The 14 Page Questionnaire That will Change Your Life with Tom Flannagan

What if the most important part of your estate plan isn't the trust — it's the questionnaire? Derek sits down with Tom Flannagan, the estate attorney who inspired Who Gets What?, to explore his comprehensive approach to planning that starts with 14 pages of questions most attorneys never think to ask. They cover risk mitigation, tax strategy, and the surprising details that make a plan actually work, from digital assets to beach passes. 

Learn more about Who Gets What?: https://whogetswhat.fm/ 

This podcast is presented by Jensen Estate Law and produced by Marguerite Productions.

Transcript

Meet Tom Flannagan: The Inspiration Behind the Show

SPEAKER_01 0:01

Hi, I'm Derek Jensen, estate attorney and host of Who Gets What. I know you've heard me say this. A great estate plan is about more than just documents. It's about peace of mind. My next guest will help you understand why. In this episode, we are sitting down with the estate attorney who inspired this show, Tom Flanagan. Tom's process for protecting your assets, minimizing taxes, and mitigating risk is the first step to ensuring your family's legacy is secure for generations. You're gonna want to remember this. Get out your notepad for this one. Hey Tom, how are you?

SPEAKER_00 0:35

I'm doing great, Derek. I'm excited to uh to do this with you.

Introduction to Estate Planning

SPEAKER_01 0:39

Well, I'm excited to have you, Tom. Uh this is uh it's kind of an honor for me to get to get to interview you and uh you know learn all of your wisdom.

SPEAKER_00 0:48

Well, I'll try to impart some of it.

SPEAKER_01 0:52

So you've been doing this for for a considerable amount of time here. Why is this one the fit? Why is this really the area of law that is the right area of law for Tom Flanagan?

The Importance of Comprehensive Estate Planning

Risk Mitigation Strategies

SPEAKER_00 1:02

We're both familiar with an attorney in Ohio, and he said something that really struck me that there are lots of attorneys who do estate planning, but there aren't that many estate planning attorneys. And that's a big distinction. I'm up front with people that reach out and say, look, uh, all I want is a basic will. What's that going to cost me? I'm probably not the right person to help them out just because of our focus on comprehensive estate planning. I have a 14-page questionnaire that I've uh refined over the years, and I'm trying to keep it at 14 pages. The last time I was on the radio, we just talked about my questionnaire. I I just think there's a lot of aspects that can be easily overlooked. I kind of reassure people that look, uh, you know, give me an hour. Um, but that hour is just so valuable because the questionnaire asks the client very pointed and direct questions about their family, uh, their finances, their goals. And I tell people don't get bogged down on it, but we're gonna spend the first half of our meeting going through that questionnaire. So I might meet with someone for the first time for an hour and a half, and we don't even start talking about plan design or documents until we're probably 45 minutes at least into the meeting. So, for example, I might have a married couple that have young adult children in the household, and they have three vehicles, and I'll I'll ask them, well, you know, who drives the Audi, who drives the Jeep Cherokee, well, who drives this uh the Sunday Sonata? So I kind of know in advance uh who the third driver is. It's one of the kids. And then I get to point out how much risk the parents are assuming letting uh someone drive a vehicle that's registered in their name. Uh there's a statute in Massachusetts. I I can't speak for other states, but in Massachusetts, we have a statute that essentially states there's a presumption that the registered owner of a vehicle is presumed to be uh personally responsible for the actions of the driver. And that's pretty scary. And so what I would recommend in a situation like that is just change the ownership of the vehicle to the child who uses the vehicle. And then if they get into a uh catastrophic uh automobile accident where they're at fault, uh, they're not dragging the parents into the liability. People go right to the documents. Hey, look, I need a will, I need a power of attorney, I might need a trust. And there's a lot more to it. There's those risk mitigation strategies that uh that pop up a lot. I'm a big advocate of umbrella coverage, and it seems like I sell more umbrella coverage than anyone in the county I practice in. And umbrella coverage is simply uh supplemental coverage that you typically get through your homeowner's insurance, and it provides protection above and beyond the bodily injury limits on your auto and the personal liability coverage on your homeowners, and it's pretty inexpensive. Uh, typically the minimum coverage is a million. Um, but it just provides people with that peace of mind so that if they do get into an accident uh and the bodily injury limits aren't enough, hopefully there's enough extra coverage through the umbrella coverage to uh settle the claim and you know make that person whole and and protecting your assets. Um so I I wouldn't leave home personally without having that type of coverage. Uh, and that's definitely something that I I put on the questionnaire. So I'm very proud of the process. It's something that I continue to refine. Uh probably every year I'll add you know one or two questions to the questionnaire as I have you know more real life experience either on the planning side or sometimes on the settlement side of an estate planning. So we're gonna keep it to 14 pages, right, Tom? We're not gonna go any longer than that.

