INTRODUCTION ..................................................................................................1

CHAPTER ONE: MALPRACTICE DERIVED FROM
OFFICE MANAGEMENT.................................................................................... 4

CHAPTER TWO: ATTORNEY ADVERTISING ..............................................24

CHAPTER THREE: ESTATE PLANNING .......................................................54

CHAPTER FOUR: BANKRUPTCY MALPRACTICE ....................................133

CHAPTER FIVE: FEE DISPUTES ....................................................................184

CHAPTER SIX: TAXATION MALPRACTICE ...............................................209

CHAPTER SEVEN: LIMITED LIABILITY COMPANY ................................257

CHAPTER EIGHT: ALTERNATIVE DISPUTE RESOLUTION ....................281

CHAPTER NINE: THIRD PARTY MALPRACTICE CLAIMS ......................291

CHAPTER TEN: REAL ESTATE MALPRACTICE .........................................306

CHAPTER ELEVEN: DAMAGES AND DEFENSES .......................................342

CHAPTER TWELVE: JUDICIAL ETHICS .......................................................369

Malpractice liability is a specter that haunts or should haunt every attorney. The knowledge that an attorney could be sued by a client or at the very least lose is his or her job should prompt every attorney to do as good a job as possible for the client. Unfortunately, attorneys are only too human and as such, they, as much as any else, can make mistakes. Mistakes by attorneys can often have disastrous results for the client. Unlike medical malpractice in many states, for legal malpractice there is no limits on the damage awards for pain and suffering as a result of an attorney's malpractice. Judgment awards against attorneys for both compensatory and punitive damages have been steadily increasingly.

Statistics on malpractice suits showed that from 1978 to 1980, the number of malpractice suits filed against attorneys increased by two and a half times (250%). One of the most important reasons for the increase of malpractice suits against attorneys has been the huge explosion in the number of attorneys. In California, for instance from 1974 through 1995, the number of practicing attorneys nearly tippled to over 110,000 attorneys. While the number of attorneys nearly tippled during this period, the population did not even double in California. The effect of this explosion of attorneys in California is simply a reflection of the accepted rule of supply and demand. The increased number of attorneys hasresulted in increased competition. In addition, to cutthroat competition, a new de facto subspecialty of law has developed, the legal malpractice specialist. This is not a recognized specialty of law but nonetheless there are now attorneys whose entire practice is devoted to suing other attorneys.

Malpractice suits are interesting. Usually to obtain a recovery the client must prove that as a result of the attorney's malpractice the client lost a case or did not receive as much as the client was really entitled to receive. This is a hard burden on the client. Nonetheless, a malpractice against an attorney is much like a suit against an insurance company. Many attorneys or their insurers will settle a case to avoid notoriety and will almost settle a case which can a meritorious claim rather than risk a bigger judgment being awarded at trial.

The course itself is designed to address the most common and pressing concerns of attorneys regarding the most common elements or causes of malpractice. It begins with the discussion of the management of the office so as to minimize procedural malpractice, malpractice caused by the operation of the office such as missing filing dates. As such, the delegation of authority, supervision, administration of the office will be discussed to avoid malpractice not related to the furnishing of legal services or advice. The book will then go into some of the most common types of malpractice caused by the attorney's practice of law and will point out areas of special concern for attorneys. Finally, the books will deal withdefenses to malpractice.

In discussing malpractice, it is important to understand the different codes of professional responsibility which apply to attorneys. In 1969, the American Bar Association promulgated its ABA Model Code. This Model Code dealt primarily with the conduct of attorneys. Several states have since patterned their Canons of Professional Responsibility on this ABA Model Code. In 1977, the ABA upgraded its rules for professional conduct and instituted the Model Rules of Professional Conduct. These Model Rules have since been adopted, in the entirety or with modification, by almost all of the states. Regardless of whether they have adopted the Model Code or Model Rules, the states have almost always added their own individual interpretations or additions as relates to the attorney-client relationship. When referring to a "disciplinary rule" the book is referring to the ABA Model Code of 1969. Likewise, when reference is made to the "Model Rules" the book is referring to the Model Rules of Professional Conduct that were subsequently promulgated. It is easier for an attorney to maintain compliance with the Model Rules than with the Model Code. For a particular state, an attorney will have to comply with the professional canons of responsibility that were adopted by that particular state.

Probably the most common source of malpractice actions against an attorney derives not from what the attorney did but from what the attorney failed to do. Many malpractice suits are based upon negligence in missing filing deadlines, a support person giving the client wrong information, or a support person or otherwise doing an act which results in prejudice to the client's case. Law office management with the view of avoiding malpractice is a relatively new concept. Yet, given the fact many malpractice suits derive from mismanagement of an office, an attorney should implement polices and procedures to limit the potential of malpractice from errors resulting from office management.

It is often stated that there are two competing theories for the effective management of a law office. In point of fact, there is no one-correct manner in which to operate an office. While all offices share many similarities, such as the type of law practiced, the number of employees, the types of employees and such, each office is nonetheless unique. The human factor often makes adherence to a predetermined management scheme inefficient. The effective law office will adopt the management most closelyassociated with the management style and philosophy of its owner or partners and then adapt it to the individual human nature of the office. The point for any manager to remember is that there is no one ultimately correct form of management. The organization should adopt the form of management, or develop one of its own which works best under the individual circumstances of the organizations. The first management theory is the organization's operation by system whereas the second theory is operation by management. The theories are not mutually exclusive and tend to overlap a great deal but they are two different theories.

Operation by system involves management by established

procedures. Under this theory, everything is supposed by a procedures manual, the famous book. Whenever an issue comes up, the matter will be looked up in the book and the proscribed response will be implemented. When another question comes up, it is resolved in same way. The effective operation system will have procedures for virtually every type of reasonable expectancy. With operation by management, the manager at every level will have previously formatted answers and responses for any problems as they arise that related to the manager's delegated field of authority. The quintessential example of management by operation is the United States military. Nearly all conduct by military personnel is government by well-defined rules and regulations. The average military officer is given very little is actual discretion to act independently from the group. Nearly all military operation sandmanagement is directed through the interconnected operations systems governing every particular action of its personnel.

The second theory is operation by management. This theory stresses the independence and problem solving of the individuals to whom management authority is vested. Under this theory, it is the managers, through the exercise of their individual judgment based upon their training and expertise, who handle the problems as they arise and conduct the decision making for the organization. Under this system, the manager is delegated certain authority to manage and administer certain organizational affairs. Within the scope of the delegated authority, the manager may make certain decisions without the need of obtaining permission form superiors. The organization will be bound by the decisions made by the manager that were within the scope of the granted authority or for which the organization were held to have subsequently ratified under the ordinary rules of agency. An example of such management is the scheduling supervisor of a business whose job it is to set the delivery schedule for both goods to be shipped and received. While there are usually general guidelines as to how to conduct such operations, the supervisor is vested with great discretion in the operation so as to address new circumstances as they arise and therefore work more efficiently.

Most law offices, depending on their size and complexity of operation, will use both types of managerial systems to some extent. As the office staff grows, the office management willbecome more and more systematic in how it is operated. This is due simply to fact that there are more people involved the operations who must be administered. In the small office of the sole practitioner, the administration is usually performed through direct management rather than procedure. The reason for this is that the attorney-owner or managing partner of the small office is the one most familiar with all of the aspects of the office and what is going on throughout the office. In such a situation, it is easiest for the person to simply handle any problems as they come up. If the small law office should happen to have a secretary, it is, likewise, very easy for the manager to direct generally how any particular matter ought to be handled. Thereafter, it becomes easy then to refer back to those particular procedures or practices that have been set up.

The most common instance of malpractice arises from the missing of filing dates or missing important information which prejudices the client's case. This is the biggest concern any attorney has regarding malpractice, i.e., that the attorney will miss something that can't be cured. Attention to detail will greatly reduce with fear but it will not alleviate it altogether. The potential of malpractice will always exist.

One way to limit the potential of malpractice is in the choice of area for which the attorney practices. There are someareas of law, such as bankruptcy or probate work, in which it is relatively difficult to commit malpractice. The simple reason for the reduced potential of malpractice in these areas is that nothing is final in such areas until the court says so. As such, the court supervises virtually everything that is being done in the case. The court review of the attorney's action makes it more likely that mistakes will be spotted and thereby cured before they can injure the client. In addition, in such fields, an attorney usually can also reopen a matter, such as estate in bankruptcy, if mistakes have been made, to correct them. Likewise, in a probate, the attorney will usually have the court's supervision on virtually every major step. When the court grants permission for an attorney to do an act, after notice to all of the heirs of the proposed action was given, unless the notice deceived the heirs, their failure to object to action will normally relieve the attorney of any malpractice claim. As such, in both probate and bankruptcy, it is relatively difficult for an attorney to negligently commit malpractice.

In litigation, however, it is a whole other ball game. An attorney can misstate positions, lose evidence, not follow up on particular clues that another attorney would have along with other things that will give rise to malpractice liability. As such, it is obvious that there are a lot of things that can happen in a litigation matter that can result in a malpractice award. To help lessen the potential for a malpractice claim, the conscienceattorney will adopt good management and filing procedures so as to be able to both follow up and keep track of what is expected to be done in a case. An attorney must always be ready and able to prove that the case was handled it correctly. The implementation of case and client management procedures are necessary to lessen the potential of malpractice.

Documentation of all communication, both written and verbal with a client, is an extremely useful tool in avoiding a malpractice claim. Generally, once a client loses a case, it is only human nature for the client to blame the attorney. Occasionally, the client will take the frustration of losing the case one step further and proceeds to sue the attorney. In many malpractice cases, the client claims that the attorney had misled the client in some fashion. The client, usually alleges in the complaint, that had there been no misrepresentation the client would not have lost the case or would have done something differently. The attorney, in such a case, is, in the situation of proving a negative act, that he or she did not tell the client the client what the client claims to have been told. There is only one way for an attorney to protect himself or herself from such a situation, which is to document all client communications. For oral and telephone communications, the attorneys should immediately thereafter send confirming letters of the conversation's content simply to prove what was discussed and agreed.

It is quite popular nowadays to sue attorneys for malpractice,on sometimes, the most flimsy excuse. When an innocent attorney has not protected himself, through the keeping of strong records, that attorney may be unable to defend himself against a meritless malpractice action. There is no doubt that many attorneys have, in the past, settled malpractice claims, which they did not commit, simply because they could not prove that they did not give the advice which the client claims to have been given.

In addition to the above discussion, one of the best defensive practices to malpractice actions is simplicity itself. It is for the attorney to carefully screen a person before taking the person on as a client. There are some people, who will immediately sue an attorney if they lose their action. An attorney needs to be able to recognize these types of individuals before taking them as clients and thereby avoid them. Simply taking as a client, everyone who enters an office exposes the attorney to such individuals and thereby increases the risk of a malpractice claim.

