Lynne Abbe discusses the curbside signing process for our Smart Counsel for Lunch Series. Are you not sure what to expect when it comes to signing your documents curbside? If you have questions please call us and let us know at 781 461-1020.
Silver Linings! A Chance To Pause, Plan, And Act To Save Money On Long Term Care!
Despite the uncertainty, pain and loss associated with COVID-19 there are some opportunities that have emerged in the long-term care space as well. This ordeal is affecting us all – requiring that we slow down, re-evaluate our priorities, take care of ourselves, our families and friends, and importantly attack that closet that’s been exploding with junk! This is also a great time to re-evaluate financial and estate plans with respect to long-term care. If I or my loved one needs nursing home care or long-term care, assets will be consumed in no time. Can we do anything to prevent that?
The answer is yes, and this is the time to do it! Right in the middle of COVID-19, believe it or not, when the market is depressed.
Although it may not feel good now, we can actually take advantage of this decrease in the market by protecting assets from the cost of long-term care. How can we do this? By creating and funding an irrevocable trust now with “depressed assets” which are likely to increase in value when the market rebounds.
Let’s look at the numbers around long-term care in Massachusetts.
Nursing homes are expensive!
* According to a study conducted by Genworth in 2019, the monthly median cost of a semi-private room in Massachusetts was $12,473 and a private room was $13,212. So, roughly $150,000 per year on the low end!
* 52% of people over age 65 will require long term care/nursing home care
* 62% of all nursing home beds are paid for by Medicaid
What is the difference between Medicare and Medicaid?
In short, Medicare is the federal health insurance program designed principally for Americans age 65 years of age or older. Medicare Part A is hospital insurance that covers part of the cost of inpatient hospital care, hospice care and limited time in a skilled nursing home facility.
If you ask a Medicare attorney, What nursing home costs will Medicare cover? The short answer? Not a lot.
Medicare will cover 100% of the cost for the first 20 days you are in a nursing home IF, AND ONLY IF:
- You had a recent inpatient hospital stay of at least 3 days;
- You are admitted to a Medicare-certified nursing facility within 30 days of your hospital stay; and
- You need skilled care such as physical therapy or skilled nursing services.
If all three criteria are met, Medicare will pay 100% of the costs for the first 20 days of your stay in the nursing home. For days 21-100, you pay up to $170.50 per day and Medicare pays at least a portion of the balance. There are criteria that must be met and Medicare can end sooner than 100 days. After 100 days, you are fully responsible for the entire cost for each day that you remain in the facility.
Let’s talk about Medicaid now.
Medicaid is a federal public assistance program (MassHealth is the state program) for low income people. Medicaid/MassHealth pays for health care services for people with very low income or high medical bills relative to income and assets. Eligibility is based on income and assets.
In order to qualify for Medicaid/MassHealth as a single person, a single applicant can have no more than $2,000 in resources (this includes retirement accounts, stocks, bonds, CDs, life insurance policies with a cash value and bank accounts). Real estate that is your primary residence is exempt up to an equity value of $893,000 in 2020. Married couples can retain an additional $128,640 in assets (unless both spouses are in the nursing home).
So now what? What can we do? What’s the strategy?
Although it is not the right planning strategy for everyone, a long-term care planning strategy that is appropriate for some people to protect assets from having to be spent on long-term care costs is to create and fund an irrevocable trust. You and your long-term care attorney (and perhaps your financial advisor) will decide what assets and how much of those assets to transfer into this irrevocable trust, keeping in mind that once assets are transferred to an irrevocable trust, you cannot take them back or use those assets in any way that benefits you.
If you don’t apply for Medicaid/MassHealth for at least five (5) years after the date you transferred assets to the Trust, the entire value of the trust assets will not be included when MassHealth determines your financial eligibility (remember $2,000 for a single person and an additional $128,640 for a married couple), and will be protected for distribution to your family or intended beneficiaries following your death.
