Ronald Aucutt, a partner in the McLean office of McGuireWoods and leader of the firm’s private-wealth practice, is one of the nation’s top estate-planning lawyers. He helps clients pass down property and wealth, typically to their children and grandchildren, and he tells them how to do it in the most “tax-efficient”—or least costly—way. Here, he talks about some major purchases he’s seen clients make—think giraffes and lighthouses—the family drama that can erupt over estates, and the implications of new tax rules.
Can you describe the types of clients—how wealthy, what kinds of professions they’re in—who usually come to you?
About a third of my time is spent with clients who just do not fall into any pattern. Some have inherited wealth; others have earned it very young and retired at age 30; others are professionals who have accumulated wealth over the years; others aren’t very wealthy at all, but have needs that intrigue me that I can help with. The orderly succession of a family business is something I view as a very important part of what I do. The rest, I think, reflecting my experience in tax law, is tax consultation and tax advice, and fixing tax problems, sometimes in IRS audits or appeals, sometimes in getting rulings from the national office of the IRS and that kind of thing. Usually, I get calls from advisors of very large, typically relatively old, trusts that need modernizing or have broken down in some fashion. They aren’t working well, the beneficiaries and trustees are not agreeing, and there are tax issues that have not been faced before. Frankly, I enjoy helping people through that kind of challenge.
When clients want to make a big purchase, do they consult you first? What are some of the more flamboyant purchases or gifts you’ve seen?
Clients don’t always consult me about what they purchase, but I have seen some things that, for some clients, are routine. There are always yachts and airplanes here and there. I saw a lighthouse once. Once, I saw a large ranch in the United States with zebras and giraffes and elephants and other exotic kinds of animals.
In what ways—if any—did the recession affect your practice?
A lot of my clients did lose money. I don’t know anyone who lost everything or was in great distress. Of course it varies from client to client depending on what they’re invested in and how much debt they had. My practice did not change greatly. I was still busy, and am still busy. With values being down in many of my clients’ portfolios, it was a good time to make gifts. Also, with interest rates down, there were certain gift techniques that worked best. This period was accompanied by unusual instability in the tax law that again created more work.
There was no federal estate tax in place last year. What did that mean for your clients?
There still was a gift tax so people could not make very large gifts without taking into account the gift-tax consequences, so there wasn’t that much opportunity for people to actually do things proactively. It was a benefit for the heirs of anyone who died, but that’s not a very good proactive strategy, of course. That did happen with one client of mine, and several clients of other partners of the firm, and that continues to present some challenges.
How did the big tax bill passed last December affect the estate and gift tax rules?
That was major and we’re still sorting that out. The main thing that did was to go back to the beginning of 2010 and reinstate an estate tax, but in effect only for people who elect it. And the election actually works the other way—it applies to everybody who does not elect out of the estate tax. That is a good thing because it also retroactively raised the exemption back to $5 million. Anyone with an estate less than $5 million who would not pay estate tax anyway would not elect out of the estate tax and thereby would avoid more burdensome income tax rules that would apply if the estate tax didn’t. For its part, the Treasury Department is working through the guidance that is appropriate.
The second thought is that everything Congress did only lasts two years, until the end of next year, so as far as the questions people are asking, it’s all the uncertainty all over again. What’s it going to be like if I make a large gift and the estate tax exemption goes down? All these sorts of things.
Estate planning is obviously very personal. Have you ever had any difficult experiences dealing with family drama?
I have seen—because of the contact I have, especially with a lot of large trusts that have challenges of one kind or another—a lot of conflict in families. I have become convinced that the family that engages in frequent and honest and wide-ranging communication is much better off. I have never seen a family completely break down and fall apart that had observed that pattern of frequent and consistent and honest communication. If I had my 36 years of law practice to do over again, one thing I’d try to do more is to infiltrate the family lives of clients to encourage that kind of communication. I’ve seen conflicts between parents and children, between siblings, across family lines from one branch to another, between beneficiaries and trustees. Many of the trusts that have these tax problems that I mentioned earlier have them because they need to reconfigure or change some of the ways they operate, or split up, or even terminate in response to the intolerable tension among the beneficiaries who typically are family members. Some differences are very common and easy to deal with—different investment preferences and that kind of thing. But sometimes there is just a complete breakdown of trust that is the background for this kind of repair work. And I should emphasize that the great majority of cases are success stories that really do work well and make it worthwhile.