State bars consider the accounting and bookkeeping practices of an attorney extremely important. The most common source of disciplinary action against an attorney is failure to maintain proper bookkeeping records and accounting practices for clients' trust accounts. Every attorney is required to establish bookkeeping and accounting procedures for the office. The office must still also set up its personal accounts for payroll, operating accountand the like. The new sole practitioner and the small office of two or more attorneys might initially want to look into a computerized bookkeeping and computerized payroll service. If so, the law firm will probably find it will to be less expensive in the long run to use these services initially rather than going out and buying computer equipment and programs and doing it by itself. As the firm grows, it would eventually decide to do its own bookkeeping in-house but until that time it could be a good idea to have it done outside. In the small practice while such bookkeeping tasks are being done, valuable attorney time is not being utilized to generate business and make money. Another consideration is that it might be less expensive initially for the sole practitioner to do such work, but once the attorney gets busy with clients as business increases, it will become increasing less cost effective for the attorney to personally keep the books and records up to date rather than simply review a bookkeeper's monthly product. A small law office may decide to turn over such tasks to a computerized bookkeeping service for a relatively small amount. One advantage that these computerized bookkeeping services do is that they can handle all payroll matters. Their computer programs can write the checks, for the attorney's signatures, compute the necessary state and federal withholdings and prepare all state and federal employees’ withholding tax forms which are a great time savings for the small law office. The charge for such work is usually quite reasonable and, of course, it is a legitimate taxdeductible expense.

All law firm checks should be signed by the sole practitioner or in the case of multi-attorney law firm by the managing attorney or partner. All checks should be signed only one attorney, and all bank statements are received by the managing partner unopened. In addition, a monthly review of all the accounts, and the ledgers should be in the hands of the managing attorney or partner for the firm and not in the hands of a lay person. In this way, each check can be seen by the managing person as he signs it, and each check was not prepared out of the purview of the managing partner. These are common, basic steps, but if they are taken the chances of an embezzlement ever taking place decreases greatly.

Many law offices employ a lay person to handle the day-to-day administration of the office, such as paying the regular bills, delegation of authority to different secretaries as to what they do. Such delegation is good for most professional offices and absolutely necessary for large offices. An office manager frees the attorney to do what the attorney to practice law without wasting time on tasks which are necessary for the office's management but do not, in themselves, earn money for the office. Generally, once the law office has more than three secretaries or paralegals, the office is going to need someone who has some kind of authority for the day-to-day business affairs other than the practice of law.This person is usually given the title, office manager.

An important element for any office which often is overlooked is that of an office manual. Whenever a law office is going to going to have more than one employee, then the law office should formulate an office manual. The implementation of the policy manual, except for the filing of employees, should be the initial purview of the office manager. The policy manual should state how the office is to be run, the job descriptions of each person what each person is expected to do. The significance of a law manual is to clarify what each employee does so that important tasks are not missed. In a notable Ohio malpractice lawsuit, an attorney missed the date for filing an answer. The answer hand been prepared and could have been filed in time. The problem was that a new secretary in the office did not know that she had the responsibility to file the answer. There was an inadequate tickler system in use for the office to verify such filings. As a result, the attorney was sued for malpractice as a result of the default taken against the client and the attorney settled the case. The attorney, in this instance, did nothing wrong in the actual practice of law. The attorney's liability arose from the improper management of the office which resulted in the harm, in the form of the default judgment, to the client.

Many sole practitioners and small law offices do not have the need for a full time secretary. With today's computer automation of the office, there are certain types of law practices for whichsecretaries are no longer needed. In these practices, most of the drafting is done by the attorneys, directing on the computer and therefore, there is little for a secretary to type. The secretary, in such an office, becomes a receptionist and file clerk. In such an office, when a secretary is needed, the attorney can always call a temp service to have someone come in and help on that line. Many attorneys are solo practitioners and are in this same situation and save a great deal of money by not having a secretary.

Whether staff is hired on a full time or part time basis, the attorney is responsible for their conduct and the result of their work. For this reason, an attorney must pay close attention as to how the staffs perform their work. This is especially important with part-time staff who do not have or envision having a long term relationship with the office. Part time staff are often the source of malpractice actions against an attorney because they often lack the training to understand the importance of their work. In addition, a part time staff member may intentionally, for not being full time or for being let go, may deliberately sabotage the office product. The disgruntled employee who attempts to sabotage the office is not limited to law practice but nonetheless they do appear. The problem for law firms is that employees in a law office, more than any other profession, have the ability to by either accident or intent to disrupt its operations without being caught. An employee's misconduct or mistake, in a law office, may not surface for months or even years. This is the problem withusing employees in a law office. Nevertheless, a law office must have employees therefore it is vital for the office to have detailed procedures in place to regulate, administer and oversee each employee's performance of their jobs. Without such regulation of the employee's, a law office will never, with certainty, know if the work is being done correctly and therefore the sword of a malpractice suit will always hang uncertainly over the law office.

A very frequent source of malpractice suits against attorneys are based upon the attorney losing documents or files. It is not uncommon for clients to sue attorneys because the attorney is alleged to have lost important evidence. In addition to suits deriving from lost evidence, there are suits which have their origin in lost files. In large lawsuits, it is not uncommon to have entire boxes or file cabinets to be devoted to the case. When the information in these files or boxes are lost or misplaced, the law firm is liable for the damages which thereon occur.

Every law firm must adopt and implement a filing system to keep track of the cases handled by the law form. Most law offices simply have a filing system where each client in given a number and each case handled for that client is identified by the client's number and a particular letter relating to that particular case. There are some law firms who have their filing system segregated as to what type of law is being practiced by the attorneys. Suchfirms, for instance, could have all their probate files in one area of the file room and their bankruptcy, corporate, etc. in a different area. These can generate huge amounts of paperwork. The average probate usually fills up an entire carton and files can be a foot thick with all that as to be done in terms of the accounting, property being sold, inventory and appraisals. It can take up a large percentage of area in a room, so many firms tend to segregate probate. That requires a very good filing system in order to be able to split client files up among various filing cabinets in order to make sure that the files are always documented and that the individual cases can be found they are needed. The complexity of such an arrangement, means that more can go wrong than in the basic filing system. Nevertheless the convenience in being able to find case quickly may override this concern. In point of fact, this is how most courts handle their pleading. Many courts will color code their pleadings, family law, criminal, civil, injunctive, etc. The file is then given a number and filed in the area of the file room allotted to that type of case. A particular plaintiff may have several cases in the court file room scattered about under the separate segregated files.

Whenever a file is removed from a file drawer, a record of who has that file should be made somewhere. Some firms utilize a check out a file which is often colored and has a lined sheet of paper inside. On the sheet is written the file number, date and name of the person who has the file. Some firms put this file in place ofthe retrieved file. A practice of other firms is to have this colored file separately located apart from the file drawers. Instead of having a separate checkout list for each retrieved file, only one is used with each retrieved file identified along with a return date as well. However, a law firm does it, there must be a procedure is pace for always keeping track of the files. Once a case reaches the point that it has more than one file folder, then the possibility exists that information may be misfiled or that folders may be lost. A checkout system will not guarantee that such will not happen, but it will lessen the possibility.

It is not uncommon for a malpractice suit to be based upon the attorney not using evidence in the attorney's possession in trying to win the case. In almost every such situation, the attorney did not know that such information or evidence existed because the file containing it was improperly filed in the office. A misfiled file is basically lost forever unless found by error. The attorney, as stated above, is responsible for the actions of the employee. The attorney cannot allege as a defense that the employee misfiled the file or evidence therein. The filing of documents or the maintenance of files are non-delegable duties owed by the attorney. This means that the attorney cannot avoid malpractice liability for damages arising from an employee's misfiling of documents.

The fact that attorneys are liable for the damages which the client suffers as the result of an employee's misfiling ofdocuments should be the motivating factors for attorneys to careful set up a filing system and monitoring procedure to assure that it is properly administered.

There has always been malpractice liability imposed on attorneys for their actions. What has become new, however, is that there are now attorneys who specialize only in suing other attorneys for alleged malpractice. One of the reasons for the large number of increases in attorney malpractice suits is that many attorneys carry malpractice insurance. As with any other insurer, a malpractice insurer, is more apt to settle a marginal case that risk a higher judgment at trial. As a result, the insurer will be likely to settle the case and thereafter either raise the insurance premiums of the attorney or cancel the insurance altogether.

An attorney, without an insurance policy, will have to either hire another attorney to defend the action or the attorney will defend the action himself. In either event, the defense in the action will cost the attorney dearly, win or lose. If the attorney hires a defense attorney, the attorney will have to pay the defense attorney. If an attorney conducts his or her own defense, the attorney loses income by working on his or her case for free instead of earning a living.

Even if the attorney wins a malpractice case, the win is often a pyrrhic one. Winning the suit means that the attorney will not have to pay any judgment to the client. However, unless theattorney can prove that the suit was a malicious prosecution action or an abuse of process the attorney cannot sue the losing plaintiff and former client. As such, the attorney is not compensated for the damages suffered by having the suit brought against the attorney for the attorney's loss of reputation or business as a result of the suit.

If the attorney had a clause in the fee agreement that awarded attorneys fees to the prevailing party in the event of a lawsuit, if the attorney wins, the attorney would get his or her attorney fees if a defense attorney had been retained. Many states, such as California however, will not award attorneys’ fees to an attorney who acts as his or her own attorney in a malpractice action. In such states, to get attorney fees, the attorney must actually hire a defense attorney. Of course, if the attorney loses the malpractice case, the attorney must pay the client's attorney's fees along with the judgment. In most states, if any money is awarded, even as part of a settlement, to a plaintiff in a malpractice action that person is the prevailing party and is entitled to attorney fees unless the settlement agreement states otherwise. Bearing all of the above, in mind, it is very important, that attorneys design their practice and their case management procedures to minimize the potential of any malpractice claims.

For the most complete piece of mind and protection, an attorney should consider malpractice insurance. As a result of the plethora of malpractice suits occurring in the last few years,malpractice insurance premiums have skyrocketed. In some states, malpractice insurance is offered by insurance companies formed by attorneys themselves. Many state bars also have established relationships with insurance carriers to help provide insurance to their members.

The value of an insurance company is not only that the company will pay the judgment, up to the policy amount but that the insurance company will defend the action and thereby free the attorney to continue to earn a living. An insurance company is under the obligation to defend that attorney regardless if the claims are groundless, false or even fraudulent. The obligation to defend the attorney is a separate independent obligation from the obligation to indemnify the attorney. Insurers have increasingly been found to be bound by a duty of good faith toward their insureds. Under Comunale vs. Traders & General Ins. Co. (1958) 50 Cal2d. 654, this duty has been defined as requiring the insurance company to do nothing that will interfere with the insured's right to receive benefits under the insurance contract. In Crisci vs. Security Ins. Co. (1967) 426 P.2d 179, an insured company may be liable for punitive damages for acting in bad faith. Liability for bad faith include the refusal to settle a policy within policy limits or denying coverage when there is an absolute obligation to defend or acting unreasonably with respect to action or its defense.

