Attorney Maria Baler

Proposed Expansion of Medicaid Estate Recovery

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Maria_144pxHave you ever wondered how you would pay for long-term nursing home care (at a cost of $350 to $500 a day or more)?  Medicaid, also known as MassHealth in Massachusetts, pays for nursing home care for those who do not have assets to pay for their care.  An individual applicant can have no more than $2,000 of countable assets to qualify for Medicaid benefits.  A married individual’s spouse who lives in the community may own up to approximately $120,000 of countable assets.  The home of a Medicaid applicant is considered a non-countable asset, and may be owned by an individual, or a married couple, without impacting eligibility.

Under current law, if a Massachusetts resident over the age of 55 receives Medicaid benefits, whether for care in the community or to pay nursing home costs, the Commonwealth may recover those costs from the recipient’s probate estate at death.  This is called “estate recovery.”  Probate assets do not include assets that are owned jointly with another person, or are owned by a trust, or a home in which the Medicaid recipient may have a life estate interest.

Governor Baker’s Fiscal Year 2017 budget includes a proposal that would expand estate recovery to allow Medicaid claims to be made against any asset in which the deceased owned an interest at the time of death.  This would include jointly held bank accounts, real estate owned jointly by the deceased and the surviving spouse, and real estate in which the deceased owned a life estate interest or which was held in an irrevocable trust. This proposal is a serious and significant departure from previously settled Medicaid law and will have wide-ranging impact on surviving spouses and families of Medicaid recipients.  The proposed law would apply to any Medicaid recipient who becomes eligible for benefits after July 1, 2016, even if planning was done years ago.

Governor Romney made a similar proposal in 2003, which was enacted but repealed a year later after attempted implementation resulted in recognition that the law was seriously flawed and had significant unintended consequences.  More recently, New York State had a similar experience.  For more information about this proposal and how to reach out to your state legislators to register your objection, visit our Proposed Changes to MassHealth Estate Recovery Rules page.

Five Ways Governor’s Proposed Budget Will Impact Senior Homeowners

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Maria_144pxHave you ever wondered how you would pay for long-term nursing home care at a cost of $350 to $500 a day or more?  Medicaid, also known as MassHealth in Massachusetts, is the combined federal and state benefit program that pays for nursing home care for individuals who do not have assets to pay for their care.  An individual applicant can have no more than $2,000 of countable assets in order to qualify for Medicaid benefits.  A married individual’s spouse who lives in the community may own up to approximately $120,000 of countable assets.  The home of a Medicaid applicant is considered a non-countable asset and may be owned by an individual, or a married couple, without impacting eligibility.

Under current law, if a Massachusetts resident over the age of 55 receives Medicaid benefits, whether for care in the community or to pay nursing home costs, the Commonwealth may recover those costs from the recipient’s probate estate at death.  This is called “estate recovery.”  Probate assets do not include assets that are owned jointly with another person, or are owned by a trust, or a home in which the Medicaid recipient may have a life estate interest.

Governor Baker’s Fiscal Year 2017 budget includes a proposal that would expand estate recovery to allow Medicaid claims to be made against any asset in which the deceased owned an interest at the time of death.  Here are five ways this proposed change to the estate recovery law could impact you:

