lucrative institutional contract).
While this is radical, you know what I would love to see? An estate planner or advisor who says, “If you are not ready to prepare a will, that is OK. You are in good company. We’ll be here if and when you are ready.”
That message may be hyperbolic, and if that is your reaction I think the problem is one of incentives. For years, estate planning attorneys could only generate fees off preparation of documents and administration of estates or trusts. But, these transactions are only small parts of the estate planning process. There is much that can, and should, be done in connection with the preparation of documents. And, there is much that can and should be done to reduce the burden of administering estates or trusts. But, the incentives do not yet align.
To be clear, my position is not that pushing documents is ineffective. It is instead that economic models, ethical models, and even malpractice risk have entrenched an approach to estate planning that seems like it must be document-driven. And, if estate planning must be document-driven, I don’t believe the participation problem can be solved. This also means that tech providers focused primarily on the preparation or review of documents may also fall prey to the participation problem.
So what problem(s) should be solved, and how do we solve them? There are several approaches I will discuss in coming articles, but for the time being I think it is important to shift the focus from product (i.e., documents or summaries) to process. This is simple, but not easy. Stay tuned for more, and see below for an index of other articles in this vein.