Attorney Maria Baler

Five Answers to Your Questions about Using Trusts to Save Estate Taxes

November 1, 2018 by Attorney Maria Baler

Although all citizens or residents of the United States are subject to the federal estate tax at death, the current federal estate tax exemption of $11.2 million per person means that most of us will not pay a federal estate tax at death. However, Massachusetts has the distinction of being one of only 18 states to impose a separate state estate or inheritance tax on the estates of its residents at death. Massachusetts and Oregon are tied for the lowest amount ($1 million) you can leave tax-free at death. This means that if you live in Massachusetts and own assets valued at more than $1 million, your estate, or your spouse’s estate, will likely pay Massachusetts estate tax at death without proper trust and estate planning.

As anyone who lives in Massachusetts knows, it is not difficult to amass an estate valued at more than $1 million – add up the value of your home, retirement accounts, life insurance, bank and investment accounts and you have calculated the value of your “estate” for estate tax purposes. With tax rates ranging from 6.4% (for estates just over $1 million) to 16% for estates in excess of $10 million, the tax bill can be significant.

What can be done about this? One way married couples in Massachusetts can reduce or eliminate estate tax at death is to use credit shelter trusts. Here are five things to know about these types of trusts:

What is a Credit Shelter Trust?

A so-called “credit shelter trust” is a type of revocable living trust created by married couples. One of these trusts is created by each spouse. The purpose of these credit shelter trusts is to reduce the value of the assets that are owned by the second member of a married couple to die, thereby reducing or eliminating the estate tax payable at the second spouse’s death.

How do Credit Shelter Trusts Work to Save Estate Tax?

A married individual may leave an unlimited amount of assets to his or her surviving spouse at death without paying any estate tax. Similarly, an unlimited amount of assets may be left to charity estate tax free at death. Finally, in Massachusetts, up to $1 million of assets may be left to any person or entity (other than your spouse or charity) without paying any estate tax. Assets in excess of $1 million left to anyone other than your spouse or charity will be subject to estate tax. Because of this, at the death of the second member of a married couple, when assets are passing to children or other heirs, significant estate tax may be due. Credit shelter trusts work by holding or “sheltering” up to $1 million of assets in the trust of the first spouse to die following the first spouse’s death. The surviving spouse may serve as the Trustee of the deceased spouse’s trust, and may use the trust assets as needed. However, because those assets are not “owned” by the surviving spouse they are not “taxable” in the surviving spouse’s estate.

What type of Assets Can be Used to Fund a Credit Shelter Trust?

In order for credit shelter trusts to work as intended, each spouse must own assets in his or her own trust, or structure assets so that assets automatically flow into the trust of the first spouse to die at his or her death. Any amount of assets can be held in each spouse’s trust, however the maximum amount that can be sheltered from estate tax for Massachusetts purposes is $1 million. Trust assets in excess of $1 million will typically be held in a sub-trust that will qualify for the marital deduction (so that estate tax on those assets is deferred until the surviving spouse’s death). Assets such as cash, investments, residential or commercial real estate and life insurance are all great assets to use to fund a credit shelter trust. Retirement accounts (such as IRAs, 401(k)s, 403(b)s, etc.) are typically not used to fund a credit shelter trust as the income tax advantages of paying these assets directly to the surviving spouse may be lost.

What is Involved in Creating a Credit Shelter Trust?

Meet with an experienced trust and estate planning attorney to discuss whether your estate will be subject to estate tax at death, how much estate tax will be payable by your heirs, whether you have assets appropriate to fund a credit shelter trust, and how much estate tax can be saved by creating an estate plan that includes credit shelter trusts for you and your spouse. If you decide to proceed, the estate planning attorney will prepare credit shelter trusts for both spouses, along with so-called “pour-over” Wills that direct any probate assets into the trusts at death. Your trust and estate planning attorney should provide you with detailed instructions about how to “fund” your trusts – which means changing the ownership or beneficiary designation on your assets so that the appropriate assets are either owned by or payable to your respective trusts at death. A final and most important step is for you to follow those instructions and fund your trusts appropriately. It is not unusual for credit shelter trusts to be created but not funded. Unfortunately, if credit shelter trusts are not funded the anticipated estate tax savings will not be achieved.

How much Estate Tax can be Saved by Using Credit Shelter Trusts?

Depending on the value of your assets, creating and properly funding credit shelter trusts can reduce or eliminate the Massachusetts estate tax payable at the death of both spouses. A couple of examples will illustrate the tax savings credit shelter trusts can accomplish. Example #1: Jim and Sue have assets of approximately $1.5 million. If all assets are owned jointly or left to the surviving spouse at the first spouse’s death, the surviving spouse will have $1.5 million of assets at her death and will pay Massachusetts estate tax of approximately $70,000. If instead the first spouse to die leaves $700,000 of assets in a credit shelter trust for the benefit of the surviving spouse, the surviving spouse will have a taxable estate of only $800,000 ($1.5 million minus $700,000), and no estate tax would be payable at the surviving spouse’s death. In this example, creating and funding credit shelter trusts will save Jim and Sue’s family $70,000 in Massachusetts estate tax. Example #2: Bob and Jean have assets of approximately $5 million. If all assets are owned jointly or left to the surviving spouse at the first spouse’s death, the surviving spouse will have $5 million of assets at her death and her estate will pay Massachusetts estate tax of approximately $400,000. If instead the first spouse to die leaves $1 million in a credit shelter trust for the benefit of the surviving spouse, the surviving spouse will have a taxable estate of only $4 million ($5 million minus $1 million), and $290,000 of estate tax would be payable at the surviving spouse’s death, a savings of $110,000.

