Attorney Maria Baler

Five Reasons to Call Your Estate Planning Attorney

December 1, 2015 by Attorney Maria Baler

Estate planning attorneys try not to feel unloved or neglected. We realize that, although our clients like us, they don’t always enjoy talking to us. The conversations we have with our clients are sometimes difficult, filled with talk of illness, death, taxes, and challenging family situations. These are emotional topics that many people would rather not discuss, and instead ignore and hope the issues will resolve themselves. However, as estate planning attorneys we are able to see firsthand how the advice and guidance we provide makes a difference in the lives of our clients and their families.

Here are five reasons you should call your estate planning attorney:

1. You are diagnosed with a serious illness. If you are diagnosed with a terminal or chronic illness, sitting down with your estate planning attorney to talk about a time when you may become unable to make decisions for yourself or may pass away is probably not at the top of your bucket list. However, now is exactly the time you should be having those conversations, as difficult as they may be. Many types of illnesses will result in a period of incapacity. It is important to plan for your incapacity and death while you are still competent to make decisions about your future. A priority is to sign documents such as a power of attorney and health care documents that will ensure your health care wishes are known and trusted people are named to make financial and health care decisions on your behalf if necessary. Your attorney can also advise you about whether ownership of assets or beneficiary designations should be changed, or estate plan documents should be updated.

2. There is a death in the family. There is generally no need to immediately call your attorney following a death in the family. However, it is important to touch base with your attorney shortly after the funeral to determine what actions may need to be taken. Real estate may need to be secured, cleaned out or sold. Personal property may need to be distributed. If the deceased owned assets in his or her individual name, a probate proceeding may be required to transfer those assets to the deceased’s heirs. If the deceased created a trust, a successor Trustee may need to be appointed and the trust administered according to its terms. Depending on the size of the estate, an estate tax return may need to be prepared and filed, and estate tax may be due. Although an estate tax return is not due until nine months after death, there can be significant work involved in identifying and valuing the deceased person’s assets before the return can be prepared. Your attorney can assist with all of these matters and is also likely a good resource for referrals to individuals who can assist with non-legal tasks, such as the clean-out of a home or the sale of real estate.

3. Your child is (or You are) engaged to be married. A child’s engagement is often a joyous time. After the initial excitement has subsided, contact your estate planning attorney about whether you should be encouraging your child to enter into a prenuptial agreement prior to marriage. Prenuptial agreements control the division of a couple’s assets in the event of divorce or death. They can be especially effective to protect assets one member of the couple owns prior to marriage (such as an interest in a family business or vacation home that may have been gifted by parents) and to protect inherited assets if a divorce occurs after the child has inherited assets from her parents. The timing of a prenuptial agreement can affect its validity. The further in advance of the wedding the agreement is negotiated and signed, the better. Discussing a prenuptial agreement is not easy when your child may be giddy with excitement over her upcoming wedding and you want to talk about death and divorce. However, a properly drafted and negotiated prenuptial agreement is a family’s best defense against losing important family assets in the event of a divorce. Prenuptial agreements are also important in second marriage situations where each member of the couple has assets they will be bringing to the marriage and may have children from a prior marriage to whom they would like to leave an inheritance.

4. Your child is experiencing difficulties. For many parents, it is difficult to confront the reality that a child may have substance abuse, gambling, or creditor problems, or may be in a bad marriage. When these issues arise, it is appropriate for parents to take a hard look at their own estate plan and make changes if necessary. Consider whether the child is still an appropriate candidate to serve in a fiduciary capacity or if the child’s inheritance should be held in trust rather than distributed outright in order to protect assets for the child’s benefit. Your estate planning attorney can advise you about your options and help you decide what is best for your family’s situation.

5. Minor Changes may still warrant a Conversation. There are many less significant life events that still warrant a conversation with your estate planning attorney. The birth of a child or grandchild should prompt you to check whether the new family member will automatically be included as a beneficiary of your estate (if that is your intention), or whether changes to your documents are necessary. The purchase of a primary residence or a vacation home may necessitate updates to your power of attorney. A conversation about whether or not to hold the new property in trust is also advisable, especially if the property is located in another state.