The silver lining in all of this Medicaid estate planning (and what makes this is a perfect time to implement some proactive planning) is that when the market rebounds, that gain or increase in value in your assets titled in your irrevocable trust is also protected from the cost of long term care if you apply for Medicaid/MassHealth.
So, while the stress of COVID-19 is difficult, it is also presenting a unique opportunity to capture some upside for your long-term care planning from this downturn in the market. Take advantage of this opportunity to protect your assets (or those of your loved ones), and proactively plan for the future. This will yield yet another silver living during this ongoing crisis – peace of mind and the knowledge that you will have taken a big step in protecting assets for your children, your spouse or other beneficiaries.
The Dedham firm of Samuel, Sayward & Baler LLC focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
April, 2020
© 2020 Samuel, Sayward & Baler LLC
Start Your Spring Housecleaning With Some Estate Planning
While this period of quarantine is the perfect opportunity to clean out your attic, catch up on your Netflix queue, or get in shape, this is also the time to make sure you have the appropriate legal documents in place in the event that you are not able to make or communicate your health care decisions. These documents include a Health Care Proxy and HIPAA Authorization and many choose to also execute a Living Will
Health Care Proxy: A Health Care Proxy is the document by which you appoint a health care agent – the person who will make health care decisions for you if you are not able to make them for yourself. If you already have executed a Health Care Proxy, take a moment to locate it, ensure that the agent you named is still appropriate, and distribute copies (if you haven’t already) to your agent, your primary care doctor and perhaps your family members. Most of us usually have our cell phones close by so it’s a good idea to scan a copy of your health care proxy and save it on your phone.
We also recommend that you affix a copy of your Health Care Proxy, emergency contact information and health insurance information to the side of your refrigerator. EMTs are trained to look for emergency information there.
HIPAA Authorization: It is also important to execute a HIPAA Authorization. The Health Insurance Portability and Accountability Act (HIPAA) was enacted in 1996 to help ensure the privacy of your medical records. A HIPAA Authorization is a document that authorizes your health care agent and any family members or friends you list to talk to your medical professionals and view your medical records. Remember that once your teenager reaches age 18, they will need to execute a HIPAA Authorization authorizing you to speak with their doctors and view their medical records. The mere fact that you are mom/dad/guardian is not sufficient.
Living Will: Additionally, you may wish to sign a Living Will. While Living Wills are not legally binding in Massachusetts, they provide guidance to your doctors and health care agent about your wishes regarding end of life care in the event that you have a terminal condition or are in a persistent vegetative state.
Other practical suggestions during this time of Coronavirus:
If you have a family member sick at home and at risk of being hospitalized it’s a good idea to have an emergency bag packed, since visitors are not being allowed in to the hospital. Things to include in the bag: *
- Written UPDATED accurate list of medications: name, dose, frequency.
- Cell phone charger!
- List of emergency contacts and phone numbers on paper!
- Toothbrush, toothpaste and hair brush.
- Three pairs of underwear.
- Full name, phone number, office address of Primary Care Doctor.
- Book, magazine or something to read.
- Copy of legal paperwork such as Health Care Proxy, HIPAA Authorization and Living Will.
- If patient has a pacemaker or defibrillator, a copy of the pocket information card that states the brand, model number, MRI compatibility.
- If the patient has asthma or COPD, bring the inhalers. Hospitals are running out.
- Extra batteries for hearing aid or other medical devices.
These are uncertain times right now, but ensuring that your health care documents are up to date can provide some peace of mind for you and your loved ones. If you wish to create or update your health care proxy, please contact our office. We are working remotely but are able to speak with you over the phone or via Zoom and will meet you in the office parking lot to execute your documents. One silver lining in all of this – we are waiving the $400 fee we customarily charge our clients for initial estate planning meetings if you make an appointment in the month of April.
Please do not hesitate to reach out with any questions. We are happy to speak with you and to do what we can to ease your mind during this difficult time.
