Attorney Maria Baler discusses our Winter Newsletter, for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.
Five Things Your Family Will Be Thankful For
One of the first things I want to know when I meet a new estate planning client is: What are your planning goals? What are you trying to accomplish by seeing me? Depending on their circumstances, clients may want to avoid probate, save estate taxes when they die, make sure their assets will be protected if they require long-term care at the end of their life, or all of the above. But one goal I hear most often from clients is the desire to make things easier for their loved ones after they pass away.
Many of our clients have experienced the death of a spouse or a parent and understand the work involved in wrapping up someone’s affairs after their death. That experience can be markedly different – in a good way – if the person has planned properly and taken steps to be sure everything is in order. If that is the case, significant time, expense and aggravation can be saved.
As we begin to anticipate the Thanksgiving holiday with our family and friends, here are five things those you leave behind will be thankful you did before you get sick or pass away.
1. Make sure your Power of Attorney is Up to Date
Your power of attorney is the unsung hero of your estate plan. A Power of Attorney appoints someone (an “attorney-in-fact”) to make legal and financial decisions for you if you are unable to make those decisions yourself at some point during your lifetime. A Power of Attorney must specifically list the actions you authorize your attorney-in-fact to take on your behalf.
Many people will suffer a period of incapacity prior to death. It is during this time that a well drafted Power of Attorney is crucial. A Power of Attorney drafted 10 or 20 years ago may not be honored by banks or other financial institutions your attorney-in-fact needs to deal with to be able to manage your assets and pay your bills. Older Powers of Attorney may not specifically authorize actions your attorney-in-fact may need to take, such as to access your on-line accounts, deal with cryptocurrency, or sell the second home you recently purchased.
An up-to-date Power of Attorney will avoid the need for a Court to appoint a conservator to handle your financial affairs, which is important if you want to avoid a public court proceeding that will take months and be very costly. Identify someone you trust to handle your financial matters and create an updated Power of Attorney with appropriate powers that will allow them to help you when you need it.
2. Create a Comprehensive List of your Assets and Other Important Information
When we work with clients on settling an estate or trust, one of the most frustrating aspects of the process is their inability to locate information about a deceased’s current assets, debts, or benefits. To make this process easier for your family, create a comprehensive list of your assets including real estate, bank accounts, IRAs, 401(k)s, brokerage accounts, life insurance, annuities and any other assets you have or that your family or estate would be entitled to receive at your death. Include account numbers.
If you have valuable personal property – like artwork, or sports collectibles – provide as much information as you can about the provenance of those items, the purchase price (if applicable), and any trusted source for appraisal or sale of the items after death if that is anticipated. If you have cryptocurrency, provide detailed information about how to access those assets. If you have cash or gold stored at home or offsite, provide information about where to find those assets.
As to any bills you pay on a regular basis – monthly, quarterly, annually – describe from what account each bill is paid if paid automatically. Provide the names of the financial institutions and account numbers for mortgages and car loans.
Include the name and contact information of your attorney, your accountant or tax preparer, your insurance agent and your financial advisor, if any.
In addition to asset information, think about other information that would be useful for your family to have if you were suddenly unavailable, such as:
- A list of employers from whom you receive, or from whom your beneficiaries may be entitled to receive, pension or other group benefits;
- Information regarding your health insurer, including any Medicare supplement and long-term care insurance policies;
- A list of your active credit cards, along with any rewards programs;
- Access information for safe deposit boxes or storage facilities;
- A list of your online accounts, usernames and passwords (more on this below); and,
- Home alarm codes and contact information for the alarm company.
This is not an exhaustive list but is intended to help you start thinking about what your family would need to know. Pay attention to the tasks you handle for your household and ask yourself, what would someone need to do this?
Make sure a trusted person knows where to locate the list after it is created. And finally, review this list every six months or so and keep it updated.
3. Keep an Updated List of Your Usernames and Passwords
More and more of our life is lived online these days. It is important to leave instructions for those who may need them to access important information that is only accessible online. For example, you may pay all of your bills online or receive account statements via email, you may have online savings accounts that do not exist in a brick and mortar bank, you may have cryptocurrency, or photos stored in an online photo storage site you want family members to be able to access after your death. For all of these reasons and many more, create a list of your username and password for those websites and other online accounts that will be important for someone to access after your death. If you store this information in an online password manager, leave the password for that password manager account. Then, keep this list in a safe place that is known to a trusted person or two who can locate the information when needed. And as with the other lists mentioned above – keep this updated as usernames and passwords change and new online accounts are created.