Credit shelter trusts are an important trust and estate planning option and a staple of the estate planning attorney’s toolkit for clients who have a taxable estate. However, the proper preparation and funding of these trusts is crucial to ensure they will work as intended to achieve the desired estate tax savings. If your assets are in excess of $1 million and you live in Massachusetts, you may be able to realize significant estate tax savings by using credit shelter trusts as part of your estate plan. The best place to start is a consultation about your particular situation with an experienced trust and estate planning attorney.

Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.

November, 2018

National Special Needs Law Month – October

October 22, 2018 by Attorney Maria Baler

Many of our attorneys here at Samuel, Sayward & Baler are active in the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). Members of the National Academy of Elder Law Attorneys (NAELA) are attorneys who are experienced and trained in working with the legal problems of aging Americans and individuals of all ages with disabilities. Established in 1987, NAELA is a non-profit association that assists lawyers, bar organizations and others. The mission of NAELA is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of people with special needs and people as they age. MassNAELA’s mission is to be a leader in both elder law and special needs law in Massachusetts.

MassNAELA is celebrating National Special Needs Law Month in October by distributing copies of the Special Needs Advocacy Toolkit [link here, but should link to our website page where toolkit can be found]. Attorneys who practice in the area of special needs law assist families in financing care, and provide them with the legal tools for financial management such as powers of attorneys and trusts, as well as understanding Medicare and Medicaid, special needs trusts, and a student’s right to an independent educational plan, housing options, and other issues.

Here at Samuel, Sayward & Baler , we assist clients who have family members with special needs to design an estate plan that will ensure their family member is provided for in ways that protect eligibility for public benefits and address other important issues. We also work with disabled individuals to ensure they have appropriate planning documents in place to allow loved ones to assist them as needed and to manage their own assets if appropriate. Special needs trusts, powers of attorney, health care proxies and HIPAA authorizations are all important documents that we discuss and implement for these clients. If you have questions about the legal documents that you or a family member with disabilities should have in place, please make an appointment to meet with one of our attorneys.

October, 2018

Show Your Estate Plan a Little R-E-S-P-E-C-T

September 14, 2018 by Attorney Maria Baler

Aretha Franklin, the “Queen of Soul” died on August 16, 2018. It has been reported that she died without a Will or Trust. Aretha is in good company, as she has joined the surprisingly long list of celebrities who die without a Will, the most recent of which was Prince.

As an estate planning attorney, I can understand why this happens. A celebrity’s life is complex. They have many different types of assets, multiples homes, and many family and friends who they may have been financially supporting over the years. How do you sort all that out and make final decisions about who gets what? It’s complicated, as are many important things in life. However, many things that are difficult are worth doing. Here’s why it’s important to speak to an attorney experienced in preparing Wills and Trusts about your creating a Last Will and Testament.

If you die without a Will, you are said to die “intestate.” The intestate laws of each state provide a so-called “Will” for those who die without one, as those laws specify who receives your assets if you die without a Will. However, most people do not die intending to rely on the intestate laws for the distribution of their assets, and neither should you. Here’s why:

The intestate laws can be changed by the state legislature at any time. Massachusetts’ intestate laws were changed in 2012. So, even if you know what your state’s intestate laws say today about where your assets would be distributed if you pass away, those laws (and the way your assets are distributed) could change without your knowledge. Further, if a family member passes away before you do, the entire intestate distribution scheme can change. Essentially, leaving the distribution of your estate up to the state intestate law takes the distribution of your estate out of your control.
Certainty is good, both for you and for your heirs. A Will allows you to be very specific about how your assets are distributed and to whom, and leaves no question in the mind of your family about whether this is really what you wanted.
A Will also allows you to name a Personal Representative who is the person in charge of identifying and taking control of your assets after your death, paying debts and taxes, and distributing your assets according to the terms of your Will. If you die intestate, the Court will also need to appoint a Personal Representative, but it will be whoever applies for the job (i.e. your sibling who you would not trust manage $20 responsibly), and not the person you have designated in your Will.
A Will prepared by an experienced estate planning attorney includes administrative provisions that will save your estate time and expense in the estate administration process.
For most people, an estate plan that includes a Trust has added benefits, including avoiding a probate court proceeding at death (with the added bonus of steep filing fees and long delays), keeping distribution instructions private, and the ability to hold assets in trust for young beneficiaries or those who may require assistance with the management of an inheritance.