Even if your life is relatively uneventful and there is no new reason to talk to your estate planning attorney, keep in mind the importance of keeping your plan up to date. If it has been more than five years since you have met with your estate planning attorney, take the time to sit down with your attorney to review your plan and ensure that it is consistent with your current goals.

Attorney Maria Baler is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC. She is also a director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). 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.

Off to College – Hopefully with a 529 Plan!

October 1, 2015 by Attorney Maria Baler

Sending my first and only child off to college this fall has given me a new appreciation for the value of Section 529 Plan accounts. Many of our clients set up these accounts for their children or grandchildren when they are young, with the intention that the account will be there to be used when it’s time to pay for college. I will take this opportunity to say thank you, on behalf of all of the beneficiaries of 529 Plans out there, to those of you who have had the foresight to set up these accounts. When paying for college, every little bit of assistance helps!

It is important to understand that 529 Plan accounts are not treated the same for all purposes. In addition, the identity of the owner of the account can affect how the account is treated. From an estate and gift tax perspective, the law views the amount contributed to a 529 Plan account as a gift to the beneficiary of the account (the child or grandchild). If the owner of the account passes away, the balance of the account is not added to the owner’s other assets when determining if an estate tax must be paid or when calculating the estate tax due. That being said, the owner of a 529 Plan account retains certain rights, such as the right to change the beneficiary of the account, and to withdraw the contributed funds from the account (although if withdrawals are made for reasons other than to pay for education expenses income tax plus a penalty will be due on the withdrawn amount).

New Year2 From a long-term care planning perspective, the funds in a 529 Plan account will be considered “countable” assets in determining the owner’s eligibility for Medicaid benefits (the public benefits that pay for long-term nursing home care). Depending upon the owner’s situation and the value of other assets, the 529 Plan assets may have to be spent on the owner’s care before the owner will be eligible to receive Medicaid benefits. For this reason, if the owner’s goal is to ensure the funds in the 529 Plan account are available for education, and the owner is willing to give up control of the account and access to the funds in the future, it may be advisable to transfer ownership of the account to the parent of the beneficiary/child or grandchild. This should not be done hastily as the transfer of the ownership of the account will be a disqualifying transfer for Medicaid eligibility purpose. In addition, careful consideration should be given to whether the prospective new owner is financially responsible, and, if relevant, the impact on financial aid if the account is owned by the student’s parent vs. grandparent.

Finally, keep in mind that the owner of a 529 Plan account has the ability to designate a successor owner. This is something that should be done in all cases. Without a successor owner named, the account will be subject to probate at the account owner’s death, which involves cost and delay in access to the funds for a period of time. Probate can be easily avoided by designating a successor owner.

Five Reasons to Examine Your Power of Attorney

August 1, 2015 by Attorney Maria Baler

Your Power of Attorney is the unsung hero of your estate plan. A Power of Attorney appoints someone (an “attorney-in-fact”) to make financial decisions if the maker (the “principal”) becomes incapacitated. But most people pay little attention to the terms of their Power of Attorney, focusing instead on the documents that get top billing in an estate plan, like their Will and Trust. However, many people will suffer some period of incapacity prior to death. It is during this time that a well drafted Power of Attorney is crucial. As you age, your estate and long-term care planning begin to intersect. A Power of Attorney drafted 10 or 20 years ago for the purpose of making sure your spouse can pay your bills and file your income tax returns is not sufficient to allow your spouse to deal with assets you may now own, take steps to ensure your estate plan will operate as intended, or preserve your assets should you need long-term care.

Here are five crucial things a good Power of Attorney will address:

Real Estate Transactions. Most Powers of Attorney will allow the attorney-in-fact to sell real estate and sign deeds, but this “power” contemplates an arm’s length sale to a third party. Long-term care planning often requires changing the ownership of real estate from joint names into one spouse’s individual name. Although a Power of Attorney may include a general power to sign deeds, if one spouse needs to transfer jointly owned property into her own name using her spouse’s Power of Attorney, the transfer will not be considered valid from a title perspective unless the Power of Attorney includes a provision specifically authorizing “self-dealing” — the ability of the attorney-in-fact to take actions that may benefit herself, even if she is acting in the principal’s best interest. If the problem is discovered before the deed is recorded, a conservatorship proceeding can be brought in the probate court to obtain authorization for the transfer. This is costly and will delay the timing of the transfer. Further, there is no guaranty that the court will grant the request. If the problem with the Power of Attorney is not recognized before the transfer is recorded with the registry of deeds, a title issue may arise when the property is sold.