The Role of Trusts in Estate Planning

SPEAKER_01 4:59

Uh that's the goal. That's that's the goal. What I like about what your approach, though, is you're really looking at the client almost from the perspective of being the family attorney, the you know, their personal attorney. So you're not just addressing the, hey, come in and get the the will signed, get the power of attorney signed, this type of thing. You're actually taking a much more holistic look at them and and saying, you know what, this is my opportunity to be in front of these c these people. And if I can provide them, you know, a little nugget here or there that might help them kind of keep them from having a big problem down the road, then you know, you get some satisfaction out of that, and and you know that you know a certain percentage of those people, it's really gonna help.

SPEAKER_00 5:43

Yeah, it it's obviously we we both do a lot of trust planning, Derek. I would say 90% of my clients end up incorporating a trust into their estate plan, which essentially becomes the centerpiece of their estate plan. Um and then we want to make sure that the the assets are properly aligned with that trust. So you could have a world-class trust agreement, uh, but if there are no assets held in it and there are no assets payable to it, it's like having an Olympic-sized pool in your backyard with no water in it. It really doesn't accomplish anything for you. So we spend a lot of time, especially at the signing meeting. Um, and again, that's where I'm coming back to that detail that I get through my questionnaire. We circle back to the assets and we review them on a you know, category by category basis. We talk about ownership and beneficiary changes, and then I put all those recommendations in a letter to a client, which I refer to as the funding letter. And I tell them, look, you're almost done with your estate plan. You're maybe 85% done today when you sign your documents. You're done with your estate plan when you've completed those action steps. And I actually follow up with people. Um, I've built this into my process in 30 and 90 day intervals just to see how they're doing and uh find out if I can help with anything.

SPEAKER_01 7:05

That's awesome. And of course, uh the estate planning documents are are done and signed, but the planning really isn't ever done, is it, Tom? Because different changes can come up along the way. Uh, and uh, you know, they might need an adjustment here, maybe they're changing a fiduciary down the road. And then of course things happen with their their beneficiaries. And I know that you spend a lot of time thinking about those beneficiaries and what the best way for the uh for those gifts to be left to them and really counseling the clients on those types of solutions. And I think one of the things I I do know about your practice is that you you want the beneficiaries to inherit in a trust. Is that accurate?

SPEAKER_00 7:49

It it is. Um and uh as I said, most of my clients do end up with a trust. Uh a trust can just accomplish more for you, it can address more what-if scenarios, it provides greater protection. Um now, granted, we we you know the way our our practices are configured, we we're we're kind of in the realm of possibility, not probability. So all the bad things that we hope will never happen to our clients do happen. Um and so it, for example, with a trust, um number one, you can avoid probate, and that's always uh a desirable goal to eliminate the expense and delay and publicity of probate. But I probably wouldn't say that's the most compelling benefit of a trust. I think the benefits have more to do with protecting assets from a child's uh creditors or a child's divorcing spouse. Uh the divorce rate is, I've heard it, be as high as 55% in the country. Um, and so with the trust, you can provide for a child, but unlike a will, which is usually like a forced distribution, uh the assets can be retained in trust as long as necessary. And that might be the rest of the child's lifetime. So it just creates options for the family. Um, I don't set up my trust with the expectation that for every family their the children are going to keep their share in trust for the rest of their lives. Um, but we want to make sure the option is on the table so that if one or more of the kids are dealing with an adversity, you know, they do have that option. Um so assets held in trust are better protected from the child's creditors, divorcing spouses. Um, for example, if you have a child that's done particularly well, um, they'll like the trust a lot because they'll get the economic benefit. They can receive distributions of income and principal, and they might be able to direct uh where the asset goes, the trust assets go at their death, but the assets are going to bypass their estate for state tax purposes. Um these are all things that a will just isn't designed to do. You still need to have a will when you have a trust, but the type of will that a client would have with a trust is called a pour-over will, where you're simply leaving any assets covered by the will to the trust. And so the will isn't doing the heavy lifting in the estate plan, the the trust is.