Although you may be following in the steps of some of the rich and famous if you die without a Will, you and your family will not have the privacy, cost-savings and time-savings benefits that a well-drafted estate plan will provide. Show a little respect to your estate plan and your loved ones and speak with an attorney experienced in preparing Wills and Trusts today!

September, 2018

Five Answers to Your Questions about the Massachusetts Estate Tax (from An Estate Planning Attorney)

September 1, 2018 by Attorney Maria Baler

The Massachusetts estate tax is a little-understood tax that impacts middle-class families in our fair state every year. If you live (and die) in Massachusetts and own a home, a retirement account, and a life insurance policy, there is a good chance that your “estate” is large enough to be subject to estate tax. Here are answers to five common questions about the Massachusetts estate tax.

What is the estate tax and when do I pay it? The good news is that you will never have to pay an estate tax, but your estate will. The estate tax is a one-time tax due on the value of your taxable estate calculated as of the date of your death. An estate tax is payable by your estate before estate assets are distributed to your heirs. This is different from an inheritance tax, where the heirs pay the tax rather than the estate. Your taxable estate consists of all of the assets owned by you (your home, your bank and investment accounts, your retirement accounts) and assets that you can’t necessarily use when you are alive, but that you are able to control the distribution of at your death (think term life insurance). From now until at least 2025 (when the current federal estate tax law sunsets), your estate will not owe a federal estate tax unless your taxable estate is worth more than $11 million ($22 million combined for you and your spouse). However, the Massachusetts estate tax threshold is considerably lower. If your taxable estate (including any taxable gifts made during your lifetime) totals $1 million or more, your estate must file a Massachusetts estate tax return and you may owe Massachusetts estate tax. The return must be filed and the tax paid within 9 months from the date of your death.
How much estate tax will my estate have to pay? Massachusetts estate tax brackets range from 0.8% to 16% (for estates over $10 million). The estate tax is computed in graduated rates based on the total value of the estate. In general, an estate of $1.1 million will pay about $40,000 in Massachusetts estate tax; an estate of $2 million will pay about $100,000 of tax; an estate of $5 million will pay about $400,000.
Are there deductions available to reduce the estate tax? Like the income tax, there are deductions available to reduce the value of your estate that is subject to tax. The two largest are the unlimited marital and charitable deductions that allow any and all assets left to your spouse or to charity to pass free of estate tax. Deductions are also available for funeral expenses, estate administration expenses, and debts (mortgages, car loans, credit card debt, income taxes, etc.) owed by you at the time of your death.
Can I give assets away to avoid paying estate tax? Giving away your assets during life will reduce the Massachusetts estate tax payable at your death. Making large gifts (over $15,000 per year per person in 2018) will likely not allow you to avoid filing an estate tax return if your estate is worth more than $1 million to begin with, which means that you will end up paying estate tax on the assets that you don’t give away, even if those assets are less than $1 million at the time of your death. The gifting rules and how they impact the estate tax are complex. You should seek advice before making large gifts if you are doing so for estate tax reduction purposes. Keep in mind that gifting to reduce the estate tax can end up having significant capital gain tax implications to the recipient if you are not thoughtful about the type of assets you give (like the family vacation home or highly appreciated stock) and the likely disposition of the asset by the recipient. In many cases the capital gain tax rates are higher than the estate tax rates.
What can I do to save estate taxes at my death? Although avoiding the estate tax altogether is difficult if your estate is over $1 million, reducing the tax is not difficult with proper planning. One tax planning strategy commonly used for married couples is to create Credit Shelter Trusts. In Massachusetts, these trusts are used to shelter up to $1 million of assets in trust for the benefit of the surviving spouse at the first spouse’s death. If properly drafted and funded, Credit Shelter Trusts can save $100,000 or more in Massachusetts estate tax at death. If you have a large life insurance policy that you intend to keep in place until your death, transferring that policy to a properly drafted and administered Irrevocable Trust can prevent the death benefit from being subject to estate tax at your death. Of course, taking a great vacation or spending your money in other ways is also a good way to reduce the amount of assets that will be subject to estate tax at death.

Take a moment and consider the value of the assets you own, and whether your estate will be subject to Massachusetts estate tax at your death. Don’t be so quick to say you are not worth $1 million – take the time to add up the value of your home, your bank and investment accounts, your retirement accounts, your life insurance, and anything else of value you may own. If you find your estate is over $1 million, speak to an experienced estate planning attorney about the planning steps you can take to reduce the tax your family will have to pay at your death. They’ll thank you for it.

September, 2018

Five Estate Planning Tips for Newlyweds or Engaged Couples

June 1, 2018 by Attorney Maria Baler

I thoroughly enjoyed watching the Royal Wedding of Prince Harry and Meghan Markle while nibbling on scones and sipping tea in the early hours of last Saturday morning. In both the back-story and the visuals, it was a fairy tale come to life, which is not something you see every day. All of that wedded bliss got me thinking, as many things do, about estate planning and marriage. Here are five important estate planning tips the happy couple should have thought about before tying the knot or should be thinking about now that all that wedding planning is behind them.