Estate Planning Powers. The laws, especially the tax laws, change frequently. In addition, family situations change over time. For example, a child may become disabled, pass away, or become involved in a nasty divorce or lawsuit. These are circumstances that merit a review and update of an estate plan. If you are unable to undertake those updates because of incapacity, a Power of Attorney that specifically authorizes your attorney-in-fact to update estate plan documents can ensure your plan will continue to operate as intended. A Power of Attorney may also allow your attorney-in-fact to make gifts of your assets, if necessary, for estate planning, long-term care planning, or income or estate tax planning reasons. Without specific provisions in the Power of Attorney authorizing such actions, family members are faced with seeking authority from the probate court to do so.

Life Insurance, Annuities, and Retirement Accounts – A general power to deal with your bank and investment accounts will not be sufficient to allow your attorney-in-fact to deal with institutions in which you have other types of accounts. If you are incapacitated, it may be necessary to change the ownership of a life insurance policy or make an inquiry concerning the beneficiary designation or cash value of a policy. It may also be necessary to transfer or surrender an annuity, or to annuitize the annuity contract. If you are over age 70½, each year it will be necessary to direct the custodian to make minimum required distributions to you from your IRA, or request the distribution of additional funds if necessary. All of these actions require specific provisions in your Power of Attorney.

Digital Assets – Many of us now have online accounts. Some of these accounts are just online extensions of bank accounts that have been opened at a local bank. Others reside only online. If you become incapacitated, your family may be unable to access your online accounts unless you have authorized your attorney-in-fact to do so in your Power of Attorney. A well drafted Power of Attorney will authorize your attorney-in-fact to access your digital assets as needed to assist you.

Naming Successors – We often see Powers of Attorney that name a spouse or other responsible adult as attorney-in-fact, but either do not name a successor attorney-in-fact, or name someone who is no longer able, or appropriate, to serve. Because of this, it is important to create a Power of Attorney that names one or more people to serve, in succession, to act for you if the previously named person is unable, and to review and update the document as needed.

If it has been more than five years since you have reviewed your Power of Attorney with your estate planning attorney, or if you don’t currently have a Power of Attorney, meet with an experienced estate planning attorney to create a Power of Attorney tailored to your circumstances. If you are concerned with long-term care planning, it is best to have your Power of Attorney prepared by an attorney who is also experienced with elder law matters and familiar with the types of powers necessary to protect you as you age and allow for long-term care planning as appropriate.

August 2015

Consider the Impact of an Inheritance

July 2, 2015 by Attorney Maria Baler

It is a good problem to have, as they say, but many wealthy individuals are concerned about the impact of leaving significant wealth to their children. CNBC recently published a review of several famous people who share the belief that leaving their money entirely to their heirs can do more harm than good. As Warren Buffet is quoted as saying: “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.” Rock star Gene Simmons agrees, saying that he believes everyone, including his own children, “should be forced to get up out of bed and go out and work and make their own way.”

Inherited wealth can certainly have the unintended effect of making it unnecessary for your heirs to work hard and earn a living, which, although it may sound good to those of us who do so out of necessity, can lead to an unfulfilling life over the long term. Regardless of the level of your wealth, these are important things to think about, and are issues we discuss with our clients in the course of planning how to pass their assets on to their children. Will your children be overwhelmed by inheriting a large sum of money? Will they be able to manage it responsibly and avoid the temptations that may come with it, including the temptation to give up working, which may not benefit them in the long term? In many cases, it is prudent to stipulate that assets will be held in trust for children, with distributions being made only for specific purposes or in limited ways, or delayed until a child reaches a certain age. This type of arrangement prevents wealth from becoming a disincentive for beneficiaries to establish themselves in their careers and support themselves and their families. Trusts can also protect against “predators and creditors” to which young beneficiaries are vulnerable, including divorce, bad business decisions, and poor judgment in money management matters.