*With thanks and credit to Peter T. Clark Esquire of Mansfield, Massachusetts for compiling and sharing this great list!
The Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
March, 2020
© 2020 Samuel, Sayward & Baler LLC
Imaginative and Unique Estate Planning Provisions
As part of our work as estate planning attorneys, we draft and review a lot of Wills and Trusts. For the most part, they are pretty standard. The testator of a Will and the Grantor of a Trust tend to leave assets to a surviving spouse, and then to children. Of course, there are some variations – a “specific bequest” to a certain person or charity (a certain amount of money usually), or perhaps a child is disinherited due to a chemical dependency, a rocky marriage or a spending problem. But the majority of our clients’ Estate Planning goals and objectives are to provide for their spouse and children and that the will and trust documents they need are drafted accordingly. They tend not to include much humor or any “unusual requests” for the most part.
But every so often, we see or read about (or are asked to draft) some more “colorful” provisions. Here are some of the more creative Estate Planning requests we’ve seen or read about.
1. US comedian Jack Benny included a provision in his Will that a single long-stemmed red rose be delivered to his wife every day for the rest of her life. And his florist ensured that it happened until Mrs. Benny died eight years later.
2. A donor in Britain in 1928 made a bequest of a half-million pounds for the purpose of clearing the national debt. The issue was, the donor specified that it can only be paid out once it is sufficient to clear the entire national debt. Although the bequest is now worth 350M pounds, it is not sufficient to clear the entire national debt so it remains held in trust.
3. The creator of the original Star Trek series, Gene Roddenberry, was understandably obsessed with space and this even appeared in his Estate Planning wishes. His famous quote was to “boldly go where no man has gone before.” In keeping with his obsession, his Will requested a celestial burial. His request was honored and several years after his passing, a portion of his remains were placed on a rocket and shot into space.
4. The magician, Harry Houdini, conducted seances during his life. His Will included a provision requesting that his wife conduct an annual session with the afterlife. He further asked her to commit a secret code to memory which, he believed, would provide evidence of communication with the “other side.” His wife honored this request from his will for ten years following Houdini’s death, always on Halloween (the anniversary of Houdini’s death).
5. Janice Joplin (known to her close friends as Pearl) died at the age of 27 from a drug overdose. Her Will included a bequest of $2,500 (approximately $16,000 in today’s dollars) to enable her friends to hold a rocking wake party which did happen in California several weeks after her death. The invitations stated “drinks are on Pearl.”
6. Benjamin Franklin’s Will left a picture frame containing more than 400 diamonds to his daughter with the instruction that she “not engage the expensive, vain and useless pastime of wearing jewels.” He intended for her to leave the frame intact. Shockingly, this Estate Planning wish was not honored.
7. Billionaire Leona Helmsley left her Maltese dog “Trouble” the de minimis sum of $12M. Her Will also instructed that the family mausoleum where she was buried be “washed or steam-cleaned at least once a year,” for which she left $3 million.
8. William Shakespeare’s Will bequeathed his “second-best bed” to his wife, Anne Hathaway and the majority of his assets to his daughter, Susanna. His Will stated “Item I gyve unto my wife my second best bed with the furniture.”
9. German poet Heinrich Heine left his estate to his wife, Matilda, on the condition that she remarry so that there “will be at least one man to regret my death.”
10. Portuguese aristocrat Luis Carolos de Noronha Cabral da Camara left his sizeable fortune to 70 people selected from a Lisbon phone directory. They had been chosen at random from the directory, in front of two witnesses at a registry office 13 years before when Luis Carlos made his Will.
11. Napoleon Bonaparte’s last wish was that his head be shaved and the hair divided up amongst his friends, possibly his true heirs.