Basic Estate Planning is for Everyone. If Prince Harry wants to make sure Meghan inherits all of his assets, he’d better create a Will that will ensure that happens. Your Will does not control assets on which you have beneficiaries designated (see Tip #3 below), but controls assets you own in your individual name – real estate, bank accounts, investment accounts, your car, etc. If you die without a Will, state intestate law will determine who receives your probate assets. For example, under Massachusetts law, if you have a spouse but no children, and one or both of your parents are living, your probate assets may be divided between your spouse and your parents, depending on their value. Creating Powers of Attorney and Health Care Documents are also important to make sure your fiancée or new spouse can participate in financial and health care decisions on your behalf if you become incapacitated (see Tip #4 below).

Marriage Impacts the Interpretation of Existing Wills. Hopefully, Prince Harry already had a Will that left the considerable fortune he inherited from his mother to those he wanted to receive those funds at his death – perhaps his brother (although he probably doesn’t need the money), or his adorable niece and nephews, or maybe to the charities he supports. It is important to remember that although, in Massachusetts at least, your marriage will not automatically revoke an existing Will, it will impact how the Will is interpreted unless the Will was expressly made in contemplation of marriage. In general, if you create a Will and later marry, your surviving spouse will receive a portion of your probate estate (the assets controlled by your Will) equal to what he or she is entitled to receive under the intestate laws (see Tip #1 above), regardless of what your Will says. The intestate laws are complex and distribution of assets depends upon many factors. If you have a Will that was created before you were married and are planning to be or have recently been married, sit down with an estate planning attorney to review how your marriage impacts the distribution of your assets under your current Will, and whether any changes should be made.

Don’t Forget to Change Your Beneficiary Designations Your Will only controls assets that you own in your individual name. Wills do not control jointly owned assets, or assets for which a beneficiary is designated, such as life insurance policies or retirement accounts unless your estate is named as the beneficiary. For many people, life insurance policies and retirement accounts are a significant portion of their assets. When reviewing your estate plan in light of a new marriage, remember to review the beneficiaries you have designated to receive these assets in the event of your death, and change them if necessary to properly reflect your wishes. Federal law protects a spouse’s right to be named as beneficiary of certain retirement plans, which is important because your marriage may revoke an existing beneficiary designation. Also, if you wish to name someone other than your spouse (for example, a child from your prior marriage) as beneficiary of that type of account, your spouse may need to consent.

For Richer, For Poorer, In Sickness and In Health…Powers of Attorney and Health Care Proxies are important estate plan documents that appoint an individual to make financial or health care decisions in the event you are incapacitated or otherwise unable to make those decisions for yourself. If you are newly married, consider creating a Power of Attorney and Health Care Proxy to give your spouse this authority in the event of incapacity. These documents will in most cases avoid a protracted and expensive guardianship or conservatorship proceeding which is necessary when these legal documents are not in place. In addition to decision-making documents, a HIPAA Authorization gives your physician and other health care professionals permission to speak with your spouse or fiancée and is essential if you want that person to have access to information about your medical condition or prognosis in the event of an unexpected medical event. The importance of these documents in avoiding the added stress and delay associated with a court proceeding under what are often difficult circumstances for family members cannot be overstated.

Consider a Pre-Nuptial or Post-Nuptial Agreement to Protect Assets. A pre-nuptial agreement is an agreement between two people intending to be married as to how their assets (or certain assets) will be divided between them in the event of a divorce. It may also address the rights of the surviving spouse in those assets at the death of one spouse. Although the United Kingdom does not legally recognize pre-nuptial agreements (Prince Harry (and reportedly his brother Prince William before him) have refused to sign pre-nuptial agreements prior to their marriages), courts in that country are beginning to take them into account in dividing assets. Massachusetts recognizes pre-nuptial agreements as long as they are created within certain parameters. Massachusetts also recognizes the validity of post-nuptial agreements between spouses, entered into after Pre- or Post-nuptial agreements can be particularly effective in a limited way to ensure that if either spouse receives gifts or an inheritance from a parent prior to or during the marriage, that those inherited assets will remain the property of the spouse who inherited those assets and will not be subject to division in the event of a divorce. Full disclosure of assets (including any prospective inheritance) and separate attorneys for each party are among their requirements for a valid pre- or post-nuptial agreement in Massachusetts. However, if protecting assets a party brought into the marriage or expects to inherit during the marriage is a priority, a pre- or post-nuptial agreement is an important planning option.

Death, divorce, incapacity and estate planning are issues that young couples do not spend a lot of time thinking about. However, taking the time to craft an estate plan now can go a long way toward ensuring that the happy couple will be prepared for the bumps in the road that will inevitably arise. Here’s wishing that Harry and Meghan and all of the newlyweds who will marry this summer live Happily Ever After.