For individuals who can say, like Pierre Omidyar (the founder of eBay), “We have more money than our family will ever need,” or for those who are charitably inclined, creating a plan that leaves some money to children and some to charity may be appropriate. Bill and Melinda Gates have created a foundation that bears their name, and have challenged other wealthy individuals to consider carefully how much of their wealth they need to leave to their families and to leave the rest to charity. In support of this philosophy, Michael Bloomberg has said: “And if you want to do something for your children and show how much you love them, the single best thing—by far—is to support organizations that will create a better world for them and their children. Long term, they will benefit more from your philanthropy than from your Will.”

No matter how much money you have, being thoughtful about how you leave your money to your heirs at death is important. Good estate planning will address these issues and create a plan that benefits your heirs over the long term.

July 2015

Five Facts about Prenuptial Agreements

June 1, 2015 by Attorney Maria Baler

It’s spring, love is in the air, and weddings abound. For an estate planning attorney, these events conjure up unromantic thoughts of prenuptial agreements. 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.

Whenever clients express concern about protecting assets their child may inherit if the child’s marriage ends in divorce, the first question I ask is whether a prenuptial agreement was signed prior to marriage. These agreements are the single best way to protect inherited assets in the event of divorce.

Here are five facts to know about prenuptial agreements:

If You Brought It You Keep It. A basic prenuptial agreement provides that in the event of divorce, each party to the agreement will leave the marriage with the assets that each brought into the union or inherited during the marriage. If a party owns an interest in a family business or co-owns property with other individuals, the agreement will stipulate that those interests are not subject to division between the parties in the event of divorce. This prevents marital discord from impacting those assets and the other owners. The agreement will also address the division of any jointly held assets in the event of divorce

Follow the Rules. A prenuptial agreement must be created with an eye towards whether the agreement will be enforceable if the parties divorce. Understandably, the parties to a prenuptial agreement do not anticipate divorce occurring, and may not approach the creation of the agreement with the seriousness which is warranted. This is especially true if the agreement is being negotiated in the midst of wedding planning and the couple is under pressure from their parents to sign the agreement. However, Massachusetts courts have established very clear parameters that must be followed for a premarital agreement to be enforceable if and when the time comes for the agreement to do what it was created to do – protect assets.

Separate Counsel Essential. When creating and negotiating a prenuptial agreement, it is mandatory that both parties have their own attorneys. To many happy couples, it seems like a waste of time and money to meet and confer with separate lawyers. However, this ensures each party understands how the terms of the agreement benefit and obligate them, and ensures the agreement will be enforceable in the future. In order to be enforceable, Massachusetts courts have held that a prenuptial agreement must be fair both at the time the agreement is signed and at the time it is sought to be enforced. Separate counsel also serves to ensure that one party is not overreaching when the agreement is created, which would jeopardize enforceability down the road.

Disclosure of Assets. Each party to a prenuptial agreement must fully disclose his or her assets, including anticipated inheritances. The assets of each party are typically detailed on schedules to the agreement. Full and complete disclosure of assets is also essential to the agreement’s enforceability. If there are particular assets that are important to protect, such as a family business or vacation property, the agreement can be tailored to those particular assets, which the parties may find more palatable.

Timing is Everything. In order to be enforceable, prenuptial agreements must be entered into freely by each party, without coercion or influence from the other party or outside influences. 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. This can be one of the most difficult aspects of creating a valid agreement, as the parties are often busy with pre-wedding planning, which takes up a great deal of their time. This is a good reason to get the agreement out of the way early on in the planning process, so that the months immediately before the wedding can be spent focusing on the big day.

There is no doubt that discussions about prenuptial agreements are difficult and can create tension between a parent and child, between a parent and the child’s future spouse, and between the happy couple themselves. However, the value of these agreements in protecting family assets is significant. Depending on the wealth or potential inheritance each party to the agreement will bring to the marriage, a prenuptial agreement may be a suggestion that both parties, and their parents, can get behind.

