Estate Planning Metrics
Outcomes beyond measure?
By Patricia M. Angus – Originally published in Trusts & Estates, March 2014
“Metrics” is a hot word these days. In the world of charitable giving, how they measure, evaluate and assess outcomes. Non-profit organizations are encouraged to run their operations more like for-profit businesses and to show quantifiable returns. Similarly, for-profit businesses are expanding their definition of success; the “triple bottom line” has been created to measure multiple types of returns, not just financial. It seems only logical that this way of thinking could soon be applied to estate planning. How long before trusts and estates lawyers are asked to identify and measure in detail the outcomes they provide for their clients? While this isn’t a new question, merely posing it reveals the limitations of focusing too narrowly on “metrics,” especially as it applies to non-quantifiable aspects of life.
What Can be Measured?
Lawyers, accountants and financial advisors are capable of preparing estate-planning proposals that clearly display financial benefits for their clients. Relying upon Learned Hand’s Supreme Court case statement that an individual is entitled to take steps to minimize taxes, lawyers feel they can base their efforts on both their client’s desires and the blessing of the highest court of the land. Though there may be some concern about overstepping the restriction on taking steps merely for tax avoidance purposes, most feel comfortable providing estimates of proposed tax savings to their clients. In addition, estate planning has evolved to the point that additional savings from investment returns related to the estate planning structures are now commonly touted as further support for these proposals. Clients can assess these materials to help them decide on the proposals, and undoubtedly, to assess their advisors. This part of the field has become highly sophisticated in the past decade or two, with the latest example being the sophisticated analyses of projected income tax savings that can be gained through planning. There are measurements available going forward, even if they aren’t used as frequently for back testing the advice received.
What Can’t be Measured?
If the “metrics” trend were to transfer over to the estate-planning field, it’s easy to see how estate planners would be pushed to provide “outcomes” oriented proposals, even beyond what they produce today. That is, in addition to charts showing tax savings and financial returns, one might imagine projections of future impact on the family and community as a result of the plans. While there’s some merit to this way of broadening the projected outcomes to the actual definition of success used by most clients, the concept raises some very important questions about the goals of estate planning and evaluation attempts. To this end, I would merely question how one could apply “metrics” to the human impact of an estate plan. What will be the equivalent “triple bottom line,” and how will it be measured? One could imagine a chart predicting whether it will it hurt or hinder relationships between a widow(er) and children to create a trust in which one has a present interest and the other(s) the remainder. There are innumerable related questions: How will the parent’s notion of fairness be assessed, for example, when a parent wants to leave different financial amounts to each child, even if the parent expresses equal love for each child? What metrics will be applied to assess the impact on one’s community that isn’t expressed in dollars? Can an estate planner be held to account for encouraging a client to give (more than financially) now? Or, alternatively, for failing to do so? How about an estate planner who works with a client who develops an estate plan that results in the client paying more in taxes, but meets other more compelling objectives? Will the traditional role of a trusts and estates lawyer as a client’s confidential counselor be helped or hindered if the trend continues to develop in this way? It also makes one wonder when estate planners will be rated based on their respective returns?
A Moving Target?
These questions show us how the “metrics movement” expects us to be able to create a single dartboard for planning, and hitting anything but the middle circle is considered less valuable. But, in fact, estate planning would require multiple targets, with bulls eyes that differ at least and conflict with each other at best. When we question the notion of “metrics” in estate planning, it gives us an opportunity to reflect on the role of the advisor and how to develop a more nuanced definition of outcomes. Similarly, it provides an opportunity to reflect on the broad-brush way in which the concept is applied to charitable work. We must be careful not to reduce the non-quantifiable aspects of life to things beyond measure.