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

June, 2018

Estate Plans go Hand in Hand with Travel Plans

May 23, 2018 by Attorney Maria Baler

Vacation season is upon us, and in my experience, the prospect of boarding a plane is a great motivator to review my estate plan. Although (in 31 years of practice) I have not lost a vacationing client, I understand the anxiety that vacation travel can provoke.

If you are planning a vacation this summer and it has been more than a few years since you reviewed your estate plan, take the time to do so before you leave. Here are a few questions to ask yourself. Are the people named in your Will as guardians of your children and as the executor (now called Personal Representative) of your estate still alive and well and appropriate to do those jobs? Do the instructions about how assets are to be distributed at your death still accurately reflect your wishes? Have you purchased real estate or had children since you last updated your plan? Is a beneficiary battling substance abuse or money management issues that would make a Trust appropriate? If your family is traveling together, do you know who would inherit your estate if you all perished? Have you created a Trust as part of your plan but never funded it?

For these or any number of other reasons, it is probably time to touch base with your estate planning attorney and make sure things are in order before you depart. Of course, updating your estate plan (or creating one in the first place) is not optimally done while in a pre-vacation frenzy. Contact your estate planning attorney now, before summer is in full swing, and get your estate plan in order so you will have a worry-free vacation!

If you need some motivation, check out Death by Selfie and Other Avoidable Vacation Tragedies. Safe travels!

May, 2018

5 Things That Can Derail Your Estate Plan

April 1, 2018 by Attorney Maria Baler

As we often tell our clients, although you would like your estate plan to last forever, it probably won’t. Things change, laws change, family circumstances change, and your estate plan needs to change with it if you want it to continue to accomplish your planning goals. For most people these goals include making sure the right people are making decisions on your behalf and making sure your assets get where you want them to go with a minimum of delays, estate settlement costs and estate taxes to pay.

Here are five things that can derail even the best estate plan.

Change in Marital Status. In Massachusetts, if you create an estate plan when you are married and then get divorced, the divorce will automatically revoke any provision in your estate plan documents that benefits your former spouse or any of his or her relatives (other than children you may have in common), and any beneficiary designations in life insurance or retirement plans that name a former spouse as long as you had the power to change those designations prior to the divorce. A divorce also revokes any nomination of your former spouse or his or her relatives to serve as your Personal Representative, Trustee, health care agent, etc. This may seem like exactly what you want to happen, and convenient that it happens automatically. However, you need to consider whether your documents address who will serve in these capacities if your spouse is disqualified, or who will receive your assets if provisions in favor of your spouse are automatically revoked. Also, although the law makes provisions regarding the automatic revocation of beneficiary designations, it is not wise to rely on these provisions, for example, as to life insurance issued by an out-of-state financial institution or a retirement account subject to federal ERISA law. Reviewing your documents and beneficiary designations and changing them as necessary is always the best approach. If you create an estate plan while you are single and then get married, your marriage will no longer revoke your Will (as was the case under prior law) but be aware that Massachusetts law gives your spouse a right to receive a certain portion of your estate whether your Will provides that or not. Make sure you understand what the law provides and create documents that consistent with your intentions if necessary.

Death or Incapacity in the Family. Estate plan documents typically name certain individuals – your spouse, children, siblings, friends – to handle certain duties during your lifetime (as attorney-in-fact or health care agent) or after your death (as Personal Representative or Trustee), and also as beneficiaries of your estate. If someone named in your estate plan documents passes away before you or becomes incapacitated and unable to perform the duties they were nominated to perform, this can be an issue if successors have not been named in the document. Further, if the person is still alive but is not able to perform those duties appropriately, they may still insist they are able to do so when you (and others) may know they are not a good choice anymore. A little off topic, but also not uncommon, is the situation where a family member or friend is named as the guardian of minor children in a parent’s Will, but that person is no longer a good choice. To avoid probate court involvement in designating successor fiduciaries, and to avoid people serving who are no longer appropriate, make sure you revisit the people you have named in your documents from time to time and make changes as needed. If a beneficiary named in your estate plan is no longer living, make sure you understand how the documents (or beneficiary designations) will operate and where the assets designated for the deceased person will go instead, and make changes if necessary.

Beneficiaries with Issues. There are few perfect families, and sometimes a person who is named as a beneficiary of your estate plan will hit a rough patch. Maybe your child is in a bad marriage and headed for divorce and you are concerned that your daughter’s inheritance may be shared with her estranged husband. Maybe your favorite nephew has developed an affinity for sports betting and you are concerned about how he will manage an inheritance he may receive from you. Maybe a family member is an unfortunate victim of the opioid crisis that has hit Massachusetts hard. Maybe a beneficiary has recently become disabled and you are concerned that an inheritance may disrupt receipt of public benefits. If any of these situations arise in your family, take another look at your estate plan and update your plan as needed. It may be that you want to disinherit a troubled individual altogether or retain their inheritance in trust in a way that it will be protected from their troubles but still be available to help them through the rough patches. An estate plan can do all of this and more, but proper planning is required.