Published June 2015

Planning for Long-Term Care & 4/16/15 Senior Wellness Event in South Attleboro

April 1, 2015 by Attorney Maria Baler

Long-Term Care Planning—A Reality Check

For clients in their 60’s and 70’s, looking ahead to the potential need for long-term care is an important topic you should be discussing with your financial advisor and estate planning attorney. Like any other planning topic, education is the first step. Take the time to learn about the different ways people can receive care, and the different options available to pay for needed care. Then, make sure you do not reach conclusions based on what you hear on the radio or what your neighbor or your mother’s best friend did – look at your own family, financial and health situation, your own family history, and determine what type of plan is right for you. We have all seen and heard the ads encouraging people to plan before it’s too late and before they “lose everything” to the nursing home. Sometimes planning to protect assets is necessary and appropriate, but a threshold question is “Who are you protecting assets for?” Although it may feel selfish, when it comes to long-term care planning, you need to think of yourself first. Keeping control of your assets may the best way for you to ensure you will receive the care you need, where you want to receive it. For some people, long-term care insurance is an appropriate part of their long-term care plan. As with long-term care in general, education is the key before you reject long-term care insurance out of hand because it is “too expensive.” To get you started, read this article where our own Steve Samuel and local long-term-care insurance expert Tobe Gerard are quoted.

Senior Wellness Event—4/16/15 at Cardi’s Furniture Community Room in South Attleboro

What matters most to seniors in the US? Don’t miss a FREE and informative event with key industry experts in estate and long-term care planning, home care and assisted living facilities, rehab and skilled nursing facilities, durable medical equipment and much more! SSB’s Senior Associate, Pamela B. Greenfield, will present on critical estate planning documents for seniors. For more information click here.

Published April 2015

Five Things You Should Know About Family Mediation

March 3, 2015 by Attorney Maria Baler

As an estate planner, I have the opportunity to observe all varieties of family dynamics. No matter how much parents want their children to get along, this is not always the case. Sometimes, unpleasant family dynamics are the result of longstanding issues between siblings, or between parents and children. Other times they are the result of a recent specific incident or situation; for example, one child is resentful that she is providing assistance to an aging parent while another child who resides out of state provides little assistance but does not hesitate to criticize what her sister does for their parent. Sometimes these disputes simmer below the surface and sometimes they boil up into full blown hostilities. In all cases, these issues can stand in the way of family members working together cooperatively to make necessary decisions regarding family matters such as how to divide up the contents of a parent’s home or where an elderly parent should receive care.

Most people know that mediation is a method to help people resolve disputes, and that it is often used as an alternative to litigation in business disputes or divorce. A less well known but growing area in the mediation world is Adult Family and Elder Mediation, which helps families reach consensus on family issues. Here are five things you should know about family and elder mediation:

How Does Mediation Work?

Mediation is a problem-solving process that is facilitated by a trained professional mediator who is neutral and impartial. Family members voluntarily agree to come together and work with a mediator to resolve a particular issue or discuss a difficult situation. The mediator speaks separately with each family member and then facilitates one or more joint family discussions. During the mediation process, the mediator will help the family identify topics and issues important to each of them and assist the family to discuss them in a productive way. Mediation considers each participant’s needs, concerns, goals, and priorities, and each participant has an opportunity to share her ideas and to be heard. The mediator will also help the family identify the information the family needs to make an informed decision about the topic in question (including guidance from elder law and estate planning attorneys, accountants, financial planners, geriatric care managers, or other substantive experts). Participants in mediation make all substantive decisions together, by consensus.

What Types of Issues Can Be Mediated?

Mediation can help families resolve all types of issues that arise in a family setting. For example, topics for discussion and resolution may include:

family members’ caregiving roles, responsibilities, and/or compensation
financial oversight and management
selection of residential living options
estate planning
estate disputes
selection of who will serve as power of attorney, health care proxy and/or trustee
family vacation homes
inheritance of valuable or treasured family collections, photos, heirlooms, jewelry or other items
whether an elderly parent should continue to drive
choices regarding end-of-life care
how the family communicates and shares information.

Why Should My Family Consider Mediation?

Unresolved family issues can result in long-lasting family rifts. Mediation helps families preserve their relationships and diffuse difficult family dynamics. The process allows families who have difficulty resolving family issues to reach a consensus and move forward. The mediator keeps the conversation on track and provides a neutral and safe forum for each family member to share thoughts and concerns on a particular issue and to listen to fellow family members do the same. Mediation helps to avoid crisis-driven decision-making and gives families tools for resolving future issues that arise. Mediation is also less costly, less time consuming and less stressful than litigation or other adversarial processes.