4. Review and Update your Beneficiary Designations.
Many of your most significant assets – life insurance, retirement accounts, annuities – will be paid to a designated beneficiary at your death. Make sure your beneficiaries are designated properly and consistent with your estate plan. Properly designating beneficiaries is more complicated than it may appear. Understanding the implications of certain beneficiary designations is crucial. For example, this can be especially significant in estate planning for a minor or disabled child. A trust for the benefit of a young or disabled beneficiary can be instrumental in avoiding a lengthy and costly court proceeding to appoint a guardian and in avoiding the loss of public benefits a disabled beneficiary may be receiving. Understanding how distributions from retirement accounts work after the death of the account owner, and how different beneficiary designations will impact the size, frequency and income tax payable on those distributions is crucial to making appropriate designations. Work with your estate planning attorney to be sure you understand how your beneficiaries should be designated, and then confirm they are designated in the appropriate way to ensure your estate plan will work as intended.
After your beneficiaries are designated, it is a good idea to confirm those beneficiary designations from time to time. It is not uncommon that when financial advisors move from one company to another, or when employer-sponsored retirement plans change custodians, the beneficiary designation does not carry over. Requesting written verification of your beneficiaries and maintaining that confirmation with your records is also a good idea.
5. Make sure your assets are properly titled in your Trust.
A Trust is an estate planning tool that is used to accomplish many goals including asset management, probate avoidance and estate tax savings. However, simply creating a Trust will not in itself achieve those goals; it is necessary to “fund” the Trust by titling assets in the name of the Trust or designating the Trust as the beneficiary of assets such as life insurance.
Your estate planning attorney should provide you with instructions for funding your Trust consistent with your estate plan. If you have received trust funding instructions but haven’t yet gotten around to doing the work necessary to retitle your assets or designate beneficiaries properly, take the time to do that now. It will make all the difference in achieving those planning goals.
Maria C. Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and the former President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
November 2024
© 2024 Samuel, Sayward & Baler LLC
What is an Irrevocable Life Insurance Trust (ILIT)?
By Attorney Maria C. Baler
Under federal law your estate will not pay an estate tax when you die unless the assets you own at the time of your death (your so-called “taxable estate”) are valued at more than $13.6 million (in 2024). This is a big number, and most people don’t come close to having to pay a federal estate tax at death. But here in Massachusetts, we have a separate state estate tax with a much lower $2 million exemption amount for those whose deaths occur on or after January 1, 2023 ($1 million prior to that date). Given the value of our real estate and many people’s growing 401k accounts, it is not hard to get to a $2 million taxable estate if you are a Massachusetts resident. What this means is that your estate will pay estate tax at your death, or if you are married at the death of the surviving spouse, unless you undertake planning to reduce or eliminate the tax.
One of the assets people own that drives up the value of their taxable estate at death is life insurance. Although life insurance proceeds are not income taxable to the recipient of the death benefit, if you own a life insurance policy insuring your own life, the death benefit of that policy will count toward the value of your taxable estate at your death and will be subject to estate tax. It is not uncommon for parents of young children, business owners, or those with sizeable estates or large mortgages to own a life insurance policy with a death benefit of $1 million or more, to provide an influx of cash at death. These funds may be earmarked to help pay living expenses for their survivors, education expenses for children, to pay off a mortgage, or to provide cash to pay estate tax at death.
But how do you attain the benefits of a large life insurance policy on your life while not paying estate tax on the value of that policy at your death? An irrevocable life insurance trust may help you have your cake and eat it too.
An Irrevocable Life Insurance Trust (ILIT) is used to exclude the death benefit of a life insurance policy from the insured’s taxable estate. If your life insurance policy is owned by an ILIT (instead of by you) at the time of your death, it will not be included in your taxable estate and the death benefit of the policy will not be subject to estate tax. This can save hundreds of thousands of dollars in estate tax depending on the size of the policy and the insured’s estate.