Lack of Trust funding and Improper Beneficiary Designations. Even the best estate plan can be derailed if attention is not paid to how assets are owned and how beneficiaries are designated. It is important to follow your attorney’s instructions regarding these matters to be sure the way in which your assets are owned and beneficiaries are designated is consistent with your estate plan. In our office, we provide our clients with written trust funding and beneficiary designation instructions. It is important to make sure the instructions are followed as to existing accounts or assets, and as to any new accounts that may be opened or new beneficiary designations that may be made after your plan is in place. It is always a good idea to sit down with your estate planning attorney at least every 5 years or so to review asset ownership and beneficiary designations, and make sure they are as they should be.

Change of Domicile. Many of my clients (especially after this past winter) think about moving to warmer locations when they retire, even if they want to spend some time in Massachusetts during the year. It is important that your estate plan documents reflect where you consider yourself to be domiciled – where you intend to make your permanent home. Although estate plan documents created in Massachusetts will be valid in Florida (or any other state), it is generally a good idea to have your estate plan documents updated when you move to another state. In addition to making sure your documents operate cost effectively and efficiently under the laws of that state, your documents should be written in the state in which you are domiciled. This is especially important if you are moving from a state (like Massachusetts) that has a separate state estate tax, to a state (like Florida) which has no state estate tax, when your documents will serve as evidence of your intention to be domiciled in your new state. Further, documents like powers of attorney and health care proxies are often state-specific, and you will want those documents to be used easily in your new state without any question or delay.

Like it or not, an estate plan is not something you can create and forget about. Family circumstances change, the laws change, and often your goals change. For these reasons, your plan should be reviewed regularly, revised as needed, and kept up-to-date so it will be ready to do its job whenever and wherever it’s needed.

April, 2018

Five Do-It-Yourself Estate Planning Moves

February 1, 2018 by Attorney Maria Baler

This is the time of year when New Year’s resolutions about getting an estate plan done (finally) bring people to my office. Others may decide to take matters into their own hands. As an estate planning attorney, I am not a big fan of do-it-yourself estate plans. Whether it’s a so-called Will handwritten on a napkin, or documents created using LegalZoom or any of the other on-line tools, I have never seen a Will or other estate plan document drafted by a client work as intended. For a variety of reasons, these documents are at worst invalid and at best poorly written, creating ambiguity and inevitably leading to more time and expense in the estate settlement process, which is precisely what the drafter was, I suspect, trying to avoid. There is no substitute for an experienced estate planning attorney if you want to create an estate plan that will be valid, cost-effective, and accomplish your goals. However, there are certain things you can do yourself that will go a long way toward ensuring that your estate plan works as you intend. Here are five of them:

Get Organized. One of the first tasks someone will need to complete after your death is to identify your assets. Your family will thank you if it is easy for them to figure out what you own and where your assets are located. Take the time once a year to create a list of your assets – bank accounts, investment accounts, real estate, life insurance policies, annuity contracts, IRA and 401k accounts, etc. Include the institution and the account number. Include information about any safe deposit box you may have and where the key is located. If you have a safe or other place you store assets or important papers in your home, make sure that is on the list. Finally, and despite all advice to the contrary, include your passwords to online financial, social media, email and other accounts. Without that information, timely access to your digital assets may be impossible. After you create this list, update it at least once a year. Then, put it somewhere where it will be easily found if something happens to you. If you have a filing cabinet where you keep your asset information, put the list in the front of the cabinet. Another good option is to make a 3-ring binder where you keep the list along with your most recent account statements. Organizing the paperwork related to those assets in one location is also a plus. Any method that works for you is OK. Keep your estate plan documents and the contact information for your attorney, your financial advisor and your accountant in the same location. Then, tell the person you have named as Personal Representative in your Will what to do when you are gone. It’s enough to say, “If I get hit by a bus tomorrow, go to the bottom drawer of the filing cabinet in the den and you’ll find everything you need there.” A little organization and information will make things a lot easier for your family to pick up the pieces when the time comes.

Check Beneficiary Designations. Identify the assets you own that have beneficiaries designated to receive those assets when you pass away – for example, life insurance policies, annuities, IRAs, 401ks and other retirement accounts. Check with those companies, or with your employer, to confirm who you have designated as the primary beneficiary on a particular policy or account (to receive the asset at your death). Make sure the primary beneficiary is still the person you want to receive that asset. If your designated beneficiary is no longer a good choice, obtain the appropriate form and change the beneficiary – now. Also, confirm that you have designated a contingent beneficiary who will receive the asset if the primary beneficiary is not living at your death, and if you haven’t done so, designate an appropriate contingent beneficiary or beneficiaries. If the beneficiaries you wish to designate are under the age of 18, make sure you understand how the company in question will handle things at your death. It may be that they will require a court-appointed conservator for a minor before money can be paid to the beneficiary. This is a time consuming and expensive process. Generally, designating a trust for the benefit of a minor beneficiary is a better approach. If you have large retirement accounts, make sure you understand the rules that will require minimum distributions from those accounts each year to non-spouse beneficiaries after your death, regardless of their age, and the income tax implications to your beneficiaries.

