The Heart of the Art: Reflections on the Human Side of Estate Planning

By John A. Perkins

This book is written to help individuals address the human issues involved in the transmission of their estates. These are issues and values that, as each individual sees them for himself or herself, are central to the process of estate planning. The book undertakes the challenge of addressing these concerns, purposes, beliefs and values in a way to help individuals find wise and just solutions. From a legal career seeking answers the author brings to the challenge experience, insight, common sense and human understanding.

• Language: English
• Publisher: Xlibris US
• Release date: Nov 17, 2006
• ISBN: 9781469123899

John A. Perkins

John A. Perkins is a lawyer retired from private practice with Palmer & Dodge in Boston. He has authored earlier published writings in the fields of estate and trust law and international law. In the field of estate and trust law he was active in the drafting and promoting of a number of successfully enacted statues. He has been active in The American College of Trust and Estate Counsel (ACTEC) and The International Academy of Estate and Trust Law. He is a member of the American Law Institute and a former President of Boston Bar Association.

Book preview

Copyright © 2006 by John A. Perkins.

Library of Congress Control Number:       2006905509

ISBN 10:         Hardcover                               1-4257-2234-2

                   Softcover                                 1-4257-2233-4

ISBN 13:         Hardcover                               978-1-4257-2234-0

                   Softcover                                 978-1-4257-2233-3

                   Ebook                                      978-1-4691-2389-9

All rights reserved. No part of this book may be reproduced or transmitted in

any form or by any means, electronic or mechanical, including photocopying,

recording, or by any information storage and retrieval system,

without permission in writing from the copyright owner.

To order additional copies of this book, contact:

Xlibris Corporation

1-888-795-4274

www.Xlibris.com

[e-mail]

32547

CONTENTS

INTRODUCTION

HOW TO USE THIS BOOK

PART I

CHAPTER ONE

CHAPTER TWO

PART II

CHAPTER THREE

CHAPTER FOUR

CHAPTER FIVE

CHAPTER SIX

CHAPTER SEVEN

PART III

INTRODUCTION

CHAPTER EIGHT

CHAPTER NINE

CHAPTER TEN

CHAPTER ELEVEN

PART IV

CHAPTER TWELVE

CHAPTER THIRTEEN

CHAPTER FOURTEEN

PART V

PART VI

APPENDIX A

APPENDIX B

APPENDIX C

Dedication

This book is dedicated to the conscientious concern of generations of men and women for human values in making their estate planning decisions and to the role of the legal profession in helping them to find wise and just means to address those concerns.

INTRODUCTION

This book is written to assist individuals in addressing the human issues that are involved in transmission of their estates. It is not a book about fixed answers. Rather the aim here is to help individuals to focus on their purposes and to understand their options and the consequences and circumstances that may shape their answers. The human side of estate planning is both a philosophical and a practical business. This book grows out of the experience that is perhaps the good fortune of many lawyers who have had the privilege of addressing these human issues with clients over many years.

For lawyers who are actively involved in estate planning for their clients, estate, gift, generation-skipping and income tax issues are, of course, a major consideration, and expertise in these tax matters and in the means by which the burdens of taxes are minimized or even avoided is an essential part of their stock in trade. This lawyer has been no exception. Clients sometimes may actually assume that this is what estate planning is all about. Even for lawyers, in the ever changing world of taxation, staying out front in this expertise or keeping up may seem to be their priority business. Tax considerations, in which a lot may be at stake, inevitably are a significant consideration in estate planning for many individuals. But they are not necessarily governing, and keeping them in perspective is a part of the human side of estate planning. Through it all human issues and values are central to the process.

These are issues and concerns of clients that can often be intensely personal to them. Lawyers need to respect that and wish to respect that. Years of estate planning practice, working with clients with all kinds of needs, aims, backgrounds, family circumstances and assets provides no unique wisdom for others. But these human concerns present issues than can be informed by experience and perhaps judgment enriched by it in practical wisdom and sensitivity to human values.

Whether out of this experience a lawyer can appropriately attempt to address such issues in a larger framework in a useful and coherent way is a question this author mulled for a number of years before launching into the writing of this book. This book undertakes that challenge. It attempts to address the human concerns, purposes, beliefs and values of clients.

Inevitably, this venture becomes in some measure a personal statement as well as a professional endeavor. I have felt sometimes I am writing words that are a testament of things deeply felt, deeply believed. The human side of estate planning is the heart of the art.