12. John Bowan, a millionaire from Virginia, constructed a mausoleum to house the remains of his wife and two daughters who predeceased him. Bowman believed that after he died the whole family would be reincarnated together. He passed away in 1891 and in his will left a $50,000 fund to maintain his mansion and the mausoleum. The High Net-Worth will provided that the house staff of the mansion were to prepare dinner every night just in case the Bowman family was hungry after returning from the dead. Additionally, no one was allowed to stay in the house overnight so they wouldn’t disturb the ghostly residents. This was carried out every night until 1950 when the trust fund ran out.
While these examples are entertaining and imaginative (and somewhat dramatic), these types of Estate Planning and Will and Trust provisions can be risky. It is important to remember that Wills can be challenged (contested) in court. If a beneficiary successfully challenges a Will, the provisions in the Will could be found to be void in part or in its entirety. If the Will is found to be void in its entirety, your estate would then be distributed according to the Rules of Intestacy in your state. Before being witty or creative in your estate planning wishes, check with your estate planning attorney. It might be possible to draft these types of provisions in a stand-alone letter of direction.
The Dedham firm of Samuel, Sayward & Baler LLC focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
March, 2020
© 2020 Samuel, Sayward & Baler LLC
Estate Planning and Taxes – Five Things to Know About Taxes After Death
After an individual’s death, his or her assets will be gathered, affairs settled, debts paid, tax returns filed and assets distributed as directed by the deceased’s Will and/or Trust or if those documents do not exist as provided by Massachusetts intestate law. Don’t neglect the importance of taxes and filing tax returns after death. The Personal Representative (formerly Executor) of the deceased’s estate may be responsible for filing a number of tax returns. Here are five things to keep in mind with respect to taxes after a death.
- A Personal Representative must file the deceased’s final income tax return for the year of death and prior year returns that have not been filed. The deceased’s final income tax return will reflect income earned or received by the deceased from January 1 of the year of death through the date of death.
What should you do if the deceased failed to file tax returns in the years before his or her death? It is not uncommon for a deceased person who was ill for the last years of his or her life to have failed to file his or her income tax returns. It is important for a Personal Representative to investigate whether required returns have been filed and be certain about a decedent’s income tax liabilities. A Personal Representative who distributes estate assets and fails to pay income taxes owed by the deceased will be personally liable to pay those taxes.
- A Personal Representative may be required to file a Massachusetts estate tax return if the value of the estate assets exceeds $1 million. A deceased’s estate includes all assets that he or she owned and controlled, whether held in his or her individual name, jointly with others, or in a revocable trust, and includes life insurance proceeds and retirement assets. If the estate’s assets exceed $1 million, tax is computed on the entire value of the estate. Tax is not payable on assets passing to a spouse or to charity. Don’t forget the deadline for estate tax returns. The filing deadline for estate tax returns is 9 months after death. A Personal Representative who distributes assets and fails to pay estate taxes owed will be personally liable to pay those taxes.
- A Personal Representative may have to file a federal estate tax return if the value of the estate assets exceeds the federal estate tax exemption ($11.4 million for 2019). Even if the value of the estate does not exceed the federal estate tax exemption amount, a federal estate tax return should be filed if the decedent is survived by a spouse so that the deceased’s unused exemption can be used by a spouse at his or her death. The filing deadline for the federal estate tax return is 9 months after death.
- A Personal Representative and Trustee may have to file fiduciary income tax returns for an estate or a trust, respectively. An estate is a taxpayer and must obtain a tax identification number and file a fiduciary income tax return for the estate if income is earned on estate assets or received during the administration of the estate. A revocable trust becomes irrevocable after the death of the trust creator and must obtain a tax identification number at that time and file a fiduciary income tax return for all income earned by trust assets after the death of the creator. Filing deadlines for estate or trust fiduciary income tax returns depend on whether the estate or trust elects to file its tax return on a calendar year basis (ending in December) or a fiscal year basis (rolling 12 months from death). In both instances, the fiduciary income tax return is due 4.5 months after the end of the tax year elected.