  1. Recovery against Property in which a Medicaid Recipient holds a Life Estate. A life estate is an interest in real estate that allows the “life tenant” to live in a property or collect any rental income the property generates.  The life tenant is responsible to pay property taxes and maintain the property during his lifetime.  Many parents who are concerned about protecting their home or its value for children will transfer their home to their children (holders of the “remainder interest”) and reserve a “life estate” that will ensure they can live in the property for their lifetime.  At the death of the life tenant, the life estate ends and the property is owned by the holders of the remainder interest.  Under current law, if the life tenant receives Medicaid benefits during his lifetime, the property is not subject to estate recovery because the property will not be part of the life tenant’s probate estate.  Governor Baker’s proposal would allow the state to file a claim against real estate in which a deceased Medicaid recipient held a life estate interest immediately before death, and recover the value of that life estate interest from the remainder interest holders.
  1. Recovery Against Assets held in Irrevocable Trusts. The same principals apply to real estate or other assets owned by an irrevocable trust created for the purpose of transferring assets in trust to children or other family members.  Often, the person who establishes the trust retains the right to receive the income generated by the trust assets for his lifetime, or in the case of real estate, the right to live in the property.  Under Governor Baker’s proposal, the state would be able to make a claim against the irrevocable trust assets to recover Medicaid benefits paid on behalf of the person who establishes the trust to the extent of their interest.  How that person’s interest in the trust would be valued is unclear.
  1. Recovery Against Joint Tenancies. Life estates and irrevocable trusts are typically strategies used by individuals who have taken steps to protect assets from liability for future long-term care expenses.  However, almost every married couple owns their home jointly (either as joint tenants or tenants by the entirety), whether or not they have ever thought about planning for long-term care.  Joint ownership ensures that the surviving spouse will automatically become the owner of the jointly held property at the death of the first spouse, without the need for a probate proceeding.  The survivor is free to sell or mortgage the property, or continue to live there.  Governor Baker’s proposal will jeopardize the surviving spouse’s security in the home by permitting the state to place a lien against the home of a married couple for Medicaid benefits paid on behalf of one spouse.  If the surviving spouse wants to sell the home (whether to downsize, move closer to children, or move to assisted living), she will have to address the state’s lien. This will have a far-reaching negative impact on surviving spouses, many of whom have no significant assets other than the home, especially if their spouse has received nursing home care for several years.
  1. Impact on Real Estate Titles. Apart from the risks to the home, the Governor’s proposal will create serious title problems for Massachusetts real estate.   Because the Governor’s proposal will allow the state to lien real estate, this will create uncertainty as to whether the title to property is clear.   Anything that could create a “cloud” or a question about whether a property owner has clear title to property will have a severe negative impact on the owner’s ability to sell or mortgage the property.  This proposed law, if enacted, has the potential to wreak havoc with the ability of owners to buy, sell or mortgage real estate if an owner (even a deceased owner) has received Medicaid benefits.  Potential buyers may shy away from properties where this is an issue.  Serious delays are likely to occur when closings are held up until surviving spouses or other owners negotiate with the state to release liens or claims on the property.  Since ‘time is of the essence’ in almost every real estate sale, this has the potential to be a real disaster. This is just one example of the far-reaching impact of this proposal.
  1. Lack of Grandfathering. Governor Baker’s proposal will make these new estate recovery rules applicable to anyone over the age of 55 who becomes eligible to receive Medicaid benefits after July 1, 2016.  This aspect of the proposal penalizes those who have planned in advance for the possibility of long-term care by conveying property to their children reserving a life estate or by transferring assets to an irrevocable trust they created many years ago, in reliance on current law which would protect those properties from estate recovery. The proposal also penalizes people who have not done any long-term care planning.  In those cases, a surviving spouse who owned property jointly with a Medicaid recipient prior to the Medicaid recipient’s death will be faced with the prospect of a claim by the state against her home for her deceased spouse’s Medicaid benefits. This will impact the surviving spouse’s ability to sell or mortgage that property for the rest of her life.

Although the focus has been on real estate, Governor Baker’s proposal would allow the state to file claims against jointly held bank accounts, assets held in trust, and assets such as IRAs received by a beneficiary after a MassHealth recipient’s death (not including life insurance or annuities).  This proposal is a serious and significant departure from previously settled Medicaid law, and will have a wide-ranging negative impact on surviving spouses and families of Medicaid recipients.  It will significantly impact the planning that elder law attorneys are able to do for their clients, especially with respect to protecting the family home for the benefit of the surviving spouse or children.

Governor Romney made a similar proposal in 2003, which was enacted but repealed a year later by the legislature after numerous attempts at implementation showed that the law was seriously flawed and had significant unintended consequences.  More recently, New York State had a similar experience.

Read more information about the Governor’s proposal and what you can do to register your objection here.

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.

April 2016

Proposed Expansion of Medicaid Estate Recovery

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Maria_144pxHave you ever wondered how you would pay for long-term nursing home care (at a cost of $350 to $500 a day or more)?  Medicaid, also known as MassHealth in Massachusetts, pays for nursing home care for those who do not have assets to pay for their care.  An individual applicant can have no more than $2,000 of countable assets to qualify for Medicaid benefits.  A married individual’s spouse who lives in the community may own up to approximately $120,000 of countable assets.  The home of a Medicaid applicant is considered a non-countable asset, and may be owned by an individual, or a married couple, without impacting eligibility.  The home exemption is a long-standing component of the Medicaid laws and regulations, intended to ensure that the spouses or minor or disabled children of nursing home residents will never lose their home just because a spouse or parent requires nursing home care.

Under current law, if a Massachusetts resident over the age of 55 receives Medicaid benefits, whether for care in the community or to pay nursing home costs, the Commonwealth may recover those costs from the recipient’s probate estate at death.  This is called “estate recovery.”  Probate assets do not include assets that are owned jointly with another person, or are owned by a trust, or a home in which the Medicaid recipient may have a life estate interest.