Although an ILIT has significant tax advantages, there are important factors to consider before deciding if an ILIT is right for you:
- Once an ILIT owns the policy, you cannot get it back.
- The ILIT will specify how the death benefit will be distributed at your death, and you cannot make changes to the provisions of the ILIT after it is created.
- You cannot be the Trustee of an ILIT that owns a policy insuring your life.
- If you transfer ownership of your life insurance policy to an ILIT but die within three years of the transfer, you lose the estate tax break. The way to avoid this three-year survivorship requirement is to create an ILIT that purchases a new policy on your life.
In addition to the above, there are certain steps that must be followed each time a premium payment is made which are crucial to the effectiveness of the ILIT. Because the ILIT owns the policy, it is responsible to pay the premiums each year. Unless the ILIT has a reserve of cash, you will need to contribute money to the ILIT each year so that the ILIT will have funds available to pay the premium. These contributions will be considered gifts by you to the ILIT. In order for these gifts to qualify for the favorable gift tax annual exclusion (which avoids the need to file a gift tax return reporting the gift), the Trustee of the ILIT must give the beneficiaries notice each time a contribution is made, including notice of their right to withdraw amounts contributed to the trust so the contribution qualifies as a present gift. These notices, called Crummey notices, are named after a court case that fleshed out these requirements and allow the contributions to qualify for the annual gift tax exclusion. If the beneficiaries of the ILIT do not withdraw the amounts contributed, the Trustee will use the contributed amount to pay the policy premium, and this process will be repeated each year a premium is due.
Although an ILIT removes the life insurance policy from your ownership and control, for most people who own large term life insurance policies this is not a significant disadvantage as those policies do not benefit the owner of the policy during the owner’s lifetime. On the other hand, transferring ownership of such a policy to an ILIT can result in significant estate tax savings to your family following your death.
To learn more about whether an ILIT is an appropriate estate tax planning strategy for you, contact us and make an appointment to consult with one of our experienced estate planning attorneys.
Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and a past President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
October 2024
© 2024 Samuel, Sayward & Baler LLC
Estate Planning on a Different Court
It is not often that sports and estate planning intersect, but two of my favorite things did so recently when the New York Times (and many other sources) reported that the Grousbeck family, the controlling owner of Boston Basketball Partners LLC which owns a majority interest in the Celtics, announced that it has decided to sell the basketball team. The Celtics’ statement said the sale was prompted “after considerable thought and internal discussion” by “estate and family planning considerations.” Although the statement was short on details, it is suspected that 90-year-old H. Irving Grousbeck is the one driving the sale. His 63-year-old son Wyc Grousbeck, one of Irving’s four children, owns a relatively small stake in the team himself, but manages his family’s controlling interest.
So why would you want to sell the Boston Celtics, a team that less than two weeks before the sale was announced won their 18th NBA Championship and have most of their team under contract for the foreseeable future? For estate planning reasons, of course! Here’s some insight into what Irving and his estate planning attorneys might be thinking.
Taxes Might Be Driving the Team Bus
Irving and his ownership group bought the team for $360 million in 2002. Today, after winning its latest championship, the team is worth an estimated $4.7 billion. That’s a nice return on investment, but nothing comes without a price.
If Irving dies owning an interest in the Celtics, that interest will be an asset of his estate, and the value of that interest will be subject to estate tax at his death. Although Irving hails from Northampton, Massachusetts (which might explain his interest in owning the hometown team), he currently lives in Portola Valley, California. Although the weather may have played a part in the decision to move west, there is also an estate tax advantage. California (unlike Massachusetts) is one of the majority of states that do not impose a separate state estate tax on its residents.
However, when you own an interest in an asset that’s worth billions of dollars (not to mention the value of your other assets), you need to worry about the federal estate tax, which is a tax imposed on assets owned at death which exceed $13.6 million (in 2024). Assets over this threshold are taxed at a whopping 40%.