Just as the insured has duties imposed upon him by the insurance contract, so too are duties imposed upon the insured’s attorney. The attorney is usually required by the terms of the insurance contract to give notice to the insurer of any acts or potential claims which the attorney reasonably foresees as being made against the attorney. If the attorney fails to provide such notice to the insurer, the insurance company may be able to deny coverage even though it would otherwise be obligated to cover and defend the attorney. In addition to the notice requirement, all policies require that the attorney participate with the insurer in the defense of the action. The insurance company cannot, settle the action without the consent of the insured. The insured is not permitted, by the terms of most policies, from making payments, assumption of any obligations or the incurrence of any expense related to the defense of an action without the insurer's consent. When the insurance company makes a payment or settlement of a malpractice action, the insurance company becomes subrogated to the insured's right of recovery against any other person. The right of subrogation does not, obviously does not extend to recovery from the insured except for breaches of the insurance policy or for fraud or other acts of dishonesty.

There are different types of malpractice policy for which the attorney should be aware. The first type of insurance policy is that of the occurrence policy. This type of policy will cover the attorney for any claims which arise from actions during the periodof time the policy was in effect even if the attorney is not insured by the company at the time the claim was made. This type of insurance policy is not always available.

Many insurance companies now require that the attorney not only be a client at the time of the incident but also when the claim was made. Under this situation the attorney is required to be a client for life. This is one of the reasons that the insurance companies like this policy. The rationale behind this policy is that the insurance does not want to insure a client for the potential liability of one big risk and not receive proceeds for the other years when the risks are low. There is also what is called "tail" insurance. This is particular coverage which persists after policy termination. Many insurance companies limit tail coverage only for retirement. Some companies will offer tail coverage even though a client is moving to another carrier.

One type of policy seldom available nowadays is the blanket policy which covers the attorney for claims made when the policy is in effect. The attorney is not required to have been a client at the time the incident arose. The attorney is only required to be an attorney when the claim was filed. This type of policy was popular with new attorneys who did not have assets when starting up. A malpractice by an attorney early in the practice would collect little because the attorney had little to lose. As the practice grew and the attorney acquired assets, a blanket policy would thereafter protect the attorney for malpractice performed in theearly years. Of course, there was the trade off in premiums. The insurance would charge an attorney more for the blanket policy because it was insuring for past work along with the work being conducted during the term of the policy.

Professional liability insurance is a legitimate business expense and thus the premiums for the insurance are tax deductible. The amount any attorney pays for premiums is based upon the type of law an attorney practices. An attorney, in a bankruptcy practice, will pay different premiums than an attorney who primarily engages in real restate litigation. Insurance companies base their premiums and coverage on the types of law and percentages in which an attorney practices. Some insurance companies offer attorneys the option of choosing only for claims arising in certain areas of law. In this situation, for example, the attorney could elect to be covered for any real estate malpractice claim but not any social security malpractice claims.

When shopping for malpractice insurance, the old adage of “buyer beware” applies. Insurance policies, by their very nature, must be read closely along with all riders so that he fully understands what is in them. Because of an attorney's knowledge of the law and legal training, an attorney would be less likely to win an action based upon misunderstanding of the policy than a lay person. For this reason, the attorney, must understand what is and is not covered by the policy.

There are two types of malpractice. The first type is called practice malpractice and is related to the handling of a client's legal matter. For an instance of practice malpractice, the attorney may be sued for the damages suffered thereby to the client. The second type of malpractice is called procedural malpractice and pertains to the method by which the attorney operates the practice. In a procedural malpractice situation, the attorney might not be subject to a suit by a client but will nevertheless be subject for disciplinary action by the state bar. One of the most common type of this procedural malpractice relates to attorney advertising. Every state bar has adopted disciplinary or ethics rules to govern the attorney advertising. The violation of these rules may not, in themselves, give rise to a suit for malpractice against the attorney. However, the violation of these rules can and often do result in disciplinary action which can result in punishment up to and including disbarment.

Until very recently, it was considered a breach of professional ethics to advertise. The reluctance for attorneys to advertise is a throw back to the middle ages. From then forward, English barristers have had a large pocket sewn on the back of the robes which barristers wear into Court. The Barristers, at theconclusion of the case, would turn their backs to their clients who would place into the pocket whatever compensation they felt the attorney deserved for the representation rendered. The barrister could not sue the client over the fee received or not received. It was considered not appropriate for a gentlemen to solicit or argue over payment for services of his profession. The reluctance on the part of state bars to permit an attorney to advertise or solicit work has continued up to this date. Although, by virtue of rulings by the United States Supreme Court, some attorney advertising is now permitted, attorney advertising and marketing activities are still among the most regulated aspects of an attorney's practice.

Historically, no attorneys advertised. For generations it was considered inappropriate for attorneys to better themselves and did ordinary trades people. To enforce this prohibition, up through the 1970's most states had adopted disciplinary codes to specifically forbid attorney advertising. The prohibition against attorney advertising did not seriously impede an attorney's ability to earn a living up to 1970's because there was more than enough work to go around. Beginning in the 1970's, however, the days of being a success merely because the person was, an attorney came to an abrupt end. From the 1970's onward, the legal profession suffered a population explosion. In California, for instance, the number of practicing attorneys increased from 46,000 in 1976 to 115,000 active practitioners in 1995, which represents a threefold increase. The population in California, in comparison did notnearly triple during that period of time. The effect of this huge increase in the number of attorneys has been to foster competition to an extent never before experience in the profession.

A by-product of competition, regardless of the profession involved, is the necessity to advertise. With many attorneys from which to choose, an attorney needs to explain to a potential client why that attorney whether than any other should be selected. Attorneys practice the law and the law of supply and demand is now, more than ever, being practiced by and on the legal profession. Traditionally, new attorneys would get a job as an assistant district attorney or public defender for a few years before entering private practice. This allowed the attorney to develop the legal skills necessary go into private practice. Today, these jobs are simply no longer available in the number in which they once were. Even most entry level government attorney jobs, today, require several years experience. While exceptions are sometimes made for minority attorneys, especially where affirmative action may apply, absent that, unless the attorney has experience, there are few attorney jobs available. Competition and the large growth in the number of attorneys has forced new attorneys to enter private practice, in higher numbers, than ever before. In addition. the competition with the new attorneys forces older attorneys into price competition to greater extent than ever before. As a result, it becomes necessary for attorneys to market themselves and their skills as never before.

Marketing a practice involves advertising in all of its various forms. The right of an attorney to advertise is a recently won right and is still highly regulated. Before an attorney undertakes any advertising campaign, regardless of how innocent it may appear, he should understand the limitations on advertising and the case law that has developed on the subject.

The areas of solicitation and advertisement embroil many attorneys with their state bars. Yet these are not areas that lead to malpractice actions against the attorney unless there has been some kind of misstatement about qualifications. Most restrictions on advertising imposed against attorneys are the result of a feeling that it is unseemly (not very professional) for an attorney to advertise. In point of fact, a blanket restriction against advertising works to the disadvantage of the public. Unless an attorney advertises, it is difficult for most lay people to discover whether or not the attorney is qualified to handle a case. It is also difficult to determine who is a good attorney and who is not. It is acknowledged that advertisements can go too far and they can be misleading, but in most instances advertising is correct and a blanket prohibition on advertising would work as a disservice to the public in general.

Prior to the mid-1970's, the 1908 ABA Canons of Professional Ethics absolutely forbade attorneys to advertise or solicit clients in any form whatsoever. This began to change in the 1970's whenboth public interest groups and the attorneys themselves began to question the wisdom and merit of having such prohibitions. The first case that went to the United States Supreme Court regarding attorney solicitation was Bates vs. State Bar of Arizona, 433 U.S. 350, 1977. It involved the use of print advertising directed to the public. The U. S. Supreme Court used a premarket analysis in rendering its decision and held there is a first amendment right to advertise, but a state can adopt reasonable regulations to assure that the advertising is not false or misleading.

The Bates case was the first time the first amendment rights of free speech were extended to attorneys in their right to commercial speech. The Bates case involved two attorneys who were prosecuted for having published a list of their services in a legal newspaper with the term "reasonable rates." They didn't give any amount, they just said "reasonable rates." Nonetheless, the State Bar of Arizona prosecuted them for violation of the restrictions on attorney advertising. The court found that the restriction on attorney advertising did not violate the Sherman Anti-Trust Act; however, the court did find it violated the first amendment stating, "It prevented publication in a newspaper of a truthful advertisement concerning the availability and terms of routine legal services." Since the court found that the first amendment protection extended to commercial speech and specifically to attorneys, restriction was held to be unconstitutional.

Almost immediately following the decision in the Bates case in 1977, came the Ohio case of Ohralik vs. Ohio State Bar Asso., 436 U. S. 447. In that case the attorney visited two teenage girls who were injured in an automobile accident. The attorney solicited their employment. That was a violation of the Ohio Canons of Professional Responsibility that forbade lawyers' soliciting clients with whom they did not have a preexisting attorney-client relationship. Ohralik relied upon the Bates case of commercial free speech, and argued that he had a free speech right to solicit clients. The Supreme Court rejected that argument and ruled that a state could enact rules against solicitation and forbid in-person solicitation in circumstances that were likely to result in overreaching or misleading a lay person.

This is significant because this Supreme Court decision effectually stated a corollary that an attorney could have solicitation for nonprofit purposes. It is possible and professionally permitted for an attorney to contact a person with whom he does not have a previous relationship and offer his services for free. In that situation, he is not attempting to realize any kind of profit. As a result of the Ohralik decision, such contact would be permitted because the attorney does not have a profit motive for doing so.

If profit does, in fact, derive to the attorney in some direct fashion from a representation, that may or may not taint thesolicitation. Ohralik made it clear, however, that states do have the power and authority to ban solicitation by attorneys in the profit situation. In 1978, there was also an important case: In re Primus 436 U.S. 412 (1978). In this situation, the lawyer named Primus had contacted some black women who were allegedly sterilized as a condition to receive Medicaid benefits. Primus had offered to represent the women for free as part of the services of the ACLU. The attorney was disciplined for this solicitation. The Supreme Court, following the Ohralik case, held that such sanctions were improper because the attorney was acting on behalf of the public, i.e., she was working for the ACLU and was not seeking any personal benefit. The court found that the attorney's actions were praiseworthy and of the highest ethical standard. The court recognized that there is nothing wrong in representing poor people for free to protect their rights, especially in a situation where the government has infringed upon their rights, such as forcing sterilization.