Governor Baker’s Fiscal Year 2017 budget includes a proposal that would expand estate recovery to allow Medicaid claims to be made against any asset in which the deceased owned an interest at the time of death.  This would include jointly held bank accounts, real estate owned jointly by the deceased and the surviving spouse, and real estate in which the deceased owned a life estate interest or which was held in an irrevocable trust. This proposal is a serious and significant departure from previously settled Medicaid law.  It will have wide-ranging impact on surviving spouses and families of Medicaid recipients.  The proposed law would apply to any Medicaid recipient who becomes eligible for benefits after July 1, 2016.  As such, if you transferred your home to your children 10 years ago reserving a life estate and you become eligible for Medicaid after July 1, 2016, your home will be at risk under the Governor’s proposed budget. If this proposal becomes law, it will significantly impact the planning Massachusetts residents are able to do in the future to protect the family home for the benefit of the surviving spouse or children.

Governor Romney made a similar proposal in 2003, which was enacted but repealed a year later by the legislature after a year of attempted implementation resulted in recognition that the law was seriously flawed and had significant unintended consequences.  More recently, New York State had a similar experience.  The Massachusetts chapter of the National Academy of Elder Law Attorneys (MassNAELA) is working diligently to defeat Governor Baker’s current proposal, which MassNAELA believes will have significant negative impact on the spouses and family members of Medicaid recipients.

For more information about this proposal and how to reach out to your state legislators to register your objection, visit our Proposed Changes to MassHealth Estate Recovery Rules.

Five Reasons to Update Your “I Love You” Will   

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Maria_144pxIn the spirit of Valentine’s Day, our topic for this month is “I Love You” Wills – a Will that leaves everything you own to your spouse outright at your death.  This is the most basic form of Will — one that many couples create when they are young and never consider changing.  On its face, it appears that there would be nothing wrong with such a simple Will.  However, “I Love You” Wills are not appropriate for all couples, and in many cases deprive your spouse and family of the benefits a more sophisticated estate plan can provide.

Here are reasons why your “I Love You” Will may not be the right match for you:

  1. Estate Tax Savings. If you leave all of your assets to your spouse at death, there will be no federal or Massachusetts estate tax payable because of the unlimited estate tax marital deduction available both federally and in Massachusetts.  However, upon the surviving spouse’s death, all of the assets will be subject to estate tax.   An estate tax will be payable to the Commonwealth if the value of those assets exceeds $1 million.  If, instead of leaving all of your assets to your spouse, you left your assets to a properly drafted Trust for your spouse’s benefit, you could shelter up to $1 million of assets from Massachusetts estate tax.  For many families, this can save $100,000 or more in estate taxes that your children or heirs would otherwise have to pay at your spouse’s death.
  1. Long-Term Care Planning. If your “I Love You” Will leaves all of your assets to your spouse at your death, those assets (with limited exceptions) will be considered “countable” assets if your spouse requires long-term nursing home care and applies for MassHealth (Medicaid) benefits to pay for that care.  A single person can have no more than $2,000 of countable assets in order to qualify for MassHealth.  This means your spouse will need to spend down all of those countable assets on his or her care before being eligible for MassHealth benefits.  Alternatively, you can create a Will that leaves your assets to a so-called “testamentary trust” for your spouse’s benefit.  A properly drafted testamentary trust will allow the trust assets to be used for your spouse’s benefit during your spouse’s lifetime, but those trust assets will not be countable should your spouse require long-term nursing home care after your death.  This not only makes qualification for MassHealth benefits easier, but means the trust assets can be used to provide items or services for your spouse that MassHealth does not provide.  This may improve the quality of your spouse’s life long after you are gone.
  1. Asset Protection. If your spouse is not experienced at managing money, or if your spouse is among the many people who are vulnerable to spendthrift tendencies or other vices that make it hard for them to hold on to money, an “I Love You” Will is a recipe for disaster.  After your death, all of the assets will be in the control of your surviving spouse and will be vulnerable to the survivor’s spending habits and their all-too-frequent trips to Foxwoods.  Or perhaps your surviving spouse is just too nice for her own good and would be vulnerable to the pleas of children, grandchildren, or friends who are down on their luck to “loan” funds that are never repaid.  Consider whether leaving your assets (or at least a portion of them) in trust for your spouse and naming a Trustee (a responsible family member or friend) to manage money for your spouse may be a better alternative.  Your spouse may lose some degree of control, but you can rest easier knowing that assets will be there to meet your spouse’s needs, and that your spouse won’t be the victim of financial exploitation, creditors, or her own spending habits.
  1. Second Marriage – If you are among the lucky ones to have Cupid’s arrow hit home multiple times, an “I Love You” Will is probably inadequate to meet your needs. If you have children from your prior marriage, you may want to leave some or all of your assets to them, and your spouse may want to do the same for his or her children. In such a case, an “I Love You” Will that leaves all of your assets to your surviving spouse is not appropriate even if your spouse promises to leave the assets to your children at her death.  The needs of the surviving spouse’s own children, a new spouse, financial exploitation, or long-term care needs can derail even the most sincere of promises, and leave children from a prior marriage with nothing.