Specifically Identify Special Items. Your tangible personal property – the contents of your home, your car, your jewelry, your boat – are often overlooked in considering how assets will be distributed at death. If you have tangible property of significant monetary or sentimental value, consider being specific about who should receive these items at your death. Create a list of the items and the people you would like to receive them. Sign and date the list, and re-sign and re-date it when you make changes. Keep the list with your asset list (see #1 above) or with your estate plan documents. This will go a long way to avoid disagreements following your death about who should receive Mom’s engagement ring, grandma’s rocker, or the family’s prized Revolutionary War musket that needs a caretaker that understands and will respect its significance.

Leave Instructions – About your Kids. One of the hardest but most valuable things you can do is write a letter of instruction to your children’s guardian about how you would like your children to be raised if you are not around to do it yourself. As a parent, it is very difficult to imagine what your children’s life would be like if you are no longer there. However, all parents have hopes and dreams for their children, as well as practical information about their children that would be useful for someone to have. So, write it down. “Dear Guardian, If I am no longer living, these are the things I want you to know about my children…” Start with the mundane – who their doctors are, what allergies they have, what they like and don’t like (particular food, scary movies, clowns). Continue with what you hope they will have the opportunity to do in the future – music lessons, a particular summer camp, time each year to visit with extended family who may live far away. This is a letter you will need to commit to updating as time goes on, since as your children get older much of this information will change. It’s not an easy thing to do or commit to keeping updated. However, this kind of information can be invaluable for those who are left to care for your children, and can also give you some peace of mind that if your wishes are known they will be carried out. Keep the letter with your estate plan documents and your asset list.

Name Legacy Contacts. If you use email or social media, consider naming a legacy contact to whom you can give permission to access your “digital assets” stored with that company after your death. For example, Facebook allows you to designate a Legacy Contact (Settings/General Account Settings/Manage Account) who can manage your account after your die, or you can choose to have your account deleted if you pass away. Google allows you to control what happens to your account through their Inactive Account Manager feature (My Account/Personal Info and Privacy/Control your Content), where you can designate when your account will be considered inactive and what will happen to your Google account, and designate one or more people who will have access to whatever portions of your Google account you choose. Keep in mind that if you do not use an online entity’s prescribed method of giving someone permission to access your account, and do not provide express permission and direction in your estate plan documents, the company’s Terms of Service Agreement will govern. In such a case, you and your digital assets are at the mercy of the online provider, which may not allow access following your death or incapacity.

Estate planning is not as easy as do-it-yourself websites may have you believe, and I would not recommend that you try it at home. Work with an experienced estate planning attorney to create estate plan documents that are appropriate for you and that will accomplish your goals after you are gone. In addition, consider taking the steps described above to make things easier for those you leave behind.

February 2018

Estate Planning Considerations for Retirement Accounts

January 17, 2018 by Attorney Maria Baler

These days, I see fewer and fewer clients with pensions that pay them a monthly income for their lifetime, and perhaps for their spouse’s lifetime as well. Most of my clients now have large retirement accounts to which they and perhaps their employer have contributed. These accounts may be in the form of a 401k, 403b or other retirement savings plan through a current employer, a rollover IRA (holding funds rolled over from a former employer), an inherited IRA (holding funds from an IRA of which the client was named as beneficiary) or a traditional IRA or Roth IRA established by the individual client. These types of assets all have certain things in common – the funds in them have for the most part not been subject to income tax (with the exception of a Roth IRA), they are subject to specific and detailed rules for withdrawals during the lifetime and after the death of the account owner, and they often comprise a large percentage of the account owner’s wealth. These factors combine to make it extremely important for clients to pay close attention to how they plan for these accounts.

As an estate planner, my goal is to make sure that the designated beneficiaries of my clients’ retirement accounts are consistent with the rest of their estate plan, that if someone becomes incapacitated his or her retirement funds can be appropriately managed, and that when the account owner dies these valuable assets are properly administered. Most people diligently designate their spouse as the primary beneficiary of their retirement accounts, but many people do not designate contingent beneficiaries on their retirement accounts. Admittedly, the contingent beneficiary designation is a much harder exercise. Should you name a charity, your children, your grandchildren, your second wife, your Trust? What if your desired beneficiaries are young and have no idea what a retirement account is? The decisions that must be made when designating beneficiaries can have far-reaching income tax, estate tax, and other implications for you and your beneficiaries.

Further, many people are not aware that when they die, a non-spouse beneficiary must begin taking minimum required distributions from an inherited retirement account by the end of the year following the year in which the account owner dies. This holds true whether the beneficiary is age 2 or 72, and leads to the important discussion of how to designate the beneficiary of your retirement account if you want to benefit young children. There are pros and cons and tax considerations to deciding whether to name the child individually, or a trust for the child’s benefit, as beneficiary.