The next important case was In re RMJ, 455 U.S. 191, 1982 which involved the Missouri bar. If a lawyer wanted to advertise his expertise in specific areas of the law in Missouri, state law required that the advertisement be limited to an exclusive state list of areas and specific language had to be used. An attorney was not permitted, for example, to advertise personal injury law but was permitted to advertise "tort law," which was on the state'sauthorized list. Missouri also required that an advertisement state that listing the areas of law that the attorney practiced did not mean certification by the state bar in those areas. Moreover, if the attorney was licensed in another state besides Missouri, he could not list that fact in the ad. This restriction in particular made no legitimate sense. It would seem quite beneficial for a client to know there is a certain attorney who can handle matters in another state, especially if the client lives close to the state boundary and may have legal matters in both states.

In the RMJ case, the United States Supreme Court established the guidelines for regulating attorney advertising. The court made it clear that the information being advertised must not be misleading, false or deceptive, i.e., the Bates situation. Such information or advertising can be banned outright. Secondly, in order to restrict acceptable and non-misleading information, there must be a substantial interest in the state involved and regulation must be in proportion to the interest served. Now, state bars must employ a balancing test. They can no longer say, "We do not want our clients deceived, therefore you shall not do it." They can regulate, but they have to ensure the regulation is in proportion to what they are trying to prevent or protect. The Supreme Court held as follows:

"Truthful advertising relayed to lawful activities is entitled to the protection of the First Amendment. But when the particular content or method of the advertising suggests that it is inherently misleading or when experience has proved thatin fact such advertising is subject to abuse, the States may impose appropriate restrictions. Misleading advertising may be prohibited entirely. But the States may not place an absolute prohibition on certain types of potentially misleading information, e.g., a listing of areas of practice, if the information may also be presented in a way that is not deceptive....

Even when a communication is not misleading, the State retains some authority to regulate. But the State must assert a substantial interest and the interference with speech must be in proportion to the interest served."

The United States Supreme Court specifically struck down the restrictions on the lists of fields of practice and the jurisdictions where the attorney was listed, neither of that were inherently misleading in any way, shape or form, because the court found there was no real justification behind it. The lists of fields of practice can in itself be misleading. In the same vein, it can be totally valid. The courts can restrict composition of those lists as long as it is not a complete ban or there is some manner that is related to what they are trying to prevent happening.

After the Supreme Court ruling in RMJ, the ABA revised some of its model rules in order to comply with the Supreme Court's holding in that case. Under the Model Rules, if any information is false or misleading, it is prohibited outright. That is simply a restatement of the Bates position. Under the prior Disciplinary Rule 2-101(A), communications concerning legal services was prohibited and read as follows:

"A lawyer shall not prepare, cause to be prepared, use or participate in the use, of any form of self-laudatory statements calculated to attract law clients; as sued herein, "public communication" includes, but is not limited to, communication by means of television, radio, motion picture, newspaper, magazine or book."

This restriction is no longer required now under the new Model Rule 17.1. The definition of false and misleading information is information that is a misrepresentation of a fact, or law, or omits a fact necessary to make a statement considered as a whole not materially misleading, or "is likely to create an unjustified expectation about results the lawyer can achieve." What the state bars are attempting to accomplish here is prevent the situation where the attorney guarantees he is going to win or uses similarly situated former clients in an advertisement to essentially convey the message that "I got $100,000 for this person, I can do the same for you." Such conduct is improper and in violation of virtually every state's canons of professional responsibility. Such endorsements by former clients really treated the viewing public as idiots. Most attorneys have very high degrees of professionalism and let their work product speak for themselves by the fact that they win their cases.

Following the RMJ case came Zauderer vs. Office of Disciplinary Council, 471 U.S. 626, involving a lawyer's advertisement that was directed to specific people in a group. The attorney sent printed material and solicitations to women who had been injured by the Dalcon Shield, the birth control device that resulted in toxicshock syndrome for many of the women who used it. The Office of Disciplinary Council for the Supreme Court of Ohio instituted disciplinary actions against the attorney for solicitation. Ohio was claiming that the attorney breached his professional ethics by targeting too narrow a group. He had reached a point where he was really soliciting a very narrow group of women in violation of state law as opposed to simply advertising to the public at large.

The other issue they were talking about was dignity. One of the main attributes in the earlier Model Code of Professional Responsibility, Disciplinary Rule 2-102, required that all advertisements be dignified, i.e., hold the legal profession to the highest standards. The information in the ad could be totally correct, but if the bar association believed it was not dignified, they could sanction the attorney. As a result, some attorneys were disciplined for what they considered undignified advertising. The Supreme Court in this case strikes the use of dignity as a standard for determining whether or not there can be an advertisement. The court specifically states:

"Although the state undoubtedly has a substantial interest in assuring that attorneys maintain their dignity and decorum in the courtroom, we are unsure that the state's desire that attorneys maintain their dignity in their communication with the public is an interest substantial enough to justify their abridgment of their first amendment rights."

In addition, the court in Zauderer stated the advertisement directed to a narrowly favored group was permitted, but that the advertisement in question was misleading in that it had the line,"If there is no recovery, no legal fees are owed by our client." That phrase was considered to be misleading to the public because it didn't mention the fact that clients still have an obligation to pay litigation costs, court costs, etc. as required by the canons of professional responsibility. Attorneys can properly only give limited and specifically defined financial support to their clients. They can advance litigation costs or fees, but the client must repay them. Therefore, any statement that they will take a case on contingency and absorb all fees is improper because it is a violation of the canons of professional responsibility.

Technically, the attorney in that case was sanctioned not for the advertising and not for having it directed to a narrow group (which was the big issue the Supreme Court in Ohio wanted to have addressed). He was sanctioned for a minor thing: simply having a misstatement that the plaintiff would not have to pay any legal fees if the case was not a winner. The importance of this case is that it permits an attorney to advertise directly to a narrow group of persons as long as the group is not so narrow as to be effectively on a one-to-one basis.

Model Rule 7.1(C) prohibits an attorney from comparing his services with that of services provided by other attorneys unless the comparison can be factually substantiated. An exception exists when statements that a lawyer's fees are reasonable can be verified by reference to objective standards and tend to be valid. Model Rule 7.4 permits an attorney to list fields of practice, but claimsof expertise are prohibited under this rule unless the attorney has actually completed some type of state specialization requirement. In addition to listing fields of practice, comments on Rule 7.4 suggest the attorney also should not use the phrases "limited to" or "concentrated in" because they tend to imply that the attorney is a specialist. This is only a comment, not the actual rule.

In most states, attorneys are still permitted to state that an attorney's practice emphasizes a particular field, even if not a specialist, simply to show that the attorney practices in those particular areas. In most advertisements, such as the telephone book, attorneys do not have sufficient space to put the words emphasizing specialties. They would rather use that space to list the specific disciplines of their practice. Often, for example, is seen such listings as: "Estate Planning" or "PI or Real Property" or "General Practice" rather than the complete words simply because there is insufficient room.

The Kentucky case of Shapiro vs. Kentucky Bar Association, 486 U.S. 466 followed the Zauderer case in 1988. This case involved sending letters or advertisements to potential clients who each faced a similar legal problem. The common denominator was foreclosure on their homes for failure to pay debts. The state bar refused to sanction sending letters. The state bar considered it to be improper solicitation because the attorney was going to receive a benefit from it. The state bar determined from the Ohralik casethat the attorney was going to receive a private benefit from being retained by clients receiving his letter. This was an area the bar could regulate, and they prohibited sending the letter. The United States Supreme Court distinguishes its Ohralik decision from this case. Ohralik was a face-to-face solicitation; Shapiro was a letter. The Supreme Court finds that a solicitation through personal act or contact (Ohralik) creates more likelihood of overreaching and the state can bar it. On the other hand, a letter directed to a group (Shapiro), has less likelihood of overreaching. The Supreme Court, however, did rule (in Shapiro) the states do have a right to institute regulations that are reasonable to oversee advertisements and solicitations to private individuals for profit.

Consequently, most states have enacted a requirement that such advertisements or solicitations state on the printed material that it is in fact an advertisement and that the sender is required to verify the accuracy of the facts stated. To put this into perspective, in 1990 the United States Supreme Court in Peel vs. Attorney Regulatory and Disciplinary Commission held that an attorney cannot be disciplined for simply listing his certification as a trial specialist by the National Board of Trial Advocacy (NBTA). The state had objected to the advertisement because the state believed it gave the impression that the state itself was the certifying entity when the state was not; the NBTA was not a stateagency. The Supreme Court held that the attorney's statement of certification as a trial specialist was true and verifiable rather than a claim of quality and the statement included objective facts supported by the inference of that quality.

It is important to stress again that in attorney advertising or solicitation an attorney is not permitted to pay any money or give anything of value to a person for recommending his services to another person. This is Model Rule 7.2(C). This rule does not prohibit the attorney from paying the reasonable cost of advertising. Obviously, the attorney has to pay for advertising. No one is going to do it for free. One situation where this comes into play is where an attorney is recommended by a client to a third party. The attorney in gratitude might believe he should reduce the bill of the client who made the recommendation. That, of course, is illegal. One clear exception: The nonprofit lawyer referral services established by state bars in which attorneys have memberships and get referrals from the service and pay a certain amount to be a member; the situation is different because it is covered by statute itself; otherwise, it probably would be illegal.

Solicitation will be discussed separately. Refer to ABA Model Rule 7.3 that was enacted in response to the cases discussed above: Ohralik, Primus and Shapiro. The general rule is that an attorney is not permitted to seek for-profit work through a personal or livetelephone contact with a prospective client with whom the attorney has had no prior professional dealing and is not related to the person in a family way. If the person is a family member related by blood in some fashion, the attorney can contact them because the attorney has the right to contact family members. There is no real statement on how distant the family relationship must be to be too distant. He could be a cousin seven times removed. At some point, however, the family relationship does terminate or else we would all be related to everyone else because we all came from Adam and Eve. Absent that, the attorney can contact people as long as the attorney stays within the guidelines of the cases discussed above and the state law of the attorney's licensing state.

Written materials that are sent and labeled as advertisement would usually be permitted under most state law under their canons of professional responsibility. However, it is always necessary to be familiar with the state law of each state which the attorney advertises. For example, there is a significant difference between Nevada's and California's regulations for attorney advertisement. Consequently, it would be prudent to obey the more stringent Nevada regulations on California advertising because those advertisements might reach Nevada and might cause an unintentional violation.

Under Model Rule 7.2(c) an attorney cannot and is not permitted to pay anything of value or give anything of value to aperson for recommending that lawyer's services to another person. This rule does not prohibit the attorney from paying the reasonable cost of advertising. Obviously, an attorney is expected to have to pay for the cost of advertising. No one is going to do it for free. One situation where this tends to come into play is where an attorney is recommended by a client to a third party. The attorney in gratitude might reduce the bill for the client who made the recommendation. Such conduct would, of course, be a violation of ethics rules. The one clear exception to the above prohibition involves the nonprofit lawyer referral services set up by the state bar and the like in which the attorney has membership and gets referrals from the service and pays a certain amount to be a member. This situation is different because it is covered by statute itself, otherwise it probably would be prohibited, however, that is not the case.