- Income tax planning opportunities exist for estates and trusts and beneficiaries because they may not be in the same income tax brackets. The highest income tax brackets for estates and trusts apply at low levels of income, while the highest income tax brackets for individuals apply at high levels of income. For this reason, timing distributions from an estate or trust to its beneficiaries can save money. Beneficiaries pay income tax on any estate or trust income distributed to them in any tax year at personal rather than fiduciary income tax rates. It is important to work with an estate planning attorney to maximize your planning efforts and understand the tax implications and responsibilities of a deceased trust and estate.
Samuel, Sayward & Baler LLC, is a law firm in Dedham that focuses on advising clients in estate planning, special needs planning, estate and trust administration and elder law. 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, 2019
© 2019 Samuel, Sayward & Baler LLC
What do you want your estate plan to say?
A question I am often asked as an estate planning attorney is basic: what is estate planning? Estate planning is commonly thought of as protecting, preserving and enhancing families by accumulating, conserving, and distributing assets. From this perspective, tax, tools and techniques are important. Just as significant is the opportunity to pass values to loved ones. Estate plans help individuals tangibly care for family and loved ones. Yet, for every plan, I ask this – if none of your beneficiaries survive, where do you want your wealth to go? Many clients name individuals or charities they care about.
For many, this is understandably a difficult question to consider and answer. I am taking courses to become a Chartered Advisor in Philanthropy (CAP) and learning about how to help individuals thoughtfully consider this dilemma. I begin with a question – what is your personal vision for the world and for yourself? Every person has a unique answer, and this is much of what makes estate planning such a joy. A list of questions to consider as you create your estate plan are listed below.
First, even 18-year-olds need estate plans to choose the people they want to manage their financial affairs and to make their health care decisions in the event of incapacity with the creation of Durable Powers of Attorney and health care documents. As they consider how they will live their lives and as you guide younger family members as they make decisions about the values that they will live by, a couple of important questions to reflect on are the kind of person you want to be and the kind of world you would like to be part of. For older adults, it is worth thinking about the kind of world you want for the younger generation.
In mid-life, a good question to reflect on starts with thinking about when you were younger. Did you have goals back then that you have not yet accomplished but you still want to pursue? If so, how can you work toward these goals now? Beyond yourself and your loved ones, would you like to have a positive impact on any people or things in this world?
Finally, for individuals toward the end of their lives, an interesting posture is to think about one’s estate plan as the final piece of teaching that you are able to impart as a legacy you leave to your loved ones.
What would you like your estate plan to say?
I would love to listen and hear your thoughts and work with you to create an estate plan to accomplish your goals and reflect your values.
The estate planning firm of Samuel, Sayward & Baler LLC, in Dedham focuses on advising clients in estate planning, special needs planning, estate and trust administration and elder law. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
October, 2019
© 2019 Samuel, Sayward & Baler LLC
Estate Planning When Your Beneficiary Has Special Needs: Five Things to Consider
At its heart of estate planning for beneficiaries with special needs is the special needs trusts (SNT). SNTs allow you to provide your beneficiaries with an inheritance while allowing them to maintain eligibility for public benefits they need. Assets in SNTs do not count toward the asset limit imposed by government programs. You can choose a Trustee to manage the inheritance for your child and make distributions to supplement your child’s benefits. Below are five things to consider to provide peace of mind when you have a disabled beneficiary.
1. Create a Special Needs Trusts (SNT). Parents and grandparents can create trusts for their special needs children or grandchildren with the assistance of an estate planning attorney with expertise and experience in planning for beneficiaries with special needs. This is preferable to leaving money directly to the beneficiary because SNTs provide long-term management of the inheritance you leave to disabled beneficiaries while allowing them to qualify for needs-based government benefits. Special needs trusts can pay for and supplement medical and travel expenses, entertainment, pet care and other expenses that can enhance a beneficiary’s quality of life especially when you are no longer around. You would name a Trustee to manage funds in the Trust. The person you name as Trustee could be a professional or a trusted family member.