But this is not a book about philosophy or psychology or ethics. It is about practical means in estate planning designed to address human concerns and support human values.

The attitudes individuals bring to their resolution of human issues themselves reflect a more or less continuing process of change. Social and economic change have changed the premises by which individuals view these human issues. This may be seen in the changing perceptions concerning the role of women, marriage, adopted children, illegitimate children and other issues. Over the generations patterns of estate planning change with changing conditions and changing attitudes, even as individuals continue to seek responsible solutions that reflect fundamental values as they perceive them.

A problem that in one degree or other confronts every estate plan is the necessity of addressing a future that is still unknown and unknowable. There is generally a need to take account of human issues as well as one can in the context of a variety of contingencies. Many plans are crafted to deal with these unknowns with great care and practical wisdom. But every estate, whether the estate passes by intestacy, by a simple will making a direct outright gift, by more complicated plans involving trusts, by gifts during life or by other devices, involves some kinds of decision on these issues, whether the decisions are made directly or by silence or by operation of law.

No doubt clients take a lot on faith and with confidence in the lawyer’s knowledge and good sense. In doing so, for better or for worse, human issues are being resolved on which the client has not fully focused, on which the client perhaps has no view. And the client may well prefer to leave some of those issues to the lawyer’s judgment—for now at least.

What can one now retired lawyer hope to contribute to an understanding of these highly personal issues? Hopefully, experience, perspective, focus and perhaps some useful insight even where choices and values are ultimately at issue.

HOW TO USE THIS BOOK

This book has been conceived and written as a book probably more to be consulted than read, page by page, from beginning to end. Those who, as the occasion arises, wish only to take account of considerations that may be relevant on issues that currently concern them should not have to read the book cover to cover to do so. Chapters have been written to stand alone textually, even if they ultimately have to be seen in a larger focus. Obviously there are connections, and no section or chapter really stands alone.

Although written primarily to assist individuals in addressing their own human issues, in the writing the possible interest of other readers, including lawyers and law students, has inevitably been in mind. This is acknowledged by the inclusion here and there of technical notes and legal references, which to spare the reader who is not interested are generally identified as such.

Part VI, A Glossary—In Which Some Legal Concepts Are Further Considered—falls in a special category. It is not just for or even primarily for lawyers and law students. Part VI attempts to address relevant legal concepts in terms of their implications for the human side of estate planning. Many earlier chapters make specific reference to a section in Part VI, providing an option to the reader to pursue his or her concern in its legal context more fully. For those who are interested Part VI may provide a brief overview of the legal world that is relevant in the solution of human issues in estate planning.

PART I

THE ESTATE PLANNING PROCESS

CHAPTER ONE

PERSPECTIVES

1.1 Ends and Means

Long before the enactment of a U.S. estate tax in 1916 and long before states adopted inheritance or estate taxes, individuals were engaged with care and commitment in what we now call estate planning. They used the variety of means made available by the law to provide after their deaths for what they cared deeply about, the same things individuals care deeply about and provide for today, for their spouses, children, grandchildren, churches and charities. They used wills and trusts, powers of appointment, trustee discretions, life estates and remainders, life insurance, joint accounts, forms of land ownership, charitable enterprises. Social conditions and societal attitudes have undergone change, and the legal means available have further evolved, but the essence of the process and the values to be protected and served continue from generation to generation.

For a few generations we have had to work in an estate planning world in which the federal estate tax and other federal and state taxes have been an integral part. They have not changed the human ends the process attempts to serve. They have presented problems to be addressed. What they occasion is not a change in priorities but an adjustment of the means to accomplish them. For lawyers and for clients who have worked through these issues the relevance of federal estate, gift and income taxes and other taxes is that they create constraints that shape the means to be used in serving human values.

Much of the tax planning as it has evolved is aimed not in the development of essentially tax oriented devices but in measures of simple common sense. The objectives are pretty straight forward, essentially (a) to arrange to take full advantage of available exemptions, as for both husband and wife, (b) to avoid unnecessary double tax, that is, to avoid letting the same property or share be taxed unnecessarily for a second time in a survivor’s estate or in children’s estates, (c) sometimes just to defer tax or the taxable event to serve some human concern and (d) to take advantage of an available tax bonus in implementing a course motivated by human objectives. [Note: I use the term exemption to cover the exempt amount under earlier versions of the estate and gift tax as well as its equivalent under current law in the form of a tax credit that shelters an amount from tax by application of the credit.]