What Can We Hope to Achieve?

With the help of a trained mediator, the mediation process can help family members hear one another more easily and more fully understand one another’s perspectives, even if they do not always agree. Over the long term, families can reduce stress and tension, improve communication with each other, and learn to work together productively to address issues as they arise. A mediator can help a family to develop strategies for working together productively. Not only does this help preserve family harmony, but it allows families to make decisions that are in the best interest of their aging parent, without judgment being clouded by individual agendas and issues not relevant to the problem at hand.

How Do We Take the First Step?

If you are interested in exploring mediation for an issue or situation that is affecting your family, contact an experienced family mediator. A good place to start is the website of the Massachusetts Council on Family Mediation (www.mcfm.org), which allows you to search for a family mediator in your area. From there, you can consult with the mediator to determine if they specialize in the area in which you require assistance. A local firm that specializes in issues common to elders and their families is the Centre for Mediation & Dispute Resolution in Wellesley, which can be found at www.cmdronline.com.

March 2015

Attorney Maria C. Baler is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC. 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. For more information, visit www.ssbllc.com or call (781) 461-1020.

Planning to Protect your Family from the Unexpected

February 1, 2015 by Attorney Maria Baler

Estate planners see the world through a different lens. When the news broke of the tragic death of a young and gifted Boston cardiac surgeon last week, my first reaction was sadness and sympathy for his family. My next thought was: “I hope he has a good estate plan.” What I meant was – Did he have a Will that nominated his wife as legal guardian and conservator of their minor children? Did he have life insurance that will provide his family with funds to continue to live the life they are accustomed to and to ensure his children can be educated? His wife, also a physician, may earn a good income, but will she be able to continue to work while raising four small children? Was planning done to shelter funds from estate tax? Were trusts put in place to manage assets for his children in the event their surviving parent dies unexpectedly?

These are admittedly unusual things to think about when hearing of a stranger’s death, but that’s where the estate planner’s mind goes. Over the years that I have been planning for families, I have seen the benefits of planning when the death of a young parent occurs. Because this is thankfully not a common occurrence, planning for the death of parents with young children may feel like a theoretical exercise. However, the impact of the failure to plan if death does occur at a young age, especially if young children are left behind, can be significant and long-lasting.

From a legal perspective, the two most important things an estate plan can do for a young family are:

Establish Wills that name a guardian who will care for and make decisions for children until they turn 18, when they become adults in the eyes of the law. Creating a Will gives a parent the opportunity to choose a child’s guardian. Without a Will, family members, friends, or others who believe they should fill that role will apply for the position, and a judge will decide who the child’s guardian will be.
Establish a Trust that will allow inherited assets to be managed and disbursed to children at appropriate ages. This ensures that a child will not have full control of an inheritance at age 18, and that funds will be available and can be used for college, the purchase of a first home, a wedding, graduate school, and other important purposes, rather than being spent in less appropriate ways. A trust can also protect assets from creditors, divorcing spouses and other liabilities common to young adults who may not be mature enough to handle money appropriately.

Read more about how an estate plan can benefit a young family in Five Planning Steps You Should Take for Your Children.

Hand in hand with legal planning is the financial planning that young families should do. An important component is making sure a parent has sufficient life insurance to replace the parent’s income so that the family’s lifestyle and ability to provide for their children’s future will not be compromised.

Things change quickly in a young family’s life. Estate planning can seem like a daunting task. I advise young families to plan for the present, and update their plan as their lives change and their children grow older. It is most important to create a plan that will protect your family now, should the unexpected happen.

Published February 2015

Five Things You Should Know About Gifting

January 2, 2015 by Attorney Maria Baler

In addition to the usual gifts given during the holiday season, the end of the year is a time when many people make monetary gifts to family members and to charity. Gift giving makes the giver and the recipient feel good. From an estate planning and tax planning perspective, gifts are generally a good idea as well. Here are five things you should know about gift giving:

Gift Tax Rules on Gifts. When making gifts, you must keep the federal gift tax rules in mind (there is no Massachusetts gift tax). An important concept is the “annual exclusion,” which is the amount a person may gift to another person in a calendar year without gift or other tax consequences. In 2014, the annual exclusion amount was $14,000 and this will not change in 2015, although the annual exclusion is indexed for inflation and periodically changes in January when appropriate.