It is of course important to get good financial advice about how your retirement accounts are invested. Many of these plans are now self-directed, with on-line tools to help you pick investments that are appropriate for your age and goals. However, if you have a retirement account with several hundreds of thousands of dollars in it, you really should have a conversation about your investments with a human, preferably an experienced financial advisor, rather than your computer.

While you are dreaming about how you will spend that money in retirement (hopefully on living well, doing good, and having great adventures), take some time to consider what will happen if you do not outlive your retirement funds (which is the goal, after all). Consult with an experienced estate planning attorney for advice on how best to plan for those retirement funds consistent with your estate planning goals so that the next generation can continue those dreams!

January, 2018

Five Planning Considerations for Blended Families

December 1, 2017 by Attorney Maria Baler

The recent death of my teenage heartthrob David Cassidy got me thinking about Friday nights in the 1970’s when The Brady Bunch and The Partridge Family were must-see-TV. The Brady Bunch were and may still be TV’s most famous blended family. Mike and Carol Brady met, fell in love, married, and combined their individual families of three children apiece into one harmonious blended family of 6 children which encountered no problem that could not be resolved in a half-hour episode.

In the estate planning context, blended families present some planning challenges. The parties may have a prenuptial agreement by which they have already agreed upon how assets will be distributed at death, or they may have not given the issue any thought at all. Here are five issues that deserve consideration when planning for your blended family:

Division of Assets at Death. Two threshold questions are how do you and your spouse own your assets and to whom do you wish to leave those assets at death? For example, if you married later in life after your children were grown and out of the house, you may own your assets individually and each intend to leave your individually owned assets to your respective children at death. If you married when your children were very young and raised all of your children together, you may have long ago combined your assets and may intend that your assets be divided equally among all of the children. If you intend that your assets pass not only to your biological children but also to the children of your spouse, this must be accomplished by appropriate legal documents. The intestate laws that govern the distribution of estate assets in the absence of a Will do not provide for assets to pass to children that are not legal descendants (the biological or adopted children of the deceased). Those documents can also allocate assets unequally to children and step-children if that is your intention.

Planning for the Surviving Spouse. If you want to leave assets to your own children at death, will the survivor of you have sufficient assets to live on? A plan that leaves assets to your spouse with the understanding that she will leave any remaining assets to your children at her death can be a recipe for disaster. The surviving spouse can change her estate plan or beneficiary designations after the first spouse dies to leave the assets in whatever manner she chooses. Even if the surviving spouse honors the agreement, liability or long-term illness could cause inherited assets to be lost. In this situation, a trust can be an appropriate arrangement to ensure that the surviving spouse has the benefit of income or assets during the surviving spouse’s lifetime, and that any remaining assets pass directly to the children of the first spouse to die at the surviving spouse’s death.

But do you want your children to have to wait until their step-parent dies in order to receive their inheritance? What if there is a significant age difference between you and your spouse? These are all planning questions that need to be addressed in the context of each particular family’s situation. The best approach may be to split the difference, leaving some assets to children directly at the first spouse’s death, and other assets to the spouse or in trust for the spouse. This can be an especially important issue when planning for the distribution of retirement accounts in such a situation, factoring in the income tax implications of the various planning choices.

What to do with the Home? A blended family may live in a home that is owned by one spouse, or by both spouses who may have contributed equally or unequally to its purchase and subsequent carrying costs. If the home is owned by one spouse, an important planning consideration is where the surviving spouse will live when the owner-spouse dies, especially if the owner-spouse wants the home or its value to pass on to his children. A well-structured estate plan can allow the surviving spouse to continue to reside in the home for her lifetime, paying carrying costs in lieu of rent, and then pass the home (or the proceeds from its sale) to the owner’s children. If both spouses own the home, similar arrangements can be made, with the proceeds divided between both spouses’ children at the death of the surviving spouse, or when the home is sold.

Choosing Fiduciaries. Your legal documents may carefully spell out your intentions, but who will ensure those documents are administered properly and fairly? Choosing a fiduciary all members of a blended family feel comfortable with can sometimes be a challenge. This may be best addressed by choosing a third party or a professional or corporate fiduciary. Or there may be a family member who all the other family members are comfortable filling that role. In other families, two children (one from each side of the family) acting as co-fiduciaries is a good solution.

Planning for Long-Term Care. Paying for long-term care can be challenging in a blended family where spouses have maintained separate assets and do not intend that one spouse should be responsible for the care costs of the other spouse. Unfortunately, public benefit programs do not make exceptions for these circumstances, nor do they respect the terms of a prenuptial agreement the parties may have entered into. Under the rules of those programs all of the assets of both spouses are “available” to pay for the care of either spouse. If this is not the parties’ intention, consideration should be given to other planning strategies that will not leave one spouse responsible for the other’s care costs, leaving no inheritance for his or her children.

Estate planning for a blended family is not as easy as it looks on TV. Each family and its dynamics are different, and there is not one correct approach. However, it is important to take the time to plan thoughtfully for your family, to ensure that the surviving spouse is provided for, and the harmony your blended family has worked hard to achieve continues long after you are gone.

December 2017