Disciplinary Rule 2-103 prohibited the use of runners and cappers under the Model Code as follows:

"(B) Except as permitted under DR 2-103(C), a lawyer shall not compensate or give any thing of value to a person or organization to recommend or secure his employment by a client, or as a reward for having a recommendation resulting in his employment by a client.

(C) A lawyer shall not request a person or organization to recommend employment, as a private practitioner, of himself, his partner, or associate, except that he may request referrals from a lawyer referral service operated, sponsored, or approved by a bar association representative of the general bar of the geographical area in which the association exists and may pay its fees incident thereto.

(D) A lawyer shall not knowingly assist a person or organization that recommends, furnishes, or pays for legal services to promote the use of his legal services or those of his partners or associates..."

The Runner and Capper prohibitions were restated in Model Rule 8.4(A) which prohibits an attorney from using an agent (runner or capper) to do contact potential clients in situations which the attorney cannot. These rules prohibit an attorney from using an agent to do what the attorney cannot do. If an attorney cannot contact a person directly, it makes sense that the attorney would not be able to pay a runner or capper to do it for the attorney. In fact, payment is not even a requisite factor for a disciplinary violation. If, for example, an attorney asked someone to go out and find business for him and that person does attempt to get clients for the attorney, then the attorney could be liable for the personal contacts of made that person. If someone does it on their own, that is by word-of-mouth and is perfectly legal, and there is nothing wrong with that. It is understandable that if an attorney is good attorney, then people are going to recommend the attorney's services to others. The only question is whether the attorney has asked for the solicitation or has or hired people to get business for the attorney. The answer has to be "No" or else the attorney has violated the runner and cappers rules of most state bars. Such contacts or use of runners and cappers violates Rule 7.3.

There are exceptions to the rule. Rule 7.3(A) applies only when there is a significant motive of profit involved in the lawyer's solicitation. If the attorney is not trying to make moneybut are trying instead to do a nonprofit pro bono service, there is no problem with direct contact because the attorney is not getting any benefit out of it personally. Many attorneys do a lot of pro bono work, and occasionally they will have a case where they will be handling several people pro bono. It often is a good idea to have others join as parties to have a better class or to preserve rights; so the attorney will contact a person and inform him, "I am handling such-and-such in a case and am handling it pro bono, and your issues are quite similar. Do you want to join? If so, I will handle you as well for free. If not, you can get your own attorney or not file at all." After a full and complete discussion, the person often does not join because he does not want to be involved in a lawsuit. Occasionally someone joins. Again, it is free work as a part of public service, representing indigent people who cannot represent themselves to preserve their rights. There is nothing wrong with an attorney conducting such work.

One area that the runner and capper situation does not apply is the contacting family members or former clients who are current clients about legal representation. Attorneys are allowed to do that. In addition, attorneys are allowed to talk to family members. Attorneys can offer their services to former clients and are allowed to talk to current clients without fear of violating Rule 7.3. Once the potential client however, declines the offered representation, in essence says "No," then the attorney is not supposed to continue contacting the person. After a "No," theattorney would be in violation of Rule 7.3(B) that prohibits the attorney from using "coercion, duress or harassment" in an effort to get clients. There are situations where attorneys continue to call a client until they exhaust the client or the client threatens to get a restraining order. Often this arises in a class-action or some horrific automobile or airline accident where there are a lot of plaintiffs involved and liability is clear cut; having the client sign is sort of like money in the bank for the attorney. Nearly everyone has seen those characterizations of attorneys parachuting into a city following an airline disaster in an effort to acquire clients within a few days and therefore control the litigation. While this is illegal, it nonetheless happens all too frequently. In fact, this is one of the most cited instances which blackens the reputation of all attorneys. The attorney is permitted to send personal letters to solicit clients, but he is not allowed to contact people personally if they do not already have a relationship. Nonetheless, that seems not to be the situation in most of these cases.

All attorneys should remember that Rule 7.3 requires that all written or recorded communication with prospective clients who are being targeted by the attorney include the words "advertising material" on them. This must appear on the outside of the envelope and on the first page of the communication. Recorded communication must also both begin and end with the "advertisement" announcement especially when an attorney is using a taped telephonesolicitation. The purpose of that regulation is to ensure everyone knows this is a solicitation and that they have the right to disregard the advertisement or not listen to the phone message instead of thinking they are listening to something important or even that they are talking to the attorney.

The most important and effective means of advertising and marketing for an attorney is the phone book. Most attorneys get their new clients from the phone book. A new client usually does not have an existing attorney, although occasionally the person is changing attorneys for any of a variety of reasons. The new client usually will select the attorney out of the phone book and call for an appointment. Generally, a potential client will only call one attorney at a time. Few clients really shop around. They may call the attorney and ask what type of law he handles and the price for a consultation.

Advertising in a phone book is the least expensive type of advertising for the attorney. A monthly ad in the yellow pages that is approximately four square inches (about 2 columns by 2 inches) tends to run about $50 per month. In this space, an average attorney can place a lot of information such as office location, phone number, states of practice, fields of practice and special licenses. It is also possible to buy white pages advertising. The determining factor is the amount of money that the attorney wishes to spend. In addition, most yellow pages have divided their yellowpages into specialty sections as well. The attorney can place an ad or just the name, address and phone number under each section. An attorney might have a 2-column ad twice in the specialty sections under the most important fields of practice and also have the attorney's name listed under the other major filed in which the attorney sometimes practice. An attorney should avoid running the columns on the same pages or on facing pages. One ad on a facing page is distinctive enough to be eye-catching. This amount of advertising is about $115 per month. This is very inexpensive when compared to newspaper advertising: $175 each time an ad the size of a business card runs.

Attorneys will come to realize the importance of a phone ad early in the success of a legal practice. After an attorney has moved his office a couple of times, he will realize that advertising in anything other than the phone book is usually not very effective. Not being in the phone book can be the "kiss of death" because most people locate their attorneys from the phone book. As a practical matter, attorneys will find that whenever they are not in the phone book, either as a result of opening a new office or moving an existing office, that they really will get very little new business from people who do not already know of the attorney. Most people hire their attorneys through the phone book and attorneys not in the phone book operate at a severe disadvantage.

It is important to know the deadlines for getting into a phonebook. If a deadline is missed, an attorney might have to wait as long as a year before getting an ad in the phone book. As a result, the attorney might have to engage in other more costly forms of advertisement to keep his name before the public.

Everyone has seen television ads for attorneys and attorneys are advertising more frequently on radio as well. For the sole practitioner, television advertising is usually cost prohibitive. To be effective on television, the attorney must advertise on prime time, and that is the most expensive slot. There is a run of program rate where a television station will run the ad during the day whenever it has a spot available. For business ads this is usually a waste because they tend to run late at night and do not generate sufficient business to recover their cost. There is one advantage in television advertising. Cable companies often develop local stations and expand the coverage of the station over a much larger area. In this situation, the advertiser's ad is shown to a larger marketplace.

Radio advertising can also be valuable for an attorney. A one-minute ad in many markets is around $20 for the major syndicated shows. A general ad twice a week on RUSH LIMBAUGH, PAUL HARVEY and DR. DEAN EDELL, national shows with high audiences, will cost about $40 per show. It would serve its purpose of introducing the attorney to the public.

The most effective radio advertising is for the attorney to bea guest on a radio talk show where clients can telephone their legal questions and the attorney answers them. Most state bars will not permit the attorney to take any of the callers as a client as they view this as a form of solicitation. It is, however, permitted for attorneys to answer legal questions of the public on the air. The advantage of doing this is that the attorney has more than a mere minute of paid advertising to demonstrate his legal knowledge and reasoning ability. If the attorney is lucky, the station might invite him to appear on a regular basis. This type of marketing works for attorneys quite well.

An often overlooked means of marketing a law practice is to write a legal column. Nearly every city or town has a local free newspaper. Most such newspapers are looking for articles. A very good way to receive free exposure is for an attorney to write a free legal column for the paper. For example, in northern Nevada there is a free popular newspaper called the SIERRA SAGE. The editors readily agreed to have a free legal column written. The column is approximately 1200 words per month, that is approximately four questions from the public and their answers or general advice. The paper comes out once per month and has a circulation of 30,000. In contrast, the local newspaper is printed only twice a week; so the SIERRA SAGE is a relatively well-read paper. A normal ad covering this space would cost over $200. The best part about it is that an attorney is able, through the article, to demonstratehis proficiency and knowledge on a topic or field rather than merely stating that he possesses it.

In addition to writing a column for a local paper, an attorney might consider writing a column for specialty managers or newsletters. Many attorneys offer to write legal columns on the areas in that they practice in monthly magazines. For example, an attorney practicing environmental law might contribute an article to an environmental magazine. The result of this is that the attorney begins to be perceived as an expert or specialist in the area by the public. A person reading the article might therefore use the attorney because of the developed name recognition. As a practical matter, except for national magazines that have a permanent staff, most magazines would greatly appreciate the receipt of a well-written article by an attorney.

An attorney might also write a column or article for the state bar publication. This generally will not yield much in the way of employment; although there might be some referrals generated from it. The main advantage from writing such articles is that it improves the attorney's professional resume and standing. This can be important if the attorney ever seeks a judgeship or other appointed position.

A common marketing strategy that has developed in the past few years is for attorneys to conduct seminars for prospective clients. This is most often done in the estate planning area. Attorneys willrent a room and run an ad in the newspaper and often on the radio as well. At the seminar, the attorney presents an overview of the specific area of law and gives examples of how the law works.

Seminars are also given by non-attorneys. The result has been that attorneys have had to give their own seminars just to compete. Many state bars have been remiss in their obligation to prevent the unauthorized practice of law by non-attorneys. This is especially true in the estate planning area. Most of the so-called "financial planners" are not attorneys. Yet these "financial planners" prepare complex estate plans often without the use of attorneys. Insurance salesmen have created their estate planning designation called a Certified Life Underwriter (CLU) so they can engage in estate planning. A CLU is not recognized as equivalent to a legal degree and the holder of the designation is not legally permitted to practice law. Nonetheless, since the state bar does not enforce the unauthorized legal practice of these non-attorneys, attorneys in these areas must conduct seminars to educate the public. Most of these non-attorney seminars charge far more than attorneys. Some people have reported fees quoted as high as $4000 to do a revocable trust that an attorney might do for $600.

Seminars can be given by attorneys on any subject. They might be on social security, worker's compensation or taxation. An attorney must comply with state regulations regarding attorney advertisements, but nonetheless they can be done. Seminars can become an important marketing tool, especially for new attorneys.