Gifts of more than the annual exclusion amount in a calendar year result in no income tax implications to the gift recipient. However, such a gift is considered a “taxable gift” by the gift giver, who must file a federal gift tax return reporting the gift made. Under current gift and estate tax rules, a gift giver may give up to $5.43 million (in 2015) of taxable gifts during her lifetime without paying a gift tax; however gift tax returns must be filed to allow the IRS to keep track of the taxable gifts made over the gift giver’s lifetime. At the gift giver’s death, taxable gifts made during her lifetime must be reflected on the federal estate tax return filed by her estate, if one is required to be filed. The value of each taxable gift at the time the gift was made is part of the federal estate tax computation done to determine the amount of federal estate tax payable at the gift giver’s death. For Massachusetts estate tax purposes, taxable gifts are taken into account when determining if an estate tax return must be filed, but no estate tax is paid on the gifted assets.

Keep in mind that if the gift giver gives a gift of a capital asset, such as real estate or stock, the gift recipient’s basis in the gifted asset for capital gain tax purposes is equal to the gift giver’s basis. If the gift recipient sells the gifted asset after receiving the gift, he will pay capital gain tax on the difference between his basis and the sale price. Therefore, before making a gift of highly appreciated property, consider and analyze the gift, estate, and capital gain tax implications.

Medicaid Rules on Gifts. If a gift giver is at an age, or has health issues, that could potentially require nursing home care in the next five years, any consideration of gift giving must take into account the Medicaid transfer of asset rules. Although these rules are often confused with the gift tax rules discussed above, they have nothing to do with each other. Gifts of any size given within five years of applying for Medicaid benefits to pay for nursing home care will disqualify the gift giver from receiving those benefits for a period of time. Under the Medicaid regulations, gifts given for a purpose other than to qualify for Medicaid benefits should not disqualify the giver. In practice, it can be difficult to prove to Medicaid’s satisfaction that the gift was not made with the intent of qualifying for Medicaid benefits. For this reason, gifts of any size made by a person who is likely to require Medicaid benefits within the five-year period after making a gift should be given with caution. The average cost of nursing home care in Massachusetts is about $132,000 per year, or $11,000 per month. Unless a gift giver has sufficient means to pay for the cost of her care from her income or assets, or has long-term care insurance to pay for or supplement other sources of payment for her care, consideration must be given to qualification for Medicaid benefits if gifts are to be made.

Tax and Estate Planning Reasons to Make Gifts. Besides giving the gift giver a warm feeling and making the recipient happy, there are other reasons to make gifts. From an income tax perspective, transferring income-producing property, like stock, reduces the gift giver’s taxable income (i.e. dividends on the gifted stock) and shifts that income to the gift recipient. If the recipient is in a lower tax bracket than the giver, the income tax payable on that income is reduced. Making gifts also reduces the value of the gift giver’s overall estate for estate tax purposes. If the gift giver’s estate is “taxable” (i.e. over $1 million for Massachusetts estate tax purposes, or over $5.43 million for federal estate tax purposes), giving gifts during her lifetime will reduce the estate tax payable by her estate at her death. For Massachusetts estate tax purposes, the assets on which estate tax is calculated at your death are reduced by making gifts, thereby saving estate taxes for your heirs. For federal and Massachusetts estate tax purposes, if the gifted asset appreciates in value after the gift is made, that appreciation in value will escape estate tax at the gift giver’s death.