2. Learn About the Types of SNTs. First-party trusts hold assets the beneficiary owns, for example, from inheritance or lawsuits. When the beneficiary dies, the funds remaining in the trust must be used to reimburse the government for services the beneficiary received. Parents with a disabled child often establish third-party trusts. These trusts are created and funded by someone other than the beneficiary. The advantage is that any funds left when the beneficiary dies can be distributed to contingent beneficiaries such as other siblings. Special needs trust assets do not have to pay the government for services received.
3. How Much Money Do You Leave for a Beneficiary? The amount a child needs depends on a family’s needs and lifestyle and a child’s abilities. Housing can be a large unknown. Group homes may require purchase of a condominium unit in a building with services for special needs, and monthly costs will apply for food, utilities and staff. Families may also want to budget eating out weekly, technology (for example, an iPad every couple of years) or gym memberships. When parents die, costs increase because a social worker must be paid to coordinate care and advocate for the beneficiary. Another consideration is legal fees. Family members who serve as the sole Trustee of a special needs trust should consult attorneys to guard against actions that may jeopardize benefits.
4. Appoint a Guardian and/or Conservator. When special needs beneficiaries need to have a legal guardian and/or conservator, a probate court proceeding is required. A guardian for a beneficiary with special needs is responsible for decisions about medical care and living arrangements. A conservator is responsible for your beneficiary’s property and finances. Any person serving as a guardian or conservator should name successor guardians and conservators in their Will. A court will need to appoint the guardian named in a Will to make decisions for your child. Responsibilities may include those below, so great care should be taken in deciding who to appoint to these important positions.
- Applying for public benefits including those from Social Security
- Advocating for your child’s rights and best interests
- Safeguarding your child’s finances and consulting with physicians
- Making decisions regarding treatment and placement
- Releasing medical records for Social Security and health insurance
5. Write a Letter of Intent. Parents of children with disabilities should write letters of intent. A letter of intent provides Trustees, guardians, advocates and caretakers guidance about your child’s abilities, routines and interests and your child’s likes and dislikes. The letter should include at least the following:
- Education – regular and special education needs, services, programs and providers
- Final Arrangements – cremation or burial; family plots; religious services and clergy
- Residence – group home or community preferences, size and arrangements for a child
- Healthcare – doctors, therapists and hospitals; frequency and purpose of appointments, medications taken in the past and currently and whether they worked
Keep these things in mind when thinking about your family member with special needs and consult with estate planning attorney who has expertise in special needs planning to advise you about these important matters.
Samuel, Sayward & Baler LLC, is a law firm in Dedham that focuses on advising clients in estate planning, special needs planning, estate and trust administration and elder law. 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, 2019
© 2019 Samuel, Sayward & Baler LLC
Keep Your Eye on the SECURE Act
The SECURE (Setting Every Community Up for Retirement Enhancement) Act is a bill currently making its way through Congress. If the Act is signed into law, it will change the rules that govern Required Minimum Distributions (RMDs) made from retirement accounts after the account owner’s death.
The House of Representatives recently passed the SECURE Act with a near-unanimous bipartisan vote. The Trump administration has not taken a position on the bill. However, if the Act passes in the Senate, lobbyists who support it say they expect the president to sign it into law. Passage of the Act is currently being blocked in the Senate by Senator Ted Cruz who wants to add a provision to the bill allowing 529 college savings accounts to be used toward expenses for homeschooling.
Currently, non-spouse beneficiaries of inherited retirement accounts can stretch RMDs over their lifetimes. These distributions from inherited retirement accounts are taxable, so the longer that beneficiaries can postpone or defer them, the better.
