Attorney Suzanne Sayward

Five Ways that a Trust Beats a Will

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In my estate planning practice, I advise my clients about the different documents that make up an estate plan, including Wills and Trusts. Both Wills and Trusts are used to pass assets on to beneficiaries at death. However, there are distinct advantages to using a Trust over a Will. Here are five ways in which a Trust beats a Will.

1. A Trust can be used to Avoid Probate – a Will cannot. Probate is the process of changing the title on assets when someone passes away. Assets that are owned in a deceased person’s individual name and for which there is no named beneficiary are no longer accessible once the owner of the asset has died. In order for family members to gain access to accounts or other assets in the deceased’s individual name, they must file a petition with the probate court and wait for the court to approve the Will and appoint the Personal Representative. This can be a long and costly process during which bills cannot be paid and assets cannot be managed. A Trust is an excellent probate avoidance tool because assets that are owned in the name of a Trust are immediately accessible to the trust-maker’s designated successor.

2. A Trust can provide Creditor Protection for the Inheritance you Leave to Beneficiaries – a Will cannot. Many people worry that the inheritance they leave to their children will be lost to their children’s creditors such as a divorcing spouse, unpaid credit card bills, a bankruptcy, a business loss, or a lawsuit. Sadly, this is often the case when assets are distributed to beneficiaries via a Will. A Trust allows the maker to safeguard an inheritance from the easy reach of the beneficiaries’ creditors by keeping the assets out of the name of the beneficiary. Ownership of the assets remains in the Trust. The beneficiary will have access to the assets in accordance with the directions you leave in your Trust. You may name your beneficiary to serve as Trustee, allowing the beneficiary to manage her own inheritance. By leaving assets to your beneficiaries via a Trust rather than outright via your Will, you can ensure that the assets you worked so hard for will be available to your children and future generations and will not end up with the beneficiary’s ex-spouse.

3. A Trust can Protect Government Benefits for a Person with Disabilities – a Will cannot. If you have a child, grandchild or other beneficiary with disabilities, then a Trust is a must. If you leave assets to a person who receives needs-based government benefits via your Will, it will place your beneficiary in the difficult position of either losing those benefits, or transferring the inheritance into a Trust of which the state must be the beneficiary at the beneficiary’s death. Unless the inheritance you are leaving is so significant that the monetary and medical benefits available to the person through programs such as Social Security and Medicaid are no longer important, then making sure that those government benefits continue to be available is vital. Leaving assets to a person with disabilities via a Trust is the best way to ensure those government benefits are preserved and that the inheritance you leave will be available to pay for expenses that are not covered by those benefits, which while vital to many, are limited in their scope.

4. A Trust makes it Easier to Manage Assets for an Incapacitated Person – a Will cannot. If a person experiences a period of incapacity during their lifetimes, they will need someone to pay their bills, manage their investments, maybe sell their house, etc. The worst situation to be in should this occur is to have done no estate planning at all. For those with no estate planning in place, family members or another interested party will need to petition the court to be appointed as the Conservator for the incapacitated person in order to obtain authority to manage the assets. This is an expensive, time-consuming, and public process. A basic estate plan will include a durable Power of Attorney which is used to appoint a person to manage one’s affairs in the event of incapacity. A Power of Attorney is a very important estate planning document but it can be difficult for the appointed individual to utilize with banks and other financial institutions which often push back hard on someone attempting to access an account using a Power of Attorney. Banks and other financial institutions do not have the same hostility toward Trust accounts. The successor Trustee of a Trust can easily manage the Trust assets and use them for the benefit of the trust-maker in the event of the trust-maker’s incapacity