Client Interactions and Unique Considerations

SPEAKER_01 10:22

So one of the things that I I think is challenging in in my practice, um, and I'm not sure if it is in your practice, because often we get a lot of pushback on the idea of creating trust for for the children. We don't have as much history here. In the Seattle area, uh at least, you know, there's I get maybe it's just my clientele, but I get a lot of clients who have a ton of questions for me. And, you know, even if I have a recommendation which seems like it's perfectly reasonable and keeping with the, if you will, the the art of estate planning, uh, it's something that they're gonna have a lot of questions on and a lot of pushback from. I the I had one client where this wasn't the case that I can remember that was that I want to share a little bit of it with you. Um he he played uh a sports uh for it for a team that was in the same league as one of your favorite teams, uh the team that wears uh socks, I think they're red. Okay. And um and so he came and he was my client. And uh so I had a great time kind of talking with him, but you know, he gave me uh so much deference as the attorney. So if I told him this is what had to happen, he would just say, Yes, uh, I agree, we'll do it. And I didn't really have that uh experience of having him question every single piece of it. And so it was such a refreshing experience for me because my normal clientele has a lot of questions. And I I I mean I answer all the questions, actually. I they have a lot of great questions, so I'm making a little bit of light of it here, but uh but that was my experience there uh with an East Coast type of client. And I was wondering if uh kind of your approach there would when you see and you're talking with people, do you get more of the uh say the baseball player approach there where they're just saying, yeah, whatever you say, counsel, you're the you're the guy here. Uh, or do you get you get a lot of pushback or a lot of questioning uh from the clients?

SPEAKER_00 12:11

You know, bearing in mind that my clients are referred, and so they're almost predisposed typically, even before they meet with me, they have a pretty good understanding of what they need because they want the same thing that their brother or sister or neighbor have, or they want the same thing that the their advisor or CPA said they need to have. Um, so in in some ways, they they almost come into the relationship, not always, um, kind of uh understanding essentially what they might need.

SPEAKER_01 12:44

Um, and I can imagine again going back to your questionnaire to help pull out those those little details and uh and help to understand the clients better so you can communicate with them better. And and we of I mean we obviously use a questionnaire and are always trying to refine it also uh and trying to balance it between um you know having having questi too many questions and and not having enough, and and then uh often if we don't have enough, we end up having to ask all those questions again anyway.