If the SECURE Act is signed into law, non-spouse beneficiaries of retirement plans will have to withdraw the balance of the retirement account within 10 years of your death. The proportion of the retirement account distributed to the beneficiary each year within this period can vary. Exceptions have been proposed for minor and disabled children. However, once a minor child who inherits a retirement account attains the age of majority, the child would have to withdraw the balance of the account within 10 years. The Act would also impact trusts that are named as beneficiaries of retirement accounts after the owner’s death and affect distribution of retirement assets. If enacted, these new rules will begin applying to inherited IRAs in 2020 and non-IRA retirement plans in 2022.
Some strategies to keep in mind and learn more about if the act is passed are conversions of traditional IRAs to Roth IRAs, using retirement plans for charitable giving by way of qualified charitable contributions made directly from retirement plans and charitable remainder trusts funded with retirement plans and replacing the lost value of tax deferral with life insurance.
Stay tuned for more information about the SECURE Act and its impact as well as planning strategies that may mitigate the impact of this legislation if and when the Act is passed.
Bless Your Family by Making Plans for your Beloved Vacation Home
Summer is finally here, and you may have plans to spend time at your vacation home with family and friends. If you own a vacation home or are considering purchasing one, it is wise to create a plan for keeping the home in the family at your death or selling it if associated costs become unaffordable. There are a number of options for keeping vacation homes in the family such as gifting a vacation home or putting a vacation home in a Trust or an entity. Below is a short list with the upsides and downsides.
Wills. Individuals can distribute property they own in their individual names to the people whom they choose upon their deaths via their Wills. However, assets transferred under a Will must go through the public probate court process, which can be time-consuming and expensive. Probate avoidance is a great gift you can give to your family.
Gifting. Individuals can make gifts of vacation homes during their lifetimes. The property would avoid probate and be removed from the individual’s taxable estate, thereby avoiding estate tax on the property. Many people consider gifting a house to avoid paying estate tax. However, on the downside, the donor gives up control of the asset, and the asset is subject to the reach of the creditors of the donees who receive the property. Also, the donee’s tax basis in the property would be “carryover basis”. Tax basis is used to calculate the tax payable upon the sale of property. Individuals who receive gifts of property have a basis in the property that equals the price the donor paid for the property. If an individual inherits property at a person’s death, the basis in the property will “step up” to the value of the property at the time of death.
An important consequence of gifts made during life and after death is the basis of property. If a parent purchases property for $500,000 and transfers it to children during life, then the children will have the same basis as the parent ($500,000). If the children sell the property for $1 million, the children will pay tax on gain in the amount of $500,000 (the difference between the $1 million sale price and the $500,000 tax basis).
However, if the parent dies owning property worth $1 million and leaves the property to his or her children, the children will have a stepped-up basis in the property of $1 million. If the children sell the property upon the parent’s death, no gain will result. The children will not pay income tax upon selling the property. However, the property will be includable in the parent’s estate and subject to the estate tax. The Massachusetts estate tax rate ranges from 4.6% to 16%. Combined federal and Massachusetts capital gains rate can be 20% to 25%. Thus, opting until death to pass property to children may be favorable for tax reasons.
Trusts. Assets titled in trusts during a person’s lifetime avoid probate. This is one of the reasons for placing property in a trust. A person who creates a revocable living trust is the grantor. Upon transferring title of an asset to a revocable trust, the grantor retains control of the asset and usually serves as Trustee of the trust and is the sole beneficiary of the trust during his or her lifetime. The grantor can name a Trustee to manage assets in the trust for the remainder beneficiaries (i.e. those who will be the beneficiaries at the grantor’s death). Trusts can be structured to provide creditor protection for property held in trust against a beneficiary’s creditors such as a divorcing spouse, tax liens and bankruptcy. Property in this type of trust will get a step-up in basis at the death of the grantor.
Entities. A limited liability company (LLC) or a family limited partnership (FLP) can own a home and transfer the ownership of a home to future generations. An LLC or FLP can provide rules for a home’s use and operation, limit ownership of the underlying property to family members and provide buyout terms so that an individual family member cannot force a sale of the property. Payment of repairs, insurance and taxes can be outlined with family members paying into an account for cleaning and maintenance annually or paying costs for the time that they use the vacation home.