So how does selling the team help Irving potentially save estate tax for his family? If Irving sells his interest, he will still have the same amount of assets (less some capital gain tax of course), but rather than an interest in a basketball team, he will have cash. Cash is much easier to plan with. Here are some ways Irving might use that cash to save some estate tax:
- Irving can give a bit of that cash to anyone he likes. The gift tax annual exclusion allows Irving to give $18,000/year to any person without having to pay a gift tax or file a gift tax return, and without reducing the $13.6 million federal estate and gift tax exemption Irving has to use against the value of his estate at his death. But even after giving annual exclusion gifts to Wyc and his siblings, and to Jayson Tatum, Jaylen Brown, Jrue Holiday, Derrick White, and the rest of the team, Irving will still have a lot left.
- Irving can pay tuition for his grandchildren without limitation – gifts made to an educational institution for tuition (or to a medical institution for medical care) can be made in an unlimited amount without any gift tax implications.
- Next on the tax savings idea list may be giving a bunch of money to charity, which will reduce Irving’s taxable estate without reducing his exemption. Doing so will also provide a nice income tax benefit to Irving currently.
- Irving might also want to consider making larger, “taxable” gifts before the end of 2025. The current federal estate tax law is scheduled to “sunset” or end on December 31, 2025. If Congress does not act before that date, the prior law will come back into effect. This means that the current $13.6 million estate and gift tax exemption will drop to approximately $7 million. Because making taxable gifts during your lifetime reduces your estate/gift tax exemption, Irving may be thinking about making some larger taxable gifts to take advantage of his $13.6 million exemption before that exemption drops down to $7 million and he loses the opportunity to give away that extra $6.6 million estate and gift tax free.
- Irving may also wish to consider “skipping” a generation with his gift-giving, as giving gifts directly to grandchildren will avoid estate tax on those assets when his children pass away.
Again, easier to do any of these things with cash than with an interest in a basketball team. If Irving is serious about gifting, he can reduce the value of his taxable estate significantly, benefiting his family and charity in the short term, and benefitting his family in the long term by reducing the estate tax they will have to pay at his death. Keep in mind that for every dollar Irving gives away he is likely saving his family $0.40 in estate tax when he dies.
Another reason to cash out now is the estate tax that is likely to be due at Irving’s death. Whether Irving dies before or after the current estate tax law sunsets, and even if Irving makes gifts to reduce the value of his estate, the federal estate tax payable on Irving’s estate will be significant. And the IRS does not accept Celtics tickets, even if they are courtside playoff tickets, in payment of the estate tax bill. They deal in cash only. So, better to liquidate a large asset now and free up some cash for the estate tax bill that’s coming due. When you are 90 years old, that bill could come due and payable sooner rather than later.
Succession Planning Is Difficult On and Off the Court
When you have multiple children and one special asset, planning can be challenging. That asset could be a family business, a beloved vacation home, or a racehorse. All of these things are valuable, valued by some or all family members, and illiquid – a difficult combination.
Wyc has done a great job being the face of the majority ownership group for years. However, Irving probably wants to benefit each of his children equally in his estate plan, even if only one of them has given him the joy of an NBA championship this year.
If Irving dies owning the team, Wyc may want to keep the team, but his siblings may want to sell, creating potential family disharmony. Sometimes, it’s possible to give one child who may be involved in the family business, for example, that particular asset and give other assets to the other children while still equalizing the value of assets everyone receives and maintaining family harmony. And it may even be the case that Wyc’s siblings care nothing about basketball and would be happy for him to receive Irving’s ownership interest in the Celtics when Irving passes if they get other assets of equal value. The problem for Irving is that when you have a basketball team that’s worth a whole lot (and likely to keep appreciating in value, at least in the short term) it’s hard to equalize things for your other three children unless you have a whole lot of other assets. Selling Irving’s interest in the team now will allow for easier equalization of his assets among his children at his death, which will simplify Irving’s estate. This is an issue faced not just by Irving, but by the owners of all professional sports franchises.
Although we estate planning attorneys may make it look easy, estate planning is complicated – especially for those individuals who hold our beloved sports teams’ destinies in their hands. Assuming you don’t own a professional sports franchise, your personal estate planning situation may not be as complex, but good estate planning advice is important for everyone who wants to make sure their assets pass efficiently and harmoniously to their intended recipients.
Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham (and a Boston Celtics fan). She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and a past President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
August 2024
© 2024 Samuel, Sayward & Baler LLC
Five Ways to Maintain Your Independence As You Age
By Attorney Maria C. Baler
July 4th is Independence Day, a day Americans celebrate our country’s independence from Great Britain marked by the date in 1776 when the Declaration of Independence was approved by the Continental Congress. Independence was important to the new colonies because it represented freedom from being subject to the laws and taxes of a country an ocean away. This is such an important day for our nation that it continues to be celebrated almost 250 years after the event took place.
Individuals value their independence too. As my clients get older, one thing I hear consistently from them is their desire to continue to make decisions for themselves, live where they want to live, receive needed care in a setting they choose, and choose the people who provide assistance to them if needed. Here are five ways to maintain your independence as you age.
1. Have Appropriate Legal Documents in Place
The legal documents that will allow you to maintain your independence during your lifetime are those that allow you to name people you choose to assist you with legal, financial and health care decision-making at such time as you need that assistance.
These documents include a power of attorney, which names a trusted person to make legal and financial decisions for you, and a funded revocable trust that allows a successor Trustee whom you choose to step in and manage trust assets for your benefit. These documents will be important if you become ill and are unable to pay your bills, including payment for care you may need in the setting you have chosen. Creating a power of attorney and funded revocable trust while you are well will ensure that there will be no obstacles for trusted people to obtain access to funds to pay for your care, even if you are unable to act.
Equally important is a health care proxy that names a person you choose to make health care decisions for you if you are unable to make or communicate those decisions yourself. A well- drafted health care proxy will also give your health care agent the ability to choose where you will be cared for and to move you from one care setting to another.
Without these documents, a Court will appoint someone chosen by the Court, and not by you, to serve as your guardian to make health care decisions for you and your conservator to manage your assets.
2. Create a Life Plan and a Team to Implement It
Just as important as creating appropriate legal documents is to have a team in place that will help implement your wishes and carry out your instructions when the time comes. As you get older, make sure you have trusted advisors such as an estate planning attorney, an accountant, and a financial advisor who are all familiar with your personal and financial situation and your wishes, and who can assist your appointed decision-makers if you are no longer able to make decisions for yourself.
Explore potential care settings with your advisors and the cost of care and determine what care options may be best for you, and how that care will be paid for if necessary.
Make your wishes known to your team and your appointed decision-makers. This can be as formal as a written care plan, or as informal as conversations with these people to make your wishes clear and ensure they understand you are counting on them to carry them out.
3. Enlist Care Managers if Needed
A life care manager, sometimes called a geriatric care manager, is a person who is hired to assist you or your family to create an appropriate plan for care. Care managers are especially important and effective for people who may want to remain and be cared for in their home. This type of care requires a lot of coordination, communication and problem solving. This can be difficult for family members who may live at a distance or who may not have the time to take on this responsibility.
A care manager can take the burden of arranging and supervising care off of your family, take the time to understand the type of care you want, and implement those wishes. Care managers may also accompany you to doctor’s appointments or emergency room visits, communicate regularly with family members at a distance, and coordinate and advise loved ones regarding your care needs.
4. Build a Supportive Community Around You
Maintaining your independence requires more than legal and financial considerations. In addition to trusted decision-makers and care managers, maintain relationships with friends and family members you enjoy being around as you age. Spending time with people you enjoy prevents isolation, loneliness and depression which negatively affects your health. Having these folks around when you want and need their support starts by building and keeping those relationships as you age.
5. Make Sure Your Home Is An Ally In Your Fight for Independence
Many of us have lived in our homes for many, many years, and want to remain there to live out our lives. But many homes are not well-suited to aging in place – they have long flights of stairs inside or outside the home, they have narrow doorways that don’t accommodate a wheelchair, they have bathrooms that may be small and hard to maneuver around with a walker and lack grab bars and other things that make it easier for someone with mobility issues to navigate safely.
Before you encounter mobility issues, take an objective look at your home and think about what changes would need to be made to make your home more accessible. Is it possible to enlarge the doorways or the bathroom? Do you have a bathroom on the first floor of the home? Do you have a bedroom on the first floor, or could a first-floor room be converted into a bedroom if necessary? Can your stairway accommodate a chair lift? Are you able to get in and out of your home to a car safely?