Many attorneys create a working relationship with a senior center or community organization to give regular seminars to their members. This usually works out to be beneficial for the attorney. It is not uncommon for an attorney at a large seminar to get 10 or more clients, that in the estate planning fields could be $10,000 or more of legal fees.

One of the most successful forms of marketing is the courting of referrals. It is a unique aspect of the human personality that if asked to make a referral most people will attempt to do it even if they really do not know anyone. In such an instance, referrals are simply based upon the attorney's reputation. People may want to help a person when such help can be easily given, or they may simply not want to appear ignorant or "out of the loop." In any event, people try to give referrals whenever they can do so. An attorney can generate a fair amount of new clients by developing enough name recognition that he will be referred simply because of that name recognition.

All attorneys have heard the cliche that they should join social organizations. In reality this does not generate business for new attorneys. Most social organizations have specific prohibitions against discussing or conducting work on their premises. There are two reasons behind these prohibitions. If the organization is a private club, conducting business in it might expose the club to a discrimination law suit. Many women andminorities have successfully sued private clubs claiming that they were really business organizations. In such instances where it has been shown that business has been conducted in the club, the courts have found discrimination in not allowing minorities to join.

A more common reason for denying business to be conducted on the premises is for the comfort of the members and to prevent them from being pestered. In any event, joining an organization does not usually result in the attorney getting access to the members for the purpose of marketing.

The best way for the attorney to obtain referrals is to introduce himself to persons who can pass on the referrals. For example, an attorney who has served in the military has an automatic "in" with the various veterans' groups that are very good about referring work to veterans. Even if the person is not a veteran, a relationship can be courted with the organization, such as through doing seminars for the group that will translate into eventual referrals.

Another source of referrals is through bartenders, especially for drunk drivers. Bartenders hear a lot of problems relating to the human condition. Bartenders have been referred to as the poor man's psychiatrist, that might be true. In any event, when a patron has a problem, such as a drunk driving charge, a bartender is usually among the first to know. The bartender is often among the first people to be able to recommend an attorney. It is not uncommon for attorneys to give a stack of their business cards tothe bartender for distribution to patrons. There is nothing wrong with a bartender recommending an attorney as long as the attorney does not pay for the recommendations. Many bartenders make the recommendations, as stated above, because they want to be helpful to the patrons. Bartenders realize that if they appear unresponsive or uncaring to their patrons, they will lose business.

It used to be that an attorney just out of law school would enter public service, such as assistant district attorney or public defender, for several years before entering private practice. Opportunities for these jobs have disappeared. The large increase in the number of attorneys, competition for work in the private sector and affirmative action have resulted in fewer and fewer public attorney jobs becoming available each year. Most public attorneys view their jobs as a career, not as a stepping stone into private practice, with the result that there are few permanent jobs available for the new attorney.

While there may not be permanent jobs available with the public, there occasionally are part-time or contract jobs available with public agencies. These jobs generally pay a straight hourly rate and are without benefits. The two advantages of these jobs are that they provide a small but steady source of income for the attorney and they provide a degree of visibility to the attorney that translates into name recognition.

Two examples of how this works are as follows. Alpine County,California has a contract for an assistant attorney to provide 1800 hours of legal services per year. The contract is bid and there are no benefits beyond the contract payment. The attorney to whom the contract is given sets his own schedule and is paid $40,000 per year. The attorney is permitted to maintain a private practice on the side. In Douglas County, Nevada, the county's education attorney has a contract for 20 hours per month at $1,100 without benefits. The attorney charges $150 per hour for his private clients. The $1,100 per month from the county covers the office rent and operation expenses, other than secretarial. Therefore, the attorney is able to maintain himself during months of low income.

Attorneys can no longer assume that simply because they are attorneys they are in demand. The fact is that paralegals are often paid more than starting attorneys. For example, the Judicial Assistant (legal secretary) for the District Court of Douglas County makes $48,000 per year; that is more than the county pays its starting assistant district attorneys.

The purpose of an attorney in estate planning is to help a client build a large estate during life and to pass as much of it as possible to the loved ones upon death. This section attempts to educate and remind attorneys, who do not ordinarily practice in the filed, of the various types of available estate planning. Much of the advice which an attorney gives to a client will affect the client's estate. Such advice might well result in higher probate costs or increased estate taxes upon the client's death. Attorneys have been held liable on the theory of malpractice for those increased costs and taxes when the attorney failed to fully apprize the client of the risks or of available estate planning alternatives.

An estate plan is the procedure by which a person attempts to preserve the assets of his estate during life and distribute them after death. The main considerations in estate planning are avoiding probate, reducing estate and inheritance taxes and quickly distributing the estate to the designated heirs.

A complete estate plan will consider methods for preservation of the estate during life by maximizing income while reducing income taxes that must be paid. The costs of probating a Will are large. An old joke: If the person was not already dead, the costto probate his estate would kill him.

Probate costs include court fees, appraisal fees, attorney fees and executor fees. Court costs and appraisal fees are modest: a couple of hundred dollars for an average estate. The real costs are the attorney and executor fees. The maximum amounts of attorney and executor fees are set by statute and approved by the court. They are based upon the size of the estate (value of the property to be probated) and increase as the estate increases. In California, for example, attorney and executor fees are calculated as follows:

1. 4% of the first $15,000; maximum $600.

2. 3% of the next $85,000; maximum $2,550.

3. 2% of the next $900,000; maximum $18,000.

4. 1% of the next $15,000,000 and .5% thereafter.

For example, a $100,000 estate probated in California would have to pay maximum attorney and executor fees of $6,300: $3,150 each to the executor and attorney. The attorney and executor can agree to take less or no fee at all.

Avoidance of probate fees is a major inducement for implementing an estate plan. When a revocable trust is used, there are no probate fees. The estate passes immediately to the designated beneficiaries of the trust. No court proceeding is needed to transfer the property of a trust, so no attorney is needed. There are several means to avoid having to probate property. The probate avoidance vehicles are:

1.Summary probate proceedings in the decedent's state. A summary probate is an abbreviated procedure for small estates or for transferring the entire estate to a surviving spouse. Many states have adopted special procedures to bypass the expense and long delay in probating such estates.

2.Giving the estate away while alive.

3.Placing the property into joint tenancy with the proposed heirs. Upon death, title for the property passes immediately without probate to the surviving joint tenants. Real property held in joint tenancy passes to the survivors without a probate by recording a notice of the death of a joint tenant.

4.Placing the estate into a revocable trust that passes the estate to the designated beneficiaries immediately upon the decedent's death.

In order to determine the type of estate planning best suited to an individual, the attorney must fully understand and appreciate the size and makeup of the estate, how the client wishes to distribute the estate and the amount of control which the client wishes to give up in order to effectuate the estate plan. Toward these ends, this chapter is structured in such a way as to provide a concise summary of estate planning law and its application.

This is the most popular form of estate planning. It is fast and bestows the maximum amount of control and property over the estate.

In order to structure the best type of estate plan, for a client, an attorney must fully understand the size of the estate, how he wishes to distribute it and the amount of control he wishes to relinquish to effectuate the estate plan.

Some states still have the ancient common law right of "dower." Under the concept of dower the law gives an interest to the wife in the real property of the husband owned by him at any time during the marriage. The wife's right (dower) was contingent upon her surviving him, and it became an absolute right after she did so. The dower interest was a life estate in one-third of the real property that the husband owned during the marriage.

The wife's dower could not be defeated by the husband during his life or by his Will, and her interest was not subject to the claims of her husband's creditors. The dower terminates upon divorce. Many states have abolished dower and replaced it with statutory shares in the deceased husband's estate.

Some states still have the ancient common law doctrine of "curtesy" governing the husband's statutory share of his wife's estate. Curtesy grants the husband an interest in the real property of the wife owned by her during the time of the marriage. The husband's curtesy was contingent upon him surviving her, and itbecame an absolute right when he did so, provided a child was born during the marriage.

Curtesy entitles the husband to a life estate in all of the wife's real property owned by her during the marriage. The husband's curtesy could not be defeated by the wife during her life or by her Will and was not subject to the claims of her creditors. Curtesy terminates upon a divorce. Most states have replaced the doctrine of curtesy with statutory shares for the surviving husband in the deceased wife's estate (between a third and a half).

The following are the states that follow the common law marital property rules. In these states a person owns separately and apart from the spouse everything titled solely in his name and everything purchased by his own property, income, or salary. The titles to property actually control who owns. This is different from the law in community property states, which hold that all property acquired by gift, devise, or bequest belongs to both husband and wife. The common law states ar

END OF SAMPLE VIEW

Every common law state has its own laws determining the statutory share that a surviving spouse receives from a deceased spouse's estate. In the following states the surviving spouse receives a one-third life estate. This is the right to use the property to obtain income but not the right to sell it:

Connecticut Kentucky Rhode Island Vermont

In the following states, the surviving spouse's percentage varies, depending on whether the deceased spouse had children. The surviving spouse usually gets at least one-half of the estate, one-third if there are children.

END OF SAMPLE VIEW

In the following states, the surviving spouse's percentage varies depending on whether the deceased had children. If there are no children the surviving spouse usually gets one-half of the estate but only one-third if there are children.

Arkansas Illinois Indiana Kansas Maryland Massachusetts Michigan Missouri New Hampshire N. Carolina Ohio Oklahoma S. Carolina Virginia Wyoming

Georgia is unique. Instead of a fixed share, Georgia requires the deceased spouse's estate to support the surviving spouse for one year. This might or might not exceed the one-third of the estate usually given in other states.

Most states base the statutory share on the augmented estate of the deceased spouse. The augmented estate consists of everything owned by the decedent: joint-tenancy property, trust property, etc. The amount of the statutory share is calculated from the augmented estate. The probate court has the power to cancel joint tenancies and trusts created by the deceased spouse inorder to give the surviving spouse a statutory share. The purpose of using the augmented estate is to ensure the deceased spouse passes a statutory share of the estate to the surviving spouse. Not all states, however, use the augmented estate. Instead, other states simply rely on the property actually undergoing probate.

The basis (value for tax purposes) of property received from a decedent through a trust or through probate is its fair market value on the date of the decedent's death. Example: A person bought a home for $10,000. On his death it was worth $40,000. The basis of the property when heirs receive it will be $40,000. If the heirs sell it for $40,000, there will be no capital gains taxes due. If the heirs sell the house for $60,000, they will have to pay capital gains taxes on $20,000 (selling price $60,000 minus stepped-up basis $40,000).