SPEAKER_00 13:14

I don't even charge a consultation fee. Most attorneys do. Um I don't. I'm probably a minority of attorneys who don't. And to me, the price of admission is to fill out this questionnaire, and I'm a lenient grader. If I see ink and I see enough ink, everyone gets an A plus. But for example, I I ask questions about something that almost seems trivial, Derek. Do you have any beach passes? Right? So why why does Taunt what why does Taunt care about beach passes? I care because they come up in my practice. Uh in New England, we have Cape Cod, obviously, uh, which is part of Massachusetts. Um, we also have Maine, New Hampshire. And uh beach beach passes are a big deal. If you've got a uh a summer home at the Cape, or if you've got a summer home in York, Maine, uh you want to maximize the number of beach passes your family is eligible for. So what's interesting is in some of those areas, the beach pass availability is based on uh who the trustees are. And so there have been instances where, you know, I would draft a trust and maybe two trusts is all that we would need, but we end up having four so we can get that beach pass. So I'd rather deal with it up front than have someone complain later that, hey, Tom, we we're we're not eligible for that third or fourth beach pass. Um and so again, that was a question that I added fairly recently because it it's been popping up. Also, property tax exemptions, Derek. Um, I have some clients that are eligible for a veterans real estate exemption, and it's based on having a service connected disability. I've got a couple of clients who don't pay any real estate taxes whatsoever because they've got 100% service uh connected disability in their quadriplegics, and that that can be worth as much as$10,000 a year. Um, Massachusetts is a uh it's one of the more expensive places to live. We have high real estate taxes. And so if I didn't ask the client in that questionnaire, do you receive any property tax exemptions? And they put their home into an irrevocable trust and they didn't retain a life estate, which makes them eligible for that exemption, the clients wouldn't be happy about that. There's a purpose behind all of the questions. There's a story behind all of the questions. I asked clients about online accounts. Uh, what's your system for tracking your usernames and passwords? And the story behind that question is I had a uh a client, she was a new widow, and her husband was the chief financial officer in their marriage, and he did everything online. This was probably 15 years ago, and he paid everything electronically, and the hub of his universe was his Gmail account. That's where all the bills and reports and statements flowed through. She didn't have access to the Gmail account. So here she is trying to get up to speed on the family finances, and she didn't even know when the light bill was due because she didn't have access to that account. Um, so I really I guess the right word is to preach. I do preach that people need to have a very good system for tracking their usernames and passwords, um, making sure they're pinned to their smartphone is documented, they lock their computer, the family's gonna need that too, because one thing they can expect is cooperation from the companies. I had a client who uh lost their son in a uh motorcycle accident, and they went to court, got a decree from the probate and family court, and then they went to Apple. Um, the son's passion was photography. It was a very sad and tragic case. And they just wanted access to the photographs. They didn't have the pin to his phone, and Apple's response was, yeah, go get a court order. It has to say this, this, and this, it has to be signed by a judge, and then we'll consider your request. And that's pretty harsh, you know, for a family that's mourning that, you know, why isn't a decree from the probate and family court good for everyone? Why, why should there be exceptions for these large high-tech companies that, you know, have these term of service agreements? Uh, what we're lacking in Massachusetts, unlike a lot of states, is we've not passed the Uniform Digital Assets Act. I think we're one of two or three states who haven't. And certainly that will help level the playing field. So in the meantime, you're just trying to make it as easy as possible for your family. At least have a top 10, top 15 list, the accounts that you use most often. Those should be readily accessible to you and to your spouse and to the person that will help settle your estate andor deal with your affairs in the event of incapacity.

SPEAKER_01 18:00

Often that is the memories, right? You're talking about specifically with the photos there. And uh that's really part of the the family legacy, you know. And so as we are we're trying to preserve and help with uh you know financial wealth, it's not just financial wealth. It's ultimately how do we keep this family together, how do we keep this family strong, how do we have those values kind of continue, continue down multiple generations, potentially for a hundred, hundred years or something. And so you have kind of a couple stories I I heard in there about you know the apple uh photography and then also the uh the beach passes. I mean, I can just imagine having those beach passes. And if you don't have enough beach passes so that the cousins get to come or the nephews and nieces get to come or whatever, then you know that's kind of uh that's kind of harsh on the family. We want to make sure we're able to get everybody out there enjoying the beach. They're gonna want to uh, you know, uh do they do clam bakes there, there, Tom, or do we gonna get some uh we're probably gonna get some lobster, right? And we're gonna be cooking our lobster out by the beach.

SPEAKER_00 19:04

Or or both.

SPEAKER_01 19:05

Or both, yeah. So it'll be a great time for that family to have that. So we've got to make sure that they have all of their beach passes.

SPEAKER_00 19:11

And and keep in mind, Derek, that I don't want the kids driving the parents' car that has the beach pass. I want the kids having their own beach pass, driving their own vehicle. So if they have a uh problem with uh a personal injury attorney, their parents' name isn't next to theirs on the civil action complaint.

SPEAKER_01 19:28

Yeah, that's that's great. That's great. Yeah, of course.

SPEAKER_00 19:31

We got to take care of that. Um let me uh suggest a couple of other things, Derek. You you've actually brought up my favorite subject, which is the estate planning questionnaire. Another favorite are safe deposit boxes. Um, do you have a safe deposit box? And is there another owner? Because every other year it seems, I have to go to probate court to probate a safe deposit box, and it might be a box that was empty and totally unnecessary, and it's a$4,500 mistake. And so it kind of begs the question: do you need the box, number one? What are you keeping in it? You don't need a safe deposit box to store your original deed. No one really cares about your original deed. Uh, the county is gonna keep a copy of it in perpetuity, maybe get a fireproof, waterproof safe uh so that your documents uh you can store your estate planning documents and other valuables in the safe. But if you're gonna keep the safe deposit box, make sure there's another name or make sure it's titled in your trust so you don't run into that issue that that crops up in my practice once every other year.