5. A Trust can Administer Assets for Minor Beneficiaries without Court Intervention – a Will cannot. Leaving money directly to a minor (under age 18) creates an administrative nightmare because under the law, a minor does not have the legal capacity to receive assets. The parent of the minor does not have the authority to act as the child’s legal representative until the court says so. As such, if you die with a Will that leaves money to minor beneficiaries, or if you name a minor as the beneficiary of your life insurance or IRA, the court will need to appoint a Conservator to receive that inheritance for the minor. The Conservator will be required to report annually to the court and the court will appoint an overseer (guardian ad litem) to make sure the Conservator is doing his or her job for your minor beneficiaries. This means huge costs and long delays in administering funds for minors. It also means that when the minor turns 18, he or she will be entitled to receive all of those assets and will be free to do with them as he or she wishes (think, fast cars, spring break, and lots of shopping). Creating a Trust to receive assets passing to a minor, or even to a young adult beneficiary, is the best way to ensure that the court is not involved in the process, that the person you want to manage assets for the beneficiary is able to do so, and that the beneficiary may use the assets only for purposes you decide are important and/or at ages that you dictate.

These are just five of the many ways in which a Trust is superior to a Will. If you want to learn more about whether a Trust is right for you, call us or email us to schedule an appointment with one of our experienced estate planning attorneys.

Attorney Suzanne R. Sayward is a partner with the Dedham law firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate and Trust settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. 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 our website at www.ssbllc.com or call 781/461-1020.

 

September, 2024
© 2024 Samuel, Sayward & Baler LLC

5 Things your Mom would Tell you if your Mom was an Estate Planning Attorney

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It being May, our thoughts are on longer days, warmer weather, graduations, and Mother’s Day. Being a mom myself, I can say with certainty that while I loved the gifts my children gave me for Mother’s Day, especially the hand-made ones when they were little, nothing warms a mother’s heart more than hearing her children say, “I followed your advice Mom and you were right.” (I think I can hear the mothers out there both agreeing and laughing hysterically…)

Read on for 5 Things your mom would tell you if your mom was an estate planning attorney.

1. Just Do It. Not to infringe on Nike, but if you’re an adult and you don’t yet have an estate plan, just do it. A basic ‘don’t leave home without it’ estate plan consists of a Will, Power of Attorney and Health Care documents. A Revocable Living Trust is an estate planning tool which can address many goals that people have when creating an estate plan such as probate avoidance, management of assets for young or disabled beneficiaries, and creditor protection for inherited assets left to children or other beneficiaries.

2. Get organized. This is the estate plan equivalent of ‘clean your room’ – something your mom may have said to you once or twice. But seriously, I often say to my clients that the best gift they can give to their families is to keep their records organized and updated. Would your family know what bills need to be paid and how to access the funds to pay them if you were incapacitated or at your death? Would they be able to easily discover what financial accounts you have? For many people their financial information is now available only via online access, and therefore they do not receive monthly statements in the mail. This can be a real problem if you have not prepared a list of your accounts (and, at the risk of horrifying IT people everywhere, your user names and passwords to access those online accounts) and made this information available to at least one trusted person. Consider what someone would need to figure out what you own and how to access it and prepare a road map.

3. Check your Beneficiary Designations. Many assets, such as retirement accounts, life insurance policies, and payable-on-death bank accounts, pass directly to beneficiaries when the owner passes away. It is crucial to review and update beneficiary designations regularly to ensure they align with your overall estate plan. Failing to designate beneficiaries or keeping outdated designations can lead to unintended consequences, such as assets passing to ex-spouses or deceased individuals. It can also have serious negative tax consequences when it comes to qualified retirement accounts. Reviewing your beneficiary designations on a regular basis is also important. When financial advisors change companies, the beneficiary designations that were set on the IRAs with the old company do not carry over to the new company. The fairly simple task of making sure the beneficiary designations are current will go a long way to ensuring a smooth, probate-free, and tax efficient transition of these assets at your death.

4. Make Sure Someone’s Watching the Children (Mom’s Grandchildren). For those who have minor (under age 18) children, it is vital to create a Will to name one or more people as the legal guardians for those minor children. The legal guardian of a minor child is the person who will have physical custody of the child and decide where child will reside, where the child will go to school, and oversee their religious education. The legal guardian is also the person who will have the authority to make medical decisions and have access to school records. However, naming someone in your Will as the guardian for your minor child does not confer the legal status of guardian; only a court can appoint a legal guardian. The naming of a guardian by parents in their Wills is an expression of their wishes which the court will honor (unless there is a valid objection raised but that’s a topic for a different day) but the process takes time. Because of that delay, parents should also sign a document appointing a temporary guardian for their minor children. Massachusetts has a statute that permits parents to appoint a temporary (for 60 days) guardian for their minor or disabled children. This allows time for the court to act to appoint the permanent legal guardian. The appointment of the temporary guardian does not require the involvement of the court.