Community property is considered owned by both spouses and is given special tax treatment. Under federal law when one spouse dies, the basis of both halves of the community property will be increased to fair market value. This is a great tax advantage. Example: A couple bought a home for $20,000 that had increased to $500,000 upon the husband's death. The basis for the husband's share in the community property is increased to fair market value $250,000. Under the special treatment for community property, thewife's share is also increased to fair market value $250,000. The surviving wife can sell the house for $500,000 without having to pay any capital gains taxes. If, however, the spouses held the house as joint tenants, only the husband's half would have been increased to fair market value. The wife's basis for her half would have remained at $10,000. If the wife later sold the house for $500,000, she would have to pay capital gains tax on $240,000 ($500,000 - $260,000 total basis). The stepped-up basis for community property is a great tax advantage over mere jointly-held property between spouses.

A common misconception is that probate exists as a means for the state or federal government to collect taxes. That is not the case. Estate and inheritance tax rates are based on the size of the estate and the relationship of the heirs to the deceased. It is irrelevant to the taxing entities whether or not a probate is conducted when determining the tax liability.

END OF SAMPLE VIEW

A Will contest is a legal proceeding whereby someone, usually an heir or beneficiary, attacks or contests the validity of a Will or a distribution made under it. A Will contest results in a trial before the court to determine if the Will was validly executed andshould be enforced. The main contentions for contesting a Will are:

1. Improper execution.

2. Lack of competency.

3. Lack of intent to make a Will.

4. Pretermitted spouse.

5. Pretermitted heir.

6. Fraud, duress or undue influence.

Generally, only two witnesses are needed for a Will, but a few states have rather eccentric requirements. Vermont requires three witnesses; Louisiana follows the Napoleonic Code requiring three witnesses, one of whom must be a notary public. These factors are important if there is a possibility of an ancillary probate. If the Will might be probated in another state, it must comply with that state's and the decedent's home state's requirements for a valid Will. In the case of an ancillary probate, if the Will does not comply with the ancillary state's requirements for a valid Will, it will be declared invalid and the estate distributed by the laws of intestacy.

All states require that proof be submitted that the decedent actually signed the Will. Some states actually require some or all of the witnesses to come before the court and testify about the signing of the Will. Other states, such as California, permit the witnesses to sign a declaration called a proof of subscribing witnesses in which the witness swears under penalty of perjury that he actually saw the testator sign the Will.

A few states, like Louisiana, permit witnesses to sign the Will before a notary public. When this is done, the Will is said to be self-authenticating, and the witnesses need not appear in court to validate their signatures. When the witnesses are dead or unavailable and their signatures were not notarized, some states, California for instance, permit handwriting experts to testify that the decedent signed the Will. This is a last resort and is difficult if the decedent had a long illness that affected his signature. It is a good idea to use witnesses who are younger and in better health than the testator.

If the Will is successfully contested, the probate court may invalidate the entire Will or only the challenged portion of it. If the entire Will is invalidated, the last valid Will is reinstated. If there is no such valid prior Will, the estate will be distributed pursuant to the laws of intestacy.

After a probate is opened a notice of the probate proceeding is published in a newspaper of general circulation in the area where the decedent lived. This publication informs creditors of the decedent that a death has occurred. The publication also informs the creditors that they have a fixed period of time ranging from four to six months to file claims with the probate court for the amounts they are owed.

If any creditor that was given valid notice, directly or bypublication, fails to file a claim within the statutory period of time, he is barred from recovery. The reason for having a cut off period is to close the estate on a certain date. Otherwise, the probate would be open forever while old unpaid claims were being submitted. Once filed, the executor must approve or reject the claim. If the claim is approved, it will be paid from the estate at the closing. If the claim is rejected, the creditor has a fixed time to file a lawsuit to collect the claim. After that time, collection is permanently barred.

This creditor period is the main reason for the delay in closing a probate and distributing the estate. The advantage of a revocable trust is that the property is transferred immediately. The disadvantage is that the creditor claims follow the estate. The claims will be paid. Still it makes better sense to pay them immediately through a trust rather than wait months for the action to work its way through the courts.

Funeral expenses are paid out of the estate. They are granted a priority over other bills. They are among the first bills paid once the estate has been marshaled (assembled). Many people today make their own funeral arrangements by paying for the service ahead of time. Many states, such as Ohio, Nevada, South Dakota and Washington require money paid under a pre-need plan to be placed in a trust fund. In the event the funeral home goes out of business, the money is returned to the client. Sometimes a person purchases a funeral policy to pay the funeral expenses, and the insurancecompany can pay insurance proceeds directly to the funeral home. Some states, such as Maryland and Tennessee, require all payments on funeral policies to be made to the estate and forbid funeral homes being named beneficiaries on such policies.

If the estate is not large enough to pay all of the creditors, the personal representative will sell the secured property. The representative will apply the proceeds from the sale of the secured property to the secured creditors: those holding loans secured by designated property. If the proceeds are not enough to cover the claims, the secured creditors will have an unsecured claim for the unpaid balance. Any amount received in the sale that exceeds the amount of the claims is paid to the estate.

After claims of the secured creditors are satisfied, all the unsecured creditors divide the remaining estate according to their percentage of claims against the estate. For example, assume that Ed dies owing George $50,000 secured by a printing press. The executor of the estate sells the press for $30,000 and pays it to George. The remaining $20,000 becomes an unsecured debt of George against the estate. Ed's estate totals $100,000 with $200,000 in unsecured claims. George's $20,000 unsecured claim is 10% of the total unsecured claims. Therefore, George receives 10% of the unsecured estate, which is $10,000.

Many states, like California, permit a surviving spouse orminor children to claim a fixed amount from decedent spouse or decedent parent's estate free from all creditor claims. This family allowance can be in addition to anything bequeathed in the Will. In some states if an heir elects to take a family allowance, the heir cannot take under the Will.

The family allowance can also be taken despite the terms of the Will. The Will may specifically give the wife nothing, but the wife may still be entitled to the family allowance under state law. A family allowance was one of the means used by the states to replace dower and curtesy. In a small estate the family allowance is the only way that the family may receive anything from the decedent's estate.

A simultaneous death occurs when both the husband and wife die together so close in time that it cannot be ascertained with certainty who died first. When there is simultaneous death, each spouse's estate is distributed as though the other spouse has died first. The husband's estate passes to his heirs in the manner it would have passed had the husband actually died first. Jointly held property is divided equally among the two estates. Every state except Alaska and Louisiana have adopted the Uniform Simultaneous Death Act, which covers this situation. Many Wills avoid this problem altogether by simply containing clauses that require the spouse or other heir to survive the testator by a fixed period oftime in order to inherit, usually 60 days.

END OF SAMPLE VIEW

In planning a client's estate, the attorney must evaluate both the wishes of the client and the size of the estate before making recommendations on the type of estate planning vehicle to be used by the client. Most states have enacted summary probate procedures for estates below a certain dollar amount of value which will pass the estate quickly with little cost. Also, joint tenancy can be utilized to pass property without a probate but there are tax basisconsiderations attendant with their use. An attorney may be liable to the client's estate for any increased taxes or administration costs incurred if the use of cheaper estate planning vehicles were not discussed with the client. It is very dangerous for an attorney to do a simple Will for a client with a large estate without having the client sign a statement acknowledging that the attorney discussed the advantages of a revocable trust whose use as rejected. Without such a statement, heirs of the client might sue the attorney for the increased probate costs by claiming that the client would have done a revocable trust had the attorney informed the client of its advantages.

A revocable trust is usually the best means of estate planning. The creator of the trust, called the "trustor" or "grantor," places his entire estate into the revocable trust. The trustor usually is the trustee (the person who manages the estate). There is a beneficiary (the one who will benefit from distribution of the trust). Upon the trustor-trustee's death, the person named in the trust document as successor trustee becomes the trustee immediately without court approval being needed. Depending on the terms of the trust, the new trustee either dissolves the trust and distributes the assets immediately in the manner designated in the trust document or continues to operate the trust in the manner directed by the trust document.

Since there is no probate, there are no probate costs. The savings for the estate with a revocable trust are several times thecost of creating the trust. Because the trust is revocable, the trustor can alter, amend or revoke it at any time. If the trust is revoked, the trust assets immediately return to the trustor.

The standard estate plan that includes a revocable trust, durable power of attorney, living Will, and pour-over Will is usually between $500 and $1,100, depending on the type of trust. There are different types of trusts. Different trusts are tailored to whether or not the grantor is married, has children, or wants a joint trust between the spouses. Special trusts such as life insurance trusts, generation skipping trusts or charitable trusts can also be part of an estate plan.

All fifty states and the federal government accept as valid a revocable trust. If the trust was validly created in the original state, all the other states will honor and enforce it. Provisions can also be placed into a trust document stating that the terms of the trust are to be administered by the laws of a certain designated state. All states will apply the laws of the designated state in administrating the trust. Even if the trustor moves to another state, the trust will still remain valid and in effect.

The federal estate and gift tax rate is graduated and increases as the size of the estate increases over the unified credit. Example: A taxable estate of $100,000 has a tax of $23,800; a taxable estate of $250,000 has a tax of $70,000; ataxable estate of $500,000 has a tax of $155,000; a taxable gift of $2,5000,000 has a tax of $1,025.800.

Under federal law there is no federal gift or estate tax on property transferred between spouses. This is an unlimited credit that has only two exceptions:

1.It must be an actual gift. If the gift is in trust, all of the income must go to the spouse.

2. The spouse receiving the gift must be an American citizen. Gifts to a non-citizen spouse are not eligible for the unlimited deduction but are eligible for a $100,000 annual exclusion (Section 2523 of the Internal Revenue Code). Likewise, property passing from an American spouse to an alien spouse after death does not qualify for an unlimited marital deduction either. Special tax rules apply for such transfers, and a tax consultant should be consulted if the estate of the American spouse exceeds $600,000.

Therefore, a person can generally pass his entire estate to a surviving spouse without incurring any federal estate taxes. This may not ultimately be the best estate plan. If the property given to the surviving spouse boosts the surviving spouse's estate over $600,000, the surviving spouse's estate will have to pay estate taxes upon the death of the surviving spouse. Any gift to asurviving spouse that would boost his estate over $600,000 in value should be made after using the decedent's unified credit.

Every person is permitted by federal law to transfer assets totaling $600,000 by either gift or death without incurring a gift or estate tax. Example: A person can give $275,000 in gifts while living and pass an estate of $325,000 after death without the estate paying any federal gift or estate taxes.

About half of the states impose their own estate and inheritance taxes. These taxes should also be a consideration in estate planning. The Internal Revenue Code permits a small credit for state death taxes to be applied against the federal estate. The $600,000 unified credit permits a husband and wife to give to their children a total combined estate of $1,200,000 before incurring any estate taxes. A person giving his entire estate to a surviving spouse is not taking advantage of his spouse's unified credit. It is simply good planning to use the spouse's $600,000 unified credit when the trustor's estate exceeds $600,000.

Under federal tax law every individual may make an annual gift of $10,000 per person without incurring a gift tax or having the gift applied towards the $600,000 unified credit. A parent having four children can give each $10,000 for a total of $40,000 each year free of gift taxes. The advantage of making these gifts isthat they help reduce the size of the estate below $600,000, eliminating federal estate taxes.