SPEAKER_01 20:37

Well, Tom, that's an interesting one you brought bring up, and I think it must be a difference again by East Coast, West Coast. I think I've only had to go to court to open up a safe deposit box one time in my 30-plus year career. So uh definitely not something I see a lot of. I know that many of the banks are are getting rid of their safe deposit rooms. Now, that said, we still include the provision in our powers of attorney and elsewhere so that we can, you know, have access to them if if that does pop up as an asset later on, someone forgets it or such. But that's it's an interesting point. Uh times change too, right? So, you know, things that we think of now uh could be different later. Uh, you know, your your questionnaire, you already said you have to adjust it every once in a while. And as I'm thinking about the longevity part of estate planning, we don't consider or think about very often. Often we think about, well, who's gonna get my stuff at my death? But uh this idea here is uh you know, how are we going to address that? You know, maybe you maybe you need to add a question about well, how how old were your parents when they died? Uh, you know, are you keeping uh keeping taking care of yourself well? You know, you know, that might actually impact the way that the planning is done. And definitely if they're they they've got wealth and they're thinking about you know how they might be transferring the wealth, maybe they're concerned about tax planning or such. Can they make gifts to their kids early if they're worried about longevity? Or on the alternative, of course, if they were to die and now suddenly they've got a tax. I know that Massachusetts has an estate tax kind of just like Washington has an estate tax on its own. So this is something that, you know, is is a an issue for even estates that aren't up there in the stratosphere of, you know, 20, 30, 40 million dollars, this could be our much more normal, you know, the millionaire next door type of people here. So these are kind of issues that uh you know are are things that are developing and we're watching and we're wanting to include and and how how do we approach that? You know, what are the what are the questions that the clients are coming back to us with saying, hey, I you know what am I going to do about this? And you're saying, oh, I have not been asked that. Boy, that's a good question. Those are the ones that get back on my questionnaire there, Tom, is when I get those questions. And that that happens, you know, every once in a while when you get something that you're saying, oh, I had not thought about that. Yeah, no, that's an interesting point.

Tax Planning and State-Specific Issues

SPEAKER_00 23:11

Well it it's um boy that would be good to know wouldn't it be to uh I guess in some ways it's not good to know. But from a planning point of view, boy, if we knew when someone was going to pass away, we could be really precise with the estate tax planning. You know, you let's touch briefly upon the Massachusetts estate tax. We're one of 12 states in the District of Columbia that have their own state estate tax along with Washington state. Five of the New England states have an estate tax. Massachusetts of the 12 states in the District of Columbia Massachusetts has the second lowest exemption. It's a$2 million exemption and it was actually increased to$2 million in 2023. It had been a million dollars for about 20 years not indexed for inflation. Our covenant governor uh Governor Healy was trying to get the legislature to go to$3 million to her credit and uh the legislature settled at two so it's it's a true exemption you know so if you have a$4 million estate the first two million dollars is exempt and that had not been the case prior to 2023 back when we had a$1 million exemption if you were a dollar over you ended up paying a state tax on the entire amount so that's no longer the case. And so it's kind of an interesting area where you're dealing with um clients that are living in Massachusetts and sometimes they ask well what's the easiest thing to do if if if I want to avoid the the mass estate tax let's say they have an estate of$10 million well you you can make you can do one of two things you can you can move 45 minutes north to New Hampshire which does not have an estate tax does not have an income tax and doesn't have a sales tax which is pretty cool a trifecta so you can go there and I've had clients do that at my urging I had one client who his family saved about$1.6 million in estate tax because he moved to southern New Hampshire did all the right things to establish residency there and died there. And so no estate tax was paid to the Commonwealth or they could move 45 minutes south to Connecticut which has a state estate tax but it has an exemption that tracks the federal amount 1390 not everyone wants to move and then you're you're looking at gifting um so in the right facts I had a client once her mother was terminally ill mother had seven million dollars uh all liquid um essentially and and CDs and you know cash cash equivalents and the daughter asked me what the mother should do and I says well your your mother could eliminate her estate tax tomorrow um by transferring five million dollars to the children or to an irrevocable trust for their benefit uh and as long as the gift was completed that money is out of the estate for mass estate tax purposes Massachusetts doesn't have a gift tax uh most people don't want a gift at that grand level so they would instead utilize the annual gift tax amount of 19,000 and you can move a lot of money if you have a large enough family with that exclusion. And uh people feel sometimes they're boxed in I can give up to 19,000 what they don't realize that if you give more than that, you just have to tell the IRS about it. It's no big deal. It's just a a form that you file has the same due date as your personal uh tax return. Most people will never pay gift tax because you can make up to$13,990 of taxable gifts without paying a diamond gift tax. So a lot of people just feel boxed in that that$19,000 is a limit um and it's not at all. And so a lot of people can certainly trim the tax bill through lifetime gifting either periodically or and on a lump sum basis. And then there's certainly other planning we can do for a married couple to at you at least utilize the state uh state tax exemption in both the states. The difference between using one$2 million exemption and two$2 million exemptions in the case of a married couple is a state tax savings of around$181,000. And that's it's easy to do uh just by having uh doing the right type of trust planning and the right type of asset transfers.

