Scott E. Squillace – “Estate planning is really about generosity and preservation. It is also about not ceding control to the state”
Estate planning is a complex area of the law, with regulations and directives that are changing from year to year, and at all times, lawyers need to be ready to advise on all the latest legal updates, and be highly aware of the most efficient ways to minimize taxes and expenses surrounding the transfer of estate and assets. That’s where this thought leader’s experience and forward looking attitude comes in.
Lawyer Monthly here talks to Scott about estate planning law in the state of Massachusetts, US, the current discussion points in this legal segment, about the options and processes that are available, and about the extent and implications of federal bearing on state estate planning law.
What would you say are the most common obstacles clients face in Massachusetts and the US as they look to plan their estates?
Overall, the public is not well informed about the need for proper estate planning. First, if you have no estate plan, the state where you reside will allocate your property among members of your family. Often this will be your spouse and your children, but the proportions may not be what you would have wished. For example: in Massachusetts, if you have children from a previous relationship and died without a will, your current spouse is entitled to the first $100,000 of the value of your assets, and half of the remainder. What remains would pass to your descendants. This may be vastly different from what you may have intended and can have unforeseen tax consequences upon the death of the surviving spouse.
Second, a will alone is often not adequate to efficiently transfer property. Wills, for all of their simplicity to construct, have shortcomings. The biggest one is the need and expense of having to go through the probate process. This will tie up the assets for potentially months and will require court permission to transfer the property. Wills do not allow for the continued management of property after your death, for that you will need a trust.
Many people would assume that when one dies or becomes mentally disabled, without proper estate planning, their assets automatically pass to their next of kin or offspring. Are they wrong and why?
Without proper estate planning, when a person dies, their assets take a few stops before they pass to their next of kin or offspring. The first one is paying for final expenses, i.e. cost of administration of the estate, funeral costs, medical bills, etc. Next, any taxes that are due must be paid, followed by payments to creditors. Whatever is left then passes to the beneficiaries. This is true even when an estate plan is based solely on a will.
When someone becomes mentally disabled, without any planning, a court must appoint a guardian and a conservator. The property stays under the legal ownership of the disabled person, but would be managed by others. This could be avoided by having a durable power of attorney so an agent that you had previously selected could make those management decisions for you should you become disabled.
What processes are available to minimize tax in estate planning? What are the benefits in the US?
In most cases in the United States, a person would be subjected to federal and state estate tax. There are threshold assets values that would need to be met before this is a concern, but once you factor in home values and life insurance policies, it is very likely that a person of even modest means could have a taxable estate on the state level. One common plan is to reduce the value of your estate by making lifetime tax free transfers.
A home, for example, can be placed in a trust with you retaining a fixed period of occupancy. The value of the transfer will be discounted by your retained use of it. Assuming you survive the retained use period, the home will be removed from the estate, and the transfer will not be taxable on the state level and will fall below the federal limit on lifetime gifts. Once the retained use period ends, you could continue to live in the home by paying rent to the trust. This will further increase the wealth transfer.
Other tax free strategies include directly paying for medical or educational expenses. Say your grandchild is in college. If you make a gift to your grandchild either directly, or to an investment account, that gift would be limited to the annual gift tax exclusion amount or else it will start whittling down the lifetime exemption. One way to avoid this is to pay directly to an institution. You would be able to pay the college tuition directly without being limited by an annual exclusion, and may still make your gift to the grandchild below the annual limit. Careful planning is necessary because an improperly executed gift to a grand child could have costly tax consequences.
How do you personally ensure your clients’ affairs are kept private and dealt with the utmost sensitivity?
In addition to the rules of our profession regarding confidentiality, we ensure that when implementing a client’s estate plan we only provide third parties with the information that they need. Unlike a will, which becomes a matter of public record once it is probated, a trust is a private agreement between the grantor and the trustee. Banks and other third parties need only know of its existence, and the authority of the trustee. When titling property to the trust, we provide a certificate of trust, along with select articles of the trust which gives evidence of the trust’s creation, the identity of the trustees, and the trustees’ powers. This way the dispositive provisions of the trust remain private.
You also have plenty of experience as GC of various companies; how does this experience translate into the legal work you deal with nowadays in estate planning?
As general counsel, you have to be a problem solver. The management team of the company will want to accomplish a certain task, and will look to you for advice on how to do it. Saying you can’t do something is not good enough. You must find out how you can with as little legal risk as possible. The same is true for estate planning. Clients will have varying needs, and may not be able to articulate them initially. They may only know the desired end result. There are many tools available, and with careful listening and understanding the client’s needs you will be able to find the appropriate solutions to best satisfy those needs.
As a thought leader you have also published books and many articles; how do you believe the public can be made more aware of estate planning laws?
People just need to have the conversation. The very subject of estate planning can be uncomfortable to bring up because of one key event: death. But while it is true that; first, it will happen to us all; and second, many estate plan events are predicated on that happening, it should not be the focal point of the discussion. Estate planning is really about generosity and preservation. It is also about not ceding control to the state. If you begin the conversation with discussions of generosity and preservation, it will naturally follow that you discuss the legal aspects of estate planning since they will enable you to perform the tasks you wish to accomplish.
I recommend that people attend seminars that discuss estate planning. At the very least, it may expose someone to the fact that they haven’t given it much thought and attention and that a lack of planning could have consequences. The laws basically perform two functions. One is to make an assumption as to what a person wants when they didn’t specifically say so. The other is to call foul when an action seems unfair. As simple as these two functions are, the intricacies of the laws require that a person approach their estate plan with careful consideration.
What would you say are still big steps for the state of Massachusetts or the US government to implement in terms of estate planning law?
One of the big steps that Massachusetts and the US government could implement is the way they approach end of life decision making. This is more of a patient’s rights matter than one of estate planning, but it affects the recognition of advance care directives (‘living wills’). This is a controversial topic to be sure, but it does raise a fundamental rights question that may be addressed at both the state level and the federal level.
Is there anything else you would like to add?
State to state variations in law are a product of our federalist system. Federal law, apart from the U.S. Tax Code, has almost no bearing on estate planning. Many states have adopted their own versions of “Uniform” laws such as the Uniform Probate Code, or the Uniform Trust Code, but even these vary to some degree. While it may be frustrating in our mobile society where cross state moves happen with regularity, it highlights the importance to not only construct an adequate estate plan, but to update it regularly to reflect changes in your life.