If your home is not one that is easily or cost-effectively adaptable to aging in place, consider a move to a home in which you can age in place comfortably and affordably. And make such a move before living in your home becomes an obstacle to your independence and your ability to remain there.
On this Independence Day, consider your wishes for your own independence as you age, and take steps now to make it a reality. Although your independence may not be celebrated with a parade and fireworks, you will certainly celebrate the fact that you are able to carry on as you age as you choose, with assistance from trusted advisors and in your chosen location.
Maria C. Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and the former President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
July 2024
© 2024 Samuel, Sayward & Baler LLC
Revocable Trusts – What they are and how they can be used
Attorney Maria Baler discusses Revocable Trusts – What they are and how they can be used, for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.
An Overview of Our Estate Planning Process
Attorney Maria Baler discusses our Estate Planning Process, for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.
What’s New at Samuel, Sayward & Baler LLC – Don’t Miss Our Spring 2024 Newsletter
Five Questions and Answers About the New Massachusetts Estate Tax Law
In October 2023, the Massachusetts legislature enacted a long-awaited update to the Massachusetts estate tax law. Although it did not become law until October, the law’s provisions are retroactive, applying to estates of those who died on or after January 1, 2023.
The new law increases the Massachusetts estate tax exemption amount from $1 million to $2 million, meaning that those who die with an estate valued at less than $2 million will not have to pay a Massachusetts estate tax at death. The law also eliminates the so-called “cliff” effect of the prior law, which taxed the full value of an estate if the estate’s value was over the $1 million threshold. Under the new law, the first $2 million of assets are not taxed. The value of the estate over $2 million is subject to tax at rates ranging from 8% to 16% for estates over $10 million.
Here are a few things to consider with respect to your own estate when thinking about whether and how this new estate tax law impacts you and your family.
1.How Do You Determine if Your Estate is subject to the Estate Tax?
The estate tax is a one-time tax, payable nine-months after death, on the value of the assets in your “estate.” For Massachusetts estate tax purposes, your “estate” consists of all of the assets you own or control. This includes bank accounts, stocks, bonds, investment accounts, retirement accounts such as IRAs, 401ks, 403bs, annuities, life insurance which you own on your own life, the cash value of life insurance you may own on someone else’s life, personal property such as automobiles and jewelry, and real estate, whether located in Massachusetts or in another state. The total value of all of these assets is the total value of your estate that would be subject to estate tax at your death. If that number is above $2 million, your estate will need to file a Massachusetts estate tax return and may have to pay estate tax after your death, depending on the deductions available to your estate. Assets left to charity or to a surviving spouse are deductible. For this reason, for most married couples who leave assets entirely to the surviving spouse at the death of the first spouse to die, there is no estate tax payable until the death of the surviving spouse.
2.What if you did Estate Tax Planning Before the New Law?
Under the old law, when the threshold for the Massachusetts estate tax was $1 million, many Massachusetts residents were impacted by the estate tax and incorporated estate tax planning into their estate plan. This type of planning likely included credit shelter trusts which shelter a portion of assets in trust at the death of the first spouse to die for the benefit of the surviving spouse in order to reduce or eliminate the estate tax payable at the surviving spouse’s death. If you created credit shelter trusts before the change in the law, now is the time to sit down with your estate planning attorney and review your plan. It may be that the complexities of an estate plan that shelters assets from estate tax are no longer necessary. However, you may still benefit from such a plan. The manner and extent to which your trusts are funded should be reviewed and updated to make sure you are taking full advantage of the new $2 million credit. Whereas under the old law we were concerned with funding credit shelter trusts with at least $1 million of assets, now we can shelter up to $2 million of assets at the first spouse’s death, so increasing the funding of those trusts appropriately can reduce or eliminate the estate tax payable at the surviving spouse’s death.
3.What if you are a Massachusetts Resident but own Real Estate in another State?
If you are a Massachusetts resident but own real estate in another state, such as a vacation home in Maine, that property is included in the value of your “estate” when determining if your estate is worth more than $2 million and therefore a Massachusetts estate tax return must be filed. The Massachusetts estate tax is calculated on the full value of your estate, including the out of state property. However, your estate will receive a credit against the Massachusetts estate tax for the proportionate share of that tax attributable to the out of state property.