Reasons Not to Make Gifts. Before making a gift, the gift giver should carefully consider whether she can afford it. The gift giver should not give away assets that she believes she will need in the future to support herself or provide needed care. Once a gift is made, the gifted assets are out of the giver’s control, and the gift recipient is free to spend, transfer, or sell the gifted assets. The gift recipient may promise to hold those assets and return them to the giver or pay for the giver’s care with those assets if necessary. However, the gift recipient may not be able to follow through on those promises, intentionally or unintentionally, due to, for example, divorce, bankruptcy, or creditor issues. This situation can put the gift giver in a difficult situation if care is needed and the giver’s assets or other resources are not sufficient to pay for the care required. As discussed above, a gift giver should also not make a gift if by doing so she will disqualify herself from receiving Medicaid benefits she may need in the future. Every family dynamic is different, and some family members who may not have sufficient assets or income to support their own lifestyles perceive others as a resource that can be tapped to support themselves. Giving assets to others without regard to the gift giver’s future needs is not wise, regardless of the pressure the giver may feel to help loved ones.

Charitable Gifts. Charitable gifts have added tax benefits. Charitable gifts made during the gift giver’s lifetime, in addition to reducing the giver’s taxable estate, will also reduce the giver’s income taxes because amounts given to charity are deductible for income tax purposes. If charitable gifts are made at death, they will reduce the estate tax payable at death. When giving gifts to charity, confirm that the charity is legitimate, and understand how much of the gift will be used for charitable purposes rather than the charity’s administrative costs. Consult guidestar.org, www.charitynavigator.org, or www.charitywatch.org for information about charities and how funds are used.

Gifts can be smart for estate and tax planning reasons and are always welcome by the gift recipient. Be thoughtful about the gifts you make and understand the tax and other implications before you decide to make a gift. If you are at all uncomfortable about making a gift, take a step back and reassess the situation. If you have questions or are uncertain of the implications of a particular gift be sure to obtain advice from your accountant or estate planning attorney.

January 2015

Long-Term Care Awareness Month

December 2, 2014 by Attorney Maria Baler

It’s hard to believe we are now in December! November – which passed by in a flurry of leaf raking, turkey and stuffing – was Long-Term Care Awareness Month. Although it is no longer November, this is a topic worth writing about.

Planning for long-term care is something everyone age 50 and over should have on their radar. It is just as important as making sure you have an updated estate plan and that your financial house is in order. Long-term care encompasses care provided in many different settings – for example, in your home, in an assisted living facility, or in a nursing home. It may surprise you to know that, according to the Commonwealth, a 65 year old man has a 33% chance of a nursing home stay during his lifetime. For a 65 year old woman, this probability increases to 52%. It is likely that these probabilities will increase in the future as we all live longer and are likely to need some type of care or assistance. Here is a U.S. News and World Report article on the topic.

For those of you who are lucky enough not to have come face to face with the reality of long-term care in your personal lives so far, I encourage you to educate yourself about this issue. Consult with your legal and financial advisors to learn about how you and your family would be impacted if you required long-term care and the steps you can take to plan for it. The biggest hurdle most people face in planning for long-term care is its cost. The Commonwealth of Massachusetts’ Division of Insurance publishes a great consumer guide on Financing Long-Term Care, which can be found here.

There are endless ads on the radio and seminars offered in your local hotel ballroom on long-term care planning, usually with an emphasis on Medicaid planning. Medicaid planning refers to the planning that can be done to allow you to qualify for Medicaid benefits (also known as MassHealth benefits in Massachusetts) to pay for your nursing home care. Medicaid is a state and federal program that pays the long-term care costs for individuals who meet the eligibility criteria. You can read more about Medicaid here. There are many strategies that can be used to protect assets from having to be used to pay for long-term care costs. However, these strategies are not appropriate for everyone, and in many cases can do more harm than good.

Long-term care insurance is an important option which should be considered in long-term care planning. This insurance will provide an added resource to pay for care that will slow down the rate at which you will have to use your own income and assets. It could also give you time to do other planning if appropriate. The cost of long-term care insurance increases with age, making it expensive to postpone the decision to purchase if you decide that insurance is an appropriate component of your long-term care plan. The cost of long-term care insurance is also dependent on your health, adding an additional risk to postponing the decision to purchase.

The best way to approach long-term care planning is to seek the advice of an experienced elder law attorney who can assess your particular situation, present your options, and help you make the decision that’s best for you. It is important to note that the decision that’s best for you may not be the one that’s best for your children. Retaining control of your assets so that you can use them to pay for the care you need in a place you choose may not result in “protecting” assets for your children, but it could ensure you a better quality of life.

Published December 2014