A vacation home is a great gift, and passing it on to your loved ones is a wonderful way to continue family traditions and promote family bonding. It is important to consider all of your estate planning options in relation to a vacation home. Make sure you have a plan in place to ensure your vacation home continues to be a blessing and does not become a curse.
June, 2019
© 2019 Samuel, Sayward & Baler LLC
Five Things to Know About Life Insurance When Considering Estate Planning
Life insurance companies are giving away free Apple Watches to people who share fitness data with them and meet their fitness goals. New York state is allowing life insurance companies to scroll through your pictures on Instagram to determine your premiums. The digital age has makes it possible to decrease premiums by installing fitness apps and posting pictures of yourself running. When thinking about life insurance as your family grows or your term life insurance expires, you will want to keep the following five things in mind as you consider the implications of life insurance on your estate plan.
1. What is life insurance? Life insurance provides a payout after your death (called a death benefit) to the people you designate as beneficiaries. It is an important safety net if anyone depends on you financially. Life insurance benefits can pay debts such as mortgages, replace your income and provide funds to pay college tuition. Life insurance can provide for dependents such as children or a younger spouse. It can help a business owner buy out the interest of a deceased business partner.
2. Is group life insurance enough? Free life insurance at work is a great benefit. You sign up, and your employer pays. More Americans are covered by work-based life insurance than by policies they purchase outside work. Most people rarely revisit their life insurance needs. Free coverage is typically one to two times your annual salary. However, you may want to replace more than two years of income upon your death. Our firm does not advise clients as to the amount of insurance to obtain, but we work with financial advisors to make sure that ownership and beneficiary designations for insurance policies are in line with your estate plan. If you have questions about your life insurance, speak with a financial advisor as to whether work coverage is sufficient depending on your goals to align with your estate planning needs.
3. Are your life insurance policies taxable? This is an important question to ask when preparing an estate plan. Beneficiaries do not have to pay income tax on death benefits they receive. However, proceeds of insurance policies are subject to estate tax upon your death if you control the policy – that is, if you can cancel, surrender, or assign the policy or change the policy’s beneficiary. When life insurance proceeds are payable to your spouse, a marital deduction will apply. However, if the proceeds are payable to children or others, an estate tax may be due. As an example, if my sister designates me as beneficiary of a policy with a $50,000 death benefit, I will not pay income tax on the proceeds, but the $50,000 proceeds will be included in my sister’s estate for purposes of calculating the estate tax payable by her estate at her death. It is important to consider.
4. What can you do to avoid estate tax on life insurance? Life insurance proceeds can escape estate tax if you transfer the policy to an irrevocable life insurance trust. Once the trust owns the policy, you cannot get it back or make changes to the provisions of the trust that will specify how the death benefit will be distributed at your death. Also, you cannot be the Trustee of an Irrevocable Trust that owns a policy insuring your life. If you transfer an irrevocable policy to a trust but die within three years of the transfer, you lose the estate tax break, but if you create an irrevocable trust and the trust buys a new policy, the three-year rule does not apply.
5. What is the catch? The irrevocable trust as the policy owner must pay premiums. You cannot pay premiums directly but may make gifts to the trust. The Trustee must give the beneficiaries notice of their right to withdraw amounts contributed to the trust so they qualify as present gifts. These notices, called Crummey notices, are named after a court case that fleshed out these requirements and allow the contributions to qualify for the annual gift tax exclusion, relieving you of the need to file gift tax returns.
If you have purchased a life insurance policy or are contemplating purchasing a policy and would like to structure ownership to decrease the estate tax owed at your death, contact an estate planning attorney with experience in drafting and administering irrevocable life insurance trusts.
Samuel, Sayward & Baler LLC, a law firm that is based in Dedham. The firm focuses on advising clients in the areas of estate planning, administration of estates and trusts and elder law. 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 2019
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