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Hitting “Pause” on Creditors’ Claims Against Massachusetts Estates

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by Abigail V. Poole

As the Personal Representative (Executor) responsible for administering the estate  of a deceased family member or friend, one of your most important tasks is to determine the debts of the deceased and whether they can or should be paid as part of the estate settlement process. This is especially true if the estate may be insolvent because the deceased died with significant debt due to failure to pay income taxes or credit card bills, or the deceased was the recipient of Medicaid (MassHealth) long-term nursing home care benefits. 

Massachusetts law governs the order in which debt is to be paid to the so-called “creditors” of the estate, and certain creditors take priority over others. If you improperly pay some creditors out of order as Personal Representative, you may be personally liable to pay those that should have been paid but were not.

Under Massachusetts law, general (unsecured) creditors have one (1) year from the date of death to file a claim against an estate.  An example of a general creditor is a collection agency attempting to obtain payment on outstanding credit card debt.  The collection agency must take specific action within the one-year period to legitimize the creditor’s claim for payment of the debt.  If the creditor does not take the proper steps within that period, the creditor will be foreclosed from seeking payment from the estate. In other words, as Personal Representative you know that after the one-year anniversary date of the deceased’s death, creditors who have not taken the proper steps to legitimize their claims have lost their rights to enforce payment of the debt against the estate.

The COVID-19 pandemic has complicated this simple deadline. Under the Third and Fourth Updated Orders issued by the highest court in the Commonwealth of Massachusetts (the Supreme Judicial Court), the “pause” button was hit from March 17, 2020 through June 30, 2020 (106 days) on a number of such “deadlines”, including the creditor claims period applicable to estates. The button was “unpaused” as of July 1, 2020. What this means is the number of days remaining until the one-year claims period ends as of March 17, 2020 are added to the number of days remaining as of July 1, 2020.  For example, if the deceased died on January 1, 2020, in normal circumstances the creditor claims deadline would be January 1, 2021.  Due to the COVID-19 Order, the deadline is extended 106 days to April 17, 2021, and creditors have until that date to file claims against the estate.  The Supreme Judicial Court may order another extension if there is a new surge of COVID-19 cases in the Commonwealth. 

The extension of the creditor claims deadline impacts the timing of the other steps necessary to settle an estate.  If the Personal Representative decides that an Account itemizing the income and expenditures of the estate should be filed with the Court in order to release the Personal Representative from liability, such filing will be delayed until the extended deadline passes.  There may also be a delay in making final distributions to the beneficiaries of the estate. 

If you are the Personal Representative of an estate in Massachusetts, keep in mind this COVID-19-related impact on the claims of creditors who may be owed money by the deceased, and on the timing of estate settlement activities, and follow the advice of your estate planning attorney regarding the payment of claims.

At Samuel, Sayward & Baler LLC, we counsel families on the legal and tax matters that are necessary after the death of a loved one. You can request a consultation regarding estate administration with Attorney Poole by telephone at 781-461-1020 or visit our website at https://ssbllc.com.

Attorney Abigail V. Poole is an associate attorney 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 an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA).  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 ssbllc.com or call 781/461-1020. 

September, 2020

© 2020 Samuel, Sayward & Baler LLC

 

Estate Planning for Your Digital Assets

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Attorney Maria Baler discusses Estate Planning for Digital Assets in a detailed video that covers things you should consider as you plan out your digital legacy. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.

Understanding the MOLST Form

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WHAT IS A MOLST FORM?

A MOLST Form is a medical order form (kind of like a prescription).  It stands for “Medical Order for Life-Sustaining Treatment”.   The form conveys instructions between healthcare professionals regarding a patient’s care.   Click here to see the actual form.

DOES EVERYONE NEED A MOLST FORM? WHEN IS IT APPROPRIATE?

In Massachusetts, patients of any age with a serious advanced illness may discuss completing a MOLST form with his or her doctor.  It is a common misconception that a MOLST form should be completed routinely with other health care directives.  This is not the case.  Again – it is only intended for patients who have a serious advanced illness.

IS A MOLST FORM THE SAME THING AS A HEALTHCARE DIRECTIVE/ADVANCE DIRECTIVE?

No, these are two different documents.  Advanced directives (also known as health care proxies) are legal documents that become effective after the patient has lost capacity and is no longer capable of making his/her healthcare decisions.    All adults over the age of 18 should have a healthcare proxy to name an agent to make healthcare decisions in the event of an unexpected accident or illness.

A MOLST form, however, is a medical document that contains medical orders that are effective immediately based on a patient’s current medical condition, regardless of the patient’s current ccapacity to make healthcare decisions.

If you decide to execute a MOLST form with your doctor, you also need to complete a healthcare proxy.

WHAT IS THE PROCESS FOR COMPLETING A MOLST FORM?

Before completing a MOLST form, the signing clinician (physician, nurse practitioner, or physician assistant), the patient and family members should discuss the patient’s medical condition, what should happen next, the patient’s values and goals for care and any possible risk and benefits of treatments offered.  After these discussions occur, the form may be completed and signed by the clinician and the patient.  The executed form remains with the patient and is to be honored by health professionals in any situation.  

For a helpful website regarding the MOLST form, click here.

5 Ways in Which the Best Laid (Estate) Plans Can Go Awry 

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When someone takes the time to create a Will or Trust that sets out their wishes for the distribution of their estate at death, they often experience a feeling of relief knowing that their assets will be distributed in accordance with their wishes. However, if the estate plan is not carefully crafted and then reviewed and adjusted from time to time, the intended results may not be achieved. 