5. Save Taxes if you can. When estate planning attorneys talk about taxes, we are usually referring to estate taxes. The estate tax is a transfer tax imposed on the value of assets transferred to beneficiaries when someone dies. There is both a federal and a Massachusetts estate tax. For both federal and Massachusetts purposes, assets that pass to a surviving spouse pass free of any estate tax regardless of the value of the assets. For assets passing to a person other than a surviving spouse, there is estate tax payable if the value of the estate exceeds the allowable exemption amount. In 2024, the federal estate tax exemption is $13.61 million and $2 million in Massachusetts. If your estate is at or above those levels, consult with an experienced estate planning attorney about planning to reduce estate taxes.

Creating and maintaining a comprehensive, up-to-date estate plan is a gift to your family that they will truly appreciate. If you don’t have an estate plan, or if it’s been more than five years since you’ve reviewed your existing plan, call us or email us to schedule an appointment with one of our estate planning attorneys. And Happy Mother’s Day to all the mothers out there!

Attorney Suzanne R. Sayward is a partner with the Dedham law firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. 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 our website at www.ssbllc.com or call 781/461-1020.

May, 2024
© 2024 Samuel, Sayward & Baler LLC

Death and Taxes

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Death and Taxes

Statesman Benjamin Franklin was famous for his words of wisdom or ‘proverbs’. One of his quotes that is still in frequent use today is, ‘in this world, nothing is certain except death and taxes.’ In the spirit of Ben’s quote, today we review the various tax returns that may need be filed when someone passes away.

The responsibility for timely filing the tax returns and making sure the tax is paid usually falls to the Personal Representative or Trustee. If you have been appointed as the Personal Representative of an estate, or if you are serving as the Trustee of a Trust created by a person who has passed away, it is important to understand the tax filing obligations. Failure to timely file may result in personal liability for late filing penalties and interest on late paid tax.

Final Personal Income Tax Returns

If someone passes away without having filed income tax returns for the prior year, it will be the responsibility of the Personal Representative to file those returns. If there is a surviving spouse and the couple filed joint returns, then the surviving spouse may file a joint return reporting the income of both spouses. The most common federal personal income tax return for U.S. taxpayers is Form 1040. In Massachusetts, individuals and married couples file a Form 1.

In addition to filing for the prior calendar year, if necessary, final state and federal income tax returns will have to be filed to report the income the deceased earned or received in the year of death. If there is a surviving spouse, a joint return may be filed. However, income earned on assets owned by a decedent after the date of death must be reported on a fiduciary income tax return (see below).

What happens if a person is not married at the time of death (so no surviving spouse to file) and there is no court appointed Personal Representative because the deceased did not have any probate assets?   IRS Publication 559 states that in that case, the Personal Representative is “any person who is in actual or constructive possession of any property of the decedent.” That means a family member, for example, who has knowledge of the deceased’s situation may file the final income tax return.

If a deceased person is due a refund, a Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, must be filed with the return. Form 1310 is exceptionally handy when there is no court appointed Personal Representative because it allows for the issuance of the tax refund check to be made payable to the person signing the Form 1310. The person signing the Form 1310 must check the box on the Form stating that he or she (the signer) will distribute the refund in accordance with the deceased’s Will or, in cases where the deceased did not leave a Will, to the deceased’s heirs at law.

The reason this is so useful is that without that option, the refund check will be issued to ‘the Estate of the Deceased.’ For estates where no probate is needed, there is no account opened in the name of the Estate. As such, the check cannot be deposited until a probate is opened and a Personal Representative appointed – this is often a long, and always costly proceeding. In fact, sometimes the cost of probate may exceed the amount of the tax refund. Form 1310 avoids this situation.