Of course, tax constraints are only a piece of the problem. There are all kinds of legal and practical constraints inherent in the use of the legal means available to protect and serve human values. Even with the invaluable tool of the trust one always has to ask—will the trust or share be large enough for a trust to be practicable, or may the trust turn out to be or to become uneconomic to use or continue?

Tax planning has to be seen in a perspective of ends and means. Tax is simply a part of the reality in which planning to address human concerns has to operate. Indeed, the legal means by which these concerns are addressed have grown out of the efforts of generations to address them, beginning long before the world of tax constraints. And it is out of these same concerns that legal means to address them continue to evolve.

1.2 The Lawyer’s Role in Human Issues

The role of the estate planning lawyer in human issues is likely to be lost in a kaleidoscope of popular images.

The lawyer’s role may be perceived as fundamentally that of scrivener, who writes out what the client directs, a particular kind of scrivener who brings a necessary occult learning to the process. It is an image of the lawyer as one who would not dream of suggesting to the client how the client should dispose of the client’s assets. After all one size can never fit all. The lawyer’s forte is that he or she knows how to make a will that will be valid and understands about trusts and life estates and other technical choices that help to implement the client’s wishes. The lawyer listens and refrains from judging, for this is the client’s business. When the lawyer understands what the client wants, the lawyer retreats to draft a will or trust or other instruments specifically to the client’s wishes and circumstances.

This image might have more reasonably seemed to fit the process years ago before the complications of estate planning in the world of today and at a time when carbon paper was the closest thing to word processing technology. Then, indeed, each will or trust started from scratch, even if parts were adapted from earlier instruments done for others. That was then a matter of necessity and not of choice. It involved a more hazardous process than today’s reliance on the word processing technologies that have since been developed—when they are well used. But the image was a myth even then, for no lawyer could bring a mind empty of human experience to the client’s needs and serve the client well.

A somewhat different image of the lawyer’s role, also incomplete, is in an expertise to save taxes, that pure and simple. That is the expertise the client thinks he seeks and is prepared to pay good money to get. And often in truth it may well be the motivating reason for engaging the lawyer. It is a tax product the client thinks he or she is seeking, and this is the way the product is bought like buying an insurance policy or an investment product. Human issues are presumably relevant, because the human impacts, so far as they are understood, need to be acceptable, but they are not the point of the enterprise nor the focus of the client’s thought.

There is another image with ancient roots and still as relevant as ever, the role of the family lawyer, who understands the values the family seeks to nourish. The family lawyer needs to be on top of occult learning on tax, property and trust issues involved in the estate planning process, but equally the family lawyer is looked to for his or her empathy and experience to understand clients’ objectives in their human terms.

There is a part of truth in all these images. I have sometimes seen the lawyer’s role as involving an attempt to realize the client’s human objectives working with limited legal tools through a minefield of legal limitations, traps and choices. It is a minefield created under property law relating to different kinds of property and in different jurisdictions, trust law, divorce and other domestic relations law, estate and trust administration law in various jurisdictions, and a variety of areas of tax law that are unfortunately not fully integrated with one another, including estate and inheritance taxes, gift taxes, income taxes on individuals, trusts, estates, partnerships, corporations and other entities, generation-skipping transfer taxes, foreign taxes, jurisdiction and conflict of laws issues and more. The lawyer may have to address issues in specialized fields of corporate law, securities law, intellectual property law and more. Sometimes it seems that the lawyer involved in estate planning and estate administration is in the one area of legal practice in which the lawyer may have to confront issues in any, almost every, area of the law—whatever issues the client’s career, circumstances and assets may involve. Addressing the limitations and the legal traps may seem the focus of the estate planning lawyer’s career, but for clients the ultimate objectives as thoughtful human beings are human objectives. This too must be the focus of the lawyer.

In this the estate planning lawyer needs to bring to the process not only experience and understanding but humility as well. The lawyer needs to understand the human impacts that may be involved. The lawyer needs to understand that the client cares. If the client’s preconceived thoughts may be leading him or her into human issues the client may not have perceived, the lawyer will need to help the client to see the issues in their whole context. But the lawyer also needs enough experience and enough humility to understand that on human issues at the end of the day there are not always right and wrong answers. Circumstances and priorities do matter, and every person’s own background, experience and sensitivities do matter. On the ultimate issues of judgment it is the client’s call.