 

  1. Avoiding Probate – Even if you want your surviving spouse to have full control of all of your assets at your death, an “I Love You” Will is a public, costly and time-consuming way to achieve that result. Your Will will be filed with the probate court after your death, and any assets owned by you in your individual name will be subject to a probate proceeding.  This process, although effective, can take a year or more to complete and means spending money on attorneys’ fees, publication costs, filing fees, and other expenses.  Passing your assets to your intended beneficiaries outside of probate will reduce the time, costs, aggravation and loss of privacy typically associated with the probate process.

If you and your spouse created “I Love You” Wills many years ago, it is definitely time to review them and probably time for a change.  Love may be blind, but your estate plan should see you through all of life’s twists and turns.  Talk to an experienced estate planning attorney, who can help you create a plan that’s appropriate for your family.

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.

February 2016

Health Care Proxies and Hospitalizations

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Maria_144pxA Health Care Proxy is one of the most important estate plan documents you can create.  It names an individual to make health care decisions for you in the event a doctor determines that you are unable to make or communicate your own health care decisions.  Under those circumstances, the Health Care Agent you name in your Health Care Proxy will step into your shoes and make health care decisions on your behalf.  The Agent is required to make decisions based on the agent’s understanding of your wishes.

A Health Care Proxy is crucial in making sure you receive the type of care you want, and that decisions about care, medications, location of treatment, etc. are made by someone you trust and have chosen in advance.  If you are unable to make your own health care decisions and you do not have Health Care Proxy, a guardianship proceeding will be required in the Probate Court so that the Court can appoint a legal guardian who will have the authority to make health care decisions for you.  As you might suspect, this is a time consuming, expensive, and public process.  Worst of all, it may mean that someone whom you would never have chosen to make these types of decisions is given control over your health care.

A Health Care Proxy created by your estate planning attorney will usually be more comprehensive than one you create using a basic Proxy form obtained online or provided by your physician.  These more comprehensive Proxies often name multiple agents in succession to address the possibility that the first-named Agent is unable to act, state your wishes about organ donation, and give extensive and important additional powers to the Health Care Agent which allow your Agent to make decisions beyond what the basic Proxy may permit.  This additional authority can help avoid a guardianship proceeding to seek authority to take health-care related actions that are not authorized in the basic Proxy form.

If you have a Health Care Proxy it is important that you give a copy of it to your primary care physician, and that you bring a copy of your Proxy with you when you are admitted to the hospital. Hospital admissions folks often ask patients if they have a Health Care Proxy, and if the patient says ‘no’, the admissions clerk offers them one to sign on the spot.  If you have an existing Proxy, your doctor or the hospital will gladly accept that document.  However, if you forget that you have created a Proxy, or forget to bring the document to the doctor or hospital, you will be asked (or in the case of hospital admission, required) to complete a new Proxy, which will automatically and perhaps inadvertently revoke your existing Health Care Proxy.  This is a bad result since the Proxy you carefully and thoughtfully prepared and which is far more comprehensive than the hospital or doctor’s form is invalidated by the hospital’s form.

Any time you are seeing a doctor to whom you have not already provided your Proxy, going into the hospital, even if it’s only for a test, or beginning a course of treatment such as physical therapy, bring a copy of your Health Care Proxy with you and ask the provider to make it part of your medical records.  This is the best way to insure that the person you have selected to make health care decisions for you will be able to so if necessary.

January 2016

Five Reasons to Call Your Estate Planning Attorney

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Maria_144pxEstate 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!

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Maria_144pxSending 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 Year2From 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     

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Maria_144pxYour 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:

  1. 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.
  1. 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.
  1. 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.
  1. 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.
  1. 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.

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.

August 2015

Consider the Impact of an Inheritance

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Maria_144pxIt 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 

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Maria_144pxIt’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:

  1. 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
  1. 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.
  1. 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.
  1. 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.
  1. 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.

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.

Published June 2015

Wills • Trusts • Elder Law • Long-Term Care Planning • Estates

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