Keep in mind that 12 other states in the country impose a separate state estate tax. If you are a Massachusetts resident and own real estate in Vermont, Rhode Island, Maine, or several other states, you may have an obligation to file an estate tax return and pay estate tax to the state in which that real estate is located following your death.
It is worth noting that some attorneys believe it is unconstitutional for Massachusetts to consider the value of out of state property in computing its estate tax, even if a credit for a proportionate share of that tax is given. The issue is yet to be conclusively determined under the new Massachusetts estate tax law.
It is common practice to transfer real estate owned for investment purposes, especially rental property, to a limited liability company (LLC) for asset protection purposes. Keep in mind that transferring real estate to an LLC converts real estate into a personal property interest (the membership interest in the LLC) which like any other asset will be part of your “estate” for Massachusetts estate tax purposes, and tax will be paid on the full value of that interest.
4.What if you are not a Massachusetts Resident but own Real Estate in Massachusetts?
Massachusetts also imposes an estate tax on non-residents who own real estate in Massachusetts, based on the value that real estate bears to the owner’s total estate. The estate tax is computed as if the non-resident was a resident of Massachusetts. The share of the tax attributable to the value of the Massachusetts real estate is then determined, and this is the amount paid to the Commonwealth as the non-resident estate tax.
5.How Do You Reduce Your Estate Tax Bill?
For those with assets valued at $2 million or more, reducing the estate tax payable by their heirs after death is often a top planning goal. As mentioned above, certain types of trusts such as credit shelter trusts can be used to reduce estate taxes while still allowing control over assets during life. Transferring assets out of your ownership may be appropriate in some cases and if done properly will reduce the value of the taxable estate. This includes gifts that fall under the federal gift tax annual exclusion, which in 2024 permits gifts of up to $18,000 per person per year without the requirement of filing a gift tax return or reducing the giver’s federal estate and gift tax exemption (currently $13.6 million per person, but scheduled to drop to about half that amount if Congress does not extend the increased exemption amount by the end of 2025). Larger gifts of real estate or other assets may be appropriate, whether directly to individuals or to an irrevocable trust. However, an analysis of the benefits of reducing estate tax versus the advantage of your heirs receiving assets with a stepped-up tax basis should be done before gifting appreciated assets. Transferring life insurance to an irrevocable trust is a way to significantly reduce the taxable estate as it removes an asset from tax that the owner does not typically consider an asset during their lifetime, especially if it is term insurance without cash value. Gifts of tuition or medical expenses may be made in an unlimited amount if paid directly to the institutions providing those services. Finally, gifts to charity, whether directly, via retirement accounts, donor advised funds, or in trust, are a way to reduce the estate tax payable at death while benefiting worthy causes.
If you are a Massachusetts resident with a home, life insurance and a retirement account, you may have a taxable estate without realizing it or planning for it. Review your assets and speak with an experienced estate planning attorney to learn about the estate tax your family may have to pay after your death, consider how it will be paid (and whether further planning is needed to avoid the sale of real estate or a business in order to raise funds to pay taxes), and take whatever steps are appropriate for you to reduce the tax to the greatest extent possible. Your heirs will thank you.
Maria C. Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and the former President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
March 2024
© 2024 Samuel, Sayward & Baler LLC
Love Stinks (Sometimes): A Case for Pre-Nups and Lifetime Trust Shares
It’s Valentine’s Day and love is in the air! Here’s hoping that all of you have a love – of a spouse, partner, parent, child or friend – worth celebrating. Although estate planners are romantics at heart, we know that love of the romantic kind doesn’t always work out. Unfortunately, when this happens, it can sometimes impact other things that are important – like our assets. Fortunately, there are things that can be done from an estate planning perspective to protect our assets, if not our hearts, from the impact of a failed romance.