For lawyers involved in estate planning their experience in addressing human objectives with and for clients and their own human understanding lie at the heart of the art.

1.3 What If

In recent years the federal estate tax, despite its history extending back to 1916, has become the subject of active political controversy. Under the 2001 revision signed by President Bush on June 7, 2001 the estate tax, after increasing the exemption to $3,500,000 in 2009, is eliminated for 2010, only to be resurrected in 2011 with the exemption returned to the level of $1,000,000. For 2010 some estates freed from estate tax a tax may be imposed instead on the beneficiaries of the estate, who will be subject to capital gains tax on new terms requiring the appreciation on property to the decedent’s death to be included as taxable gain, this also to be eliminated in 2011. The controversy continues, and the estate tax continues to be an integral part of estate planning. But the prospect of repeal is in the air, and this, whatever the outcome, has an important present impact. For it invites the question—how would or should estate planning issues be addressed if we did not need to think about dealing with any tax at all and human concerns could reign supreme?

To confront repeal of the federal estate tax is to confront anew what the estate planning process is all about. In a world where a federal estate tax has long been an unavoidable part of much of estate planning a sense that we face a mixture of goals is not surprising. For thoughtful estate planning, however, even the sense that we face a mixture of goals seems in the end to resolve into a different perspective, a sense of ends and means in which tax issues present constraints that shape the means by which human concerns have to be pursued.

To confront repeal of the federal estate tax is to cut through the ambiguities. Its what if challenge becomes a challenge to clarify purpose in a process of estate planning undistracted by estate tax constraints and estate tax savvy as an end in itself.

In a surprising way this challenge brings sharply into focus some of the issues this book attempts to address. But this book has not been written in anticipation of estate tax repeal but rather to assist individuals to address human issues that are at the heart of estate planning—with or without a federal estate tax.

Nor is its thrust an argument for the repeal of the federal estate tax. The estate tax and human values are not at war with each other. The estate tax in its origin was itself addressed to some of the kinds of values the estate planning process and this book attempt to address. Its rationales lie not so much in needs to raise tax revenues as in concerns to protect an American commitment to opportunity, to reward based on merit and performance, to a society that is open to everyone, and in the perception that the unchecked accumulation of inherited wealth can lead to unwarranted economic and political power, opportunity and advantage, to wealth accruing not from work, service and enterprise but from the possession, self-perpetuation and aggrandizement of wealth from wealth itself.

The federal estate tax has a long history of support in both the Republican and Democratic parties. President Herbert Hoover in a memorandum summarizing his own views sent to the chairman of the House Ways and Means Committee wrote I believe that the estate tax, in moderation, is one of the most economically and socially desirable—or even necessary—of all taxes. [Quoted in Herbert Hoover’s Memoirs—The Great Depression 1929-1941 (1952) pages 135-7 at 136.]

Inclusion of estate tax repeal in the 2001 tax revision, put off to 2010 and with the tax resurrected in 2011, in a compromise tax package adopted by a closely divided Congress only postpones a decisive determination. The controversy continues. And assuming repeal does come into effect and continues in effect, what will be the results in state estate taxes, many of which have come to be built on the federal estate tax? And what will be the impact on estate planning of the substituted federal carryover capital gains tax? In estate planning the necessity of contemplating uncertain futures is not unusual.

Whatever the future may hold the what if question has its own constructive input as it calls us now to a renewed clarification of purpose in estate planning. Thoughtful estate planning has always encompassed human values, understanding and concerns and working through tax and other constraints that complicate their realization. It has always had to bring to this process a sense of ends and means.

CHAPTER TWO

LEGAL TOOLS, LEGAL TERRAIN

2.0. The focus of this book is on human goals and human concerns, but it is a legal world in which we have to act. Estate planning is of necessity a process engaging legal concepts. Legal concepts provide the tools, and legal concepts define the terrain. Legal principles can be part of the problem and they can also be part of the solution.

Human goals and concerns in estate planning cannot be addressed as if they stand alone. Human values have to be asserted in legal choices. Practical judgments have to be implemented by the tools afforded by law.

This does not mean that these are issues for lawyers only. Clients need to understand how the legal choices made by them implement the values by which they seek to act. For this a client does not need to bring to bear a professional legal background. But for a specific legal context a client may need a clearer