Fiduciary Income Tax Returns

If assets were owned in a decedent’s individual name or if the assets were held in Trust, then to the extent the assets earn income following the deceased’s death, that income is reported on a fiduciary income tax return filed by the Personal Representative of the Estate or the Trustee of the Trust. This is a federal Form 1041 and a Form 2 for Massachusetts. This would be the case for example if the decedent owned an investment account, rental property, a business, a bank account, etc. at the time of death. These assets will continue to produce income after the deceased’s death.

Assets that were jointly held, or assets which designate a beneficiary to receive them, pass directly to the surviving joint owner or named beneficiary and income earned subsequent to the deceased’s death is reported by the new owner.

It is not proper to report post-death income under the deceased’s Social Security number, nor should the Social Security number of the Personal Representative or Trustee be used. Once the owner of the revenue-producing asset passes away, the Personal Representative for the Estate or the Trustee of the Trust must obtain a new Taxpayer Identification Number (TIN), sometimes called an Employer Identification Number (EIN), for the Estate or Trust. Revenue produced by the Estate or Trust holdings will be reported under the Taxpayer Identification Number assigned to the Estate/Trust on a fiduciary income tax return.

Estate Tax Returns

An Estate Tax Return (not to be confused with a fiduciary income tax return discussed above) must be filed when the value of a decedent’s assets is more than the allowable exemption amount. For federal purposes the return is Form 706; in Massachusetts this is a Form M706.

In determining the value of the deceased’s estate for estate tax filing purposes, all of the assets that were owned or controlled by the deceased are included. It doesn’t matter whether it is a probate asset or a non-probate asset; if the decedent owned the asset or could control the disposition of the asset, then the value of the asset is part of the deceased’s gross taxable estate. Examples of assets that are includible in the gross taxable estate include real estate, retirement accounts, bank accounts, investment accounts and life insurance if the deceased owned the policy.

For federal estate tax purposes, the exemption amount is $13.61 million per person in 2024. The amount of the federal exemption will automatically revert to $5 million per person, adjusted for inflation, as of January 1, 2026. With the adjustment for inflation, the amount of the exemption is likely to be around $7 million person.

Massachusetts has a $2 million exemption. This means that if the gross estate (i.e., total value before deductions) of a Massachusetts resident’s estate is more than $2 million, a Massachusetts estate tax return must be filed even if allowable deductions mean that there will not be any estate tax payable.

The due date for filing a federal or Massachusetts estate tax return and paying any estate tax owed is 9 months from the deceased’s date of death.

Conclusion

Tax return filing for someone who has passed away can be confusing. Click here for a chart that may help to clarify this. However, if you are serving as the Personal Representative of an estate or Trustee of a Trust created by someone who has passed away, you are responsible for timely filing the relevant tax returns and it is vital that you understand your filing responsibilities to avoid personal liability. If we can help, please contact our office to schedule an appointment to meet with one of our attorneys.

Attorney Suzanne R. Sayward is a partner with 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. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. 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, 2024
© 2024 Samuel, Sayward & Baler LLC

New Smart Counsel Interviews – Dianne Savastano from Health Assist on Hospice

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Introducing the Smart Counsel Interview

Attorney Suzanne Sayward brings us something new today. Each quarter one of our attorneys will interview a guest on a topic that we feel will be of interest to you, our viewers. In this inaugural interview, Attorney Suzanne Sayward speaks with Dianne Savastano Founder & CEO of Health Assist on the topic of the hospice benefit. Please enjoy this video and her interview below and if you have any questions or want to learn more please call us at 781 461-1020.

Dianne Savastano Smart Counsel Interview on Hospice

Attorney Suzanne Sayward’s Smart Counsel Interview with Dianne Savastano. The interview covers many aspects of hospice and some of the misconceptions we have about it and the benefits covered during hospice. Please see links to the interviewee’s website Health Assist and the article that Dianne wrote that is the inspiration for the interview End of Life Care.

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

©2024 Samuel, Sayward & Baler LLP. All Rights Reserved. The information presented on this website should not be construed to provide legal advice, nor does it constitute the formation of an attorney/client relationship. Read the disclaimer.