SPEAKER_01 28:01

Yeah that's that's fabulous we do the same thing here in Washington. My approach really is a little different. We don't have the 45 minute drive to get out of the uh the tax we have to go a little farther than that. We're the leader in the the tax rate Tom uh we this just this past summer Washington increased our estate tax rate up to 35%. Now they they did help us and for most Washingtonians that it's actually going to be a tax cut for them but they increased the exemption up to three million and they restored indexing because we had indexing for a while and had gone away so that was a very th that was very welcome for for for many people but we do see a lot of wealth in uh you know in the Seattle area from the tech companies and I'm sure you have it there uh a lot of tech companies in Boston and and what it what it does though is that we see this situation where now we're up against those numbers and there's a cut there's a lot of dynamics that comes into it. You know one of the ideas is yeah let's go ahead and plan our exit from this this state but you don't know exactly where you're gonna go uh Washington doesn't have an income tax so we actually have an advantage on that uh but you don't necessarily want to die here and and get hit with that 35% bracket and I hope you don't have the federal tax also because the combined rate would be uh 61%. So you definitely want to do some planning on that. But you know I just saw uh a couple days ago here that California was considering a wealth tax. So imagine you go down to California to avoid the Washington estate tax. California doesn't have an estate tax. That's perfectly fine. California definitely has income taxes uh they'll put some of the East Coast uh states to shame with their income tax rates down there. And then to to hear that oh oh that's great uh come on live down here we'd love to have you but now we have this new wealth tax where we're gonna get you uh I don't think that I mean we'll have to see how that goes. I know that wealth tax has been talked about a lot and you know many jurisdictions as they're they're trying to figure out their way to to balance their own books uh often will will look to to new and creative uh ways uh to to find that tax uh or those revenues but you got to be careful where you go so you know just thinking oh I'm gonna plan to leave uh and then you also have to think about where your kids are gonna be so if you're if your children are inheriting from you and and they're inheriting someplace where they have higher tax rates you know so again you know Washington without our our ordinary income tax would be a great place to leave an a traditional IRA if you have children here they wouldn't get extra income tax on that but but boy if you have kids down in California or someplace or maybe over in New York or um Massachusetts you know they're gonna see those much higher state and federal combined rates on that that retirement account money. And so you got to take that into consideration a bit too. It's not just the estate tax. One of the features that we also look at here is of course capital gains. Washington does have a capital gains tax and we did increase our maximum rate there to 9.9% also this past summer. And again you know when we think about some of these tech uh this tech money and they're selling their assets and you know they're yeah they could they could move to another state sell the stack stock not have that tax uh Jeff Bezos did that he moved to Florida uh and and was able to sell and potentially save about a billion dollars in tax is what I heard. So if you hold the assets at at the time of your death you're eligible for I probably one of your favorite I know it's one of my favorite uh provisions of the tax code and that's code section 1014 which permits your capital assets to reva receive a fair market value basis adjustment. And oh boy does that look good. Uh you you have some real estate or other assets or maybe some of that tech stock that you know uh has a lot of gain in it and you get to get a brand new basis and could sell those assets without tax and all you have to do to get that is just die. And so there you go. But we so that when we think about tax planning, you know it's not just a hey compare this rate against that rate. There's so many different uh provisions in the tax code that we need to consider and then jurisdictions on top of that. It can be very complicated.