If you are getting married, or if you have a child who is planning to get married, a pre-nuptial agreement should be considered. A prenuptial (or premarital) agreement is a contract between two people who are planning to marry, by which they agree in advance to a division of their assets in the event of divorce or death. Pre-nuptial agreements are not only for the wealthy. They can go a long way toward protecting assets and future financial security against the possibility of a failed marriage. These agreements are especially important for people who come into the marriage owning assets they want to protect in the event of divorce. For young couples, this may be a house purchased by one member of the couple prior to the marriage. For others, this may be an interest in a family business, vested stock options from an employer, or an ownership interest in a family vacation home. If you have assets you would not want to be part of the
“pot” to be divided between you and your ex-spouse by a judge during a divorce proceeding, then it’s worth having a prenuptial agreement to protect that asset.
Prenuptial agreements are not just for first marriages, and not just to protect assets in the event of divorce. Those who have been married before may have children from a prior relationship. If two people who have children from prior relationships decide to marry, they may enter into a pre-nuptial agreement that not only protects each spouse’s assets in the event of a divorce, but also prevents the new spouse from claiming any interest in the estate of the deceased spouse if a spouse dies during the marriage. In this way, the deceased spouse is assured that his or her assets can be left to the deceased spouse’s children at death without the threat of interference from the surviving spouse. This can be especially important if the children of the deceased spouse are minors and may need those assets for their support and education. It can be equally important for older children who may be nervous about their potential inheritance being disrupted by a parent’s new spouse. A pre-nuptial agreement will not prevent the couple from leaving assets to each other at death if they wish but will prevent the surviving member of the couple from disrupting the deceased’s estate plan after the fact.
Whatever the motivation for creating a pre-nuptial agreement, the agreement must be created in a way that will ensure it will be enforceable if the parties divorce. Massachusetts courts have established very clear parameters that must be followed for a pre-nuptial agreement to be enforceable if, and when, the time comes for the agreement to do what it was created to do – protect assets. First, when creating and negotiating a pre-nuptial agreement, it is mandatory that both parties have their own attorneys to ensure each party understands how the terms of the agreement benefit and obligate them. Second, a pre-nuptial agreement must be fair both at the time the agreement is signed and at the time it is sought to be enforced. Third, each party must fully disclose his or her assets, including anticipated inheritances, to the other party. Finally, prenuptial agreements must be entered into freely by each party, without coercion or influence from the other party or outside influence. For this reason, courts have found that the agreement must be entered into far enough in advance of the wedding that neither party feels coerced into signing.
In addition to romantic partners protecting their own assets, we hear a lot of concern from our clients who are parents about protecting assets their children may inherit from them, and what would happen to those assets if a child divorced. A pre-nuptial agreement is a great first line of defense to protect inherited assets. The agreement can provide that any assets a party inherits during the marriage or may inherit in the future should not be considered during property division in the event of the couple’s divorce. For many couples (and their parents), a prenuptial agreement that is narrowly tailored to protect inherited assets may provide peace of mind that family wealth will not be at risk if the marriage does not work out.
If a pre-nuptial agreement is not a possibility, there are a couple of other estate planning cards a parent can play to protect assets on their own. Disinheriting a child who may be married to a problematic spouse or who is headed for divorce is always an option, but not a great one, especially because most parents are concerned about their child’s long-term well-being. A lifetime trust share for the benefit of the child is a better way to protect inherited assets. A parent can create a trust that at their death continues to hold the trust assets in trust for the benefit of their child. The Trust can provide even greater asset protection if the Trustee has discretion to distribute trust assets not just to the child, but also, perhaps to the child’s children or siblings. The purpose of these trust shares is to provide the child with less control over and access to their inheritance from a legal and practical perspective, which in turn provides protection against a child’s creditors, including a divorcing spouse. Although the protection offered by lifetime trust shares is be impacted by the identity of the Trustee, the way the Trust is administered, and the state in which the beneficiaries reside, these shares are a great tool to increase the protection of inherited assets in the event of divorce.
A prenuptial agreement is something to consider if your assets or circumstances are such that you want added assurance that no matter how matters of the heart may go, the things you care about will be protected. Whether or not a prenuptial agreement is in the cards, consider other estate planning options, like lifetime trust shares, to provide protection. As always, we are here to provide advice and counsel on these and all other estate planning matters. For matters of the heart, you will need to seek advice elsewhere.
Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and a past President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
February 2024
© 2024 Samuel, Sayward & Baler LLC