An alien spouse does not qualify for the unlimited marital deduction. In place of the unlimited marital deduction an alien spouse is permitted to receive as a gift from the other spouse $100,000 per year tax free.

If the trust is revocable, there is no gift tax because the trustor can always revoke it. All income is still taxed to the trustor. If the trust is irrevocable with the trustor as the beneficiary, there is no gift tax because the trust is still for the trustor's benefit. Such a trust is called a grantor's trust, and all trust income is taxed to the trustor. If the trust is for the spouse, there is no gift tax because of the unlimited marital deduction. If the trust is for someone other than the trustor or the trustor's spouse, a gift tax is owed. The gift tax must either be paid or deducted from the unified credit or annual exclusion.

A common estate plan is where both spouses create one joint revocable trust. In this joint trust both spouses create one joint revocable trust and place all their property into the trust. The spouses' property is listed on schedules marked his, hers and theirs. On the death of the first spouse the trust isdivided into separate trusts for the surviving spouse and the children or heirs. This joint trust is usually the most economical estate plan because it plans for both estates. The cost for doing the joint estate plan is less than the cost of a separate estate plan for each spouse.

The trust is totally revocable during the joint lifetimes of the spouses; either spouse may terminate it at any time. Upon the death of the first spouse the trust usually becomes irrevocable as to the property of the deceased spouse, but the surviving spouse usually retains full power to revoke the trust as to the property that he contributed to it. This type of trust gives the spouse maximum control over their assets. This flexibility accommodates future changes in the surviving spouse's life following the death of the first spouse.

The A-B Trust is the common name given to the general type of revocable trust used by a married person with children where the trustor's estate exceeds $600,000. It is also called a "marital trust" or a "bypass trust." The trust exists for the benefit of the trustor during his life. At the trustor's death the trust is divided into two parts: the first $600,000 (or the remaining unused unified credit) is placed into the B trust, and the rest is placed in the A trust.

The sole beneficiary of the A trust is the surviving spouse. The surviving spouse has ownership of the A trust and usually has the power to terminate it and receive the assets in her (assuming the wife is the survivor) own name. Since the assets in the A trust go to the wife, and since there is an unlimited marital deduction the estate is not subject to federal estate taxes if the spouse is a U.S. citizen. Upon the surviving spouse's death all of the property in Trust A will be included in the surviving spouse's estate for calculation of estate taxes. Example: Upon the husband's death his $2 million estate was divided $600,000 to Trust B and $1,400,000 to Trust A. Upon the wife's death Trust A had grown to $1,700,000. In addition, the wife had $500,000 of her own estate. So, for tax purposes, the wife's taxable estate will be $2,200,000.

The beneficiaries of the B trust are the children. Income may be attributed to the surviving spouse, but the trust does not qualify for a marital deduction. It does qualify for a deduction to the extent of the trustor's unused unified credit ($600,000). Thus it is possible that there will be no federal estate tax on either trust. In the above example, if the assets in Trust B increased to $1,000,000 at the time of the wife's death, no estate taxes are due because the property placed into the Trust was originally tax free. If the $800,000 was originally placed into Trust B, the excess $200,000 would be taxable; after the taxes are paid, no additional estate taxes will be charged against it upon the death of the wife.

A QTIP trust is a special trust whereby the trustor's spouse is given all of the income from the trust with the principal being distributed to others ( usually the children or grandchildren) upon the surviving spouse's death. QTIP stands for Qualified Terminal Interest Property and is a fancy name for property given to a spouse in a certain type of trust.

A QTIP trust gives the option to the surviving spouse to have the trust property treated as a gift to the surviving spouse for estate tax purposes. If the election is made, the value of the trust will be treated as a spousal gift and exempt from tax because of the unlimited marital deduction. On the surviving spouse's death the value of the trust assets will be included in the surviving spouse's estate for the determination of the surviving spouse's estate tax.

Depending on the size of the surviving spouse's estate it may or may not be good financial planning to make the QTIP election and have the value of the trust included in the surviving spouse's estate. For example, assume that the surviving spouse's estate is $100,000, and the QTIP trust is $100,000. The unified credit of the deceased spouse has previously been used. Making the election will save the trust from paying federal estate taxes until the surviving spouse dies. In the meantime the surviving spouse could draw a higher interest from the investment of the $100,000. If thesurviving spouse's estate grows after making the election, tax will ultimately be required on the growth at the death of the surviving spouse.

A generation-skipping trust is a trust that skips one or more generations (grandparent's trust for grandchildren that bypasses the parents). The exception is when there are no parents surviving the grandchildren; then it is treated as a direct trust. A generation-skipping trust is complicated tax-wise. Although easy to create, it should not be created without first consulting a tax advisor because of the inherent tax consequences. $1,000,000 can normally be placed in a generation-skipping trust without incurring an estate or gift tax (provided the uniform credit has not been used previously).

Any amount placed in the trust over $1 million is taxed at a rate of 50% at the time of any distribution. A distribution occurs when the parents of the grandchildren die or the grandchildren receive money from the trust. The purpose of this law is to avoid amassing huge estates by not paying taxes. These trusts only affect very wealthy people. The tax consequences of a generation-skipping trust are so great that one should not consider funding one with more than $600,000 without professional tax advice.

A trust is created very easily. The trust document isdrafted, usually by an attorney, and directs how the trust estate will be administered and distributed. The trustee acts in accordance with the terms of the trust. The trustor and trustee must both sign the trust document. If the trustor is also the trustee, he signs the trust agreement twice: as trustor and or trustee.

The final requirement is that the trust be funded. Funding the trust requires that the trustor place into the trust all of the property the trustor wishes to be in the trust. All of the property of the trustor should be placed into the trust. Anything left out of the trust will have to be probated unless it is joint-tenancy property or insurance policies with designated beneficiaries other that the decedent's estate.

Any property that has a title must have the title specifically transferred to the name of the trust. Merely stating in the trust agreement that such property is to be placed into the trust is insufficient to put the property into the trust legally. For example, assume that the trustor owns a home. Since a home has a title document, the title must be changed to name the trust as the owner. A quitclaim deed by the trustor to himself as trustee must be executed and recorded. This is simple to do and usually is done when the trust is created.

Placing a piece of real property into a trust should not trigger a reassessment of property taxes because the transfer is not really a sale or conveyance of the property. The property isput into a revocable trust, which the owner can terminate at any time and title to the property reverts to the owner. California law specifically states that merely placing real property into a revocable trust for estate-planning purposes does not trigger reassessment as long as the grantor is alive. This is just common sense. Reassessment occurs when there is a change of ownership. Placing the real property into a revocable trust is not really a change in ownership because the trustor still controls it and can have the property returned to him at any time.

Personal property that does not have a title (such as a television or furniture) is transferred automatically by a statement in the trust document showing the intent of the trustor to put into the trust all personal property wherever located. Property that has a title (such as a house or car) must have the title specifically changed to make the trust the owner. Merely stating an intent to place the house or other property that has a title into the trust is insufficient. The only way to put property that has a title into a trust is to actually change the title on the property so that the trust is listed on the title documents as the owner. Property once placed into a trust is treated like any other property that is not in a trust.

To sell any of the property that has no title (such as a radio or stove), one merely sells it. To sell any property that has a title (such as a car), one sells it by transferring title. All that is needed to sell real property from a trust is a deedexecuted by the trustee. The trustee merely signs the deed as the representative for the trust and upon recordation the title is passed. For example, the deed from the trustee will read: "John Doe, Trustee of the John Doe Revocable Trust, hereby deeds, conveys, sells, and transfers to John Smith all right, title and interest in the following property."

A revocable trust is considered for tax purposes a grantor trust. The Internal Revenue Code recognizes a grantor trust as a type of trust created for the benefit of the person creating it: all of the income from the trust is attributed to the grantor for tax purposes. Since all of the income is attributed to the grantor for as long as he is alive, the grantor remains liable for the income taxes. A revocable trust does not save the grantor any money on income taxes because it is not designed to do that. A revocable trust exists to avoid probate and save estate taxes, not to save income taxes.

A trust can be made irrevocable. Sometimes it makes good financial sense to do so. For assets in a trust not to be included in a trustor's estate, the trustor must not have control over the trust and must not have reasonable expectation that the trust will revert back to him. If the trust is revocable, the trustor has a great deal of control over the trust. The fair market value of the assets of the trusts will be included in the trustor's estate upon death for estate tax calculations. If the trust is made irrevocable, and the trustor has no control over the trust, theassets in the trust and all appreciation in value will not be included in the trustor's estate. This could pass a great deal of appreciation to the trustor's heirs without having it taxed. It is because a life insurance trust is irrevocable that the proceeds of the insurance on the decedent are not included in his estate.

A revocable trust does not need to be recorded. Unlike a will it is a private document. The only documents that need recordation are the deeds transferring real property into the trust. In some states a revocable trust is required to be registered and a copy lodged with the probate court. To register, a short statement is filed listing the trustee and giving some basic information. Registration gives the court jurisdiction to oversee the trust. There are no penalties, however, for failure to register. The states requiring registration are Alaska, Colorado (after the death of the grantor, and no registration is required if there is an immediate distribution to the beneficiaries), Hawaii, Idaho, Michigan, New Mexico and North Dakota. Florida and Nebraska do not require registration with the probate court, but both states allow it and suggest it.

Federal estate tax return Form 706 is required to be filed whenever the decedent has an estate greater that $600,000. The requirement to file the estate tax return does not depend on any taxes being due or probate being required. If the estate isgreater than $600,000 the tax return has to be filed.

Form 706 tax return has to be filed even if the entire estate is going to the surviving spouse under a trust and is entirely exempt from estate tax as an unlimited marital credit. Likewise, a Form 706 tax return has to be filed even if the entire estate is given to charities exempt from tax under the Internal Revenue Code.

A trust must terminate within twenty-one years after the death of the last person who was alive and mentioned in the trust when it was created. This is known as the Law of Perpetuities. "Terminate" infers all of the assets of the trust are totally distributed. If it appears from reading the trust document that the trust would continue more than 21 years after the death of the person alive that is mentioned, the trust is invalid. Clauses are usually inserted in the trust document to guarantee that the trust will not violate the Law of Perpetuities.

Except for the Law of Perpetuities, a trust terminates whenever the terms of the trust agreement state it will terminate. Usually it terminates on the death of the surviving spouse or the death of the trustor's last child.

If a trust is revocable, all that is needed for an effective revocation is for the trustor to notify the trustee in writing that the trust is terminated on a certain date and to demand the trustassets be returned to the trustor. When the trustor is the trustee, he simply affixes a letter to the trust document revoking the trust and executes new deeds from the trust back to the trustor as an individual.

Revocation is simple and quick. That is one of the prime advantages of the trust over any other