SPEAKER_00 32:24

It is it and uh you know obviously I I recommend people use 10% as a rule of thumb for the mass estate tax. Our top rate is 16% but your estate doesn't start paying at that rate it's actually it becomes a flat rate of 16% once your estate exceeds 10 million. But as a rule of thumb I like to use 10%. So you really have to weigh you know the benefit of saving 10 cents on the dollar by getting an asset out of your estate and compare that to the additional capital gains tax that your family will pay if they don't get the benefit of that step up in basis. And uh you know when you take into account the federal capital gain rate, the federal net investment income tax and then we have the Massachusetts state income tax and then for our real high rollers Massachusetts uh enacted a millionaire surcharge so they they tag an extra four percentage points onto the tax if your million if your income exceeds a million dollars so you could be looking at a 32 point eight percent rate um so I'd rather I'd rather pay the 10% mass estate tax if my family can save all that capital gains tax. So uh you're right a lot goes into the analysis.

Closing Thoughts

SPEAKER_01 33:48

Yeah absolutely and I'm sure you're having to pay that extra 4% there Tom with your uh successful practice and it would be a good problem to have absolutely and and so as you're kind of thinking about the different types of taxes and the planning that goes on and we're thinking about the multiple multiple generations I suppose we we will have to mention also one one final tax out there on the transfer side and that's the generation skipping tax. And so when you were talking earlier about you know having these trusts that'll be around for the beneficiary's entire life, well that that could be a situation where it will pass on then to the grandkids or maybe great grandkids down the line. And they have a another little sneaky tax at the federal level and this one I think was really designed in with some of those more uh famous families in mind who came up with the idea that well we can just give the money to our grandkids and our kids can give the money to their grandkids and that way you know we're only paying a state tax half the time. And so they call this one the generation skipping tax. And that's another one that's just kind of sitting out there and needs to be considered as we're we're we're going into it. Now you and I probably remember back in the day where this was a a big part of our practices and and we had to consider it uh you know when you were talking about the$19,000 used to be$10,000 annual gifts. How we're allocating those and and the type the ways that you're making the gifts so the in in a lot of ways it's less complicated now because we do have so much exemption available uh it matches the current federal exemption um but are is that what you're also doing then for those trusts that you're creating for those children are you having those be multiple generation trusts and and allocating the GST to them?

SPEAKER_00 35:35

With any irrevocable trusts that we're funding we'll want to uh make sure we've allocated GST on the uh on the gift tax return that gets filed um obviously GST can be allocated on an estate tax return as well you know for a married couple they they they have almost$28 million of GST exemption to play with it wasn't always that way I remember when the GST exemption I think was a million dollars I remember when the federal estate tax exemption was$675,000. So we're just accustomed to having these really high exemption levels. There's no guarantee that they're going to stay this high you know during that last election, you know uh Vice President Harris campaigned I think on a$3.5 million federal estate tax exemption. So you know had the election gone the other way, you know, rather than have a$15 million federal estate tax exemption next year, we might have a$3.5 million federal estate tax exemption. So one never knows.

SPEAKER_01 36:38

I don't know if I told you this, but you're really the inspiration for my podcast. Oh really? I do give you credit for uh to for helping me kind of stretch myself a bit here and and really become the the key part of why we're doing the podcast. Well I'm just so proud of you Derek for all the great things that have happened in your practice over the last few years uh you know your team uh the quality of your services you're just uh knocking it out of the park well thank you Tom uh this has been a pleasure I appreciate you coming on and sharing your thoughts on estate planning and telling us a little bit more about estate planning there in the great northeast um and as always uh thank you so much and uh I'm looking forward to my next opportunity to sit down and chat with you and I think you are gonna owe me a beer if I'm not mistaken.

SPEAKER_00 37:27

Looking forward to buying one for you. So uh and thank thank you for the opportunity.

SPEAKER_01 37:32

This has been fun these are hard issues they take conversations but you need two for conversations. Who do you need to have a conversation like this with the best way to get started is to send them a link to the show. Please rate and review wherever you are listening to this podcast. Subscribe to stay up to date with our latest episodes I'm Derek Jensen and this podcast is presented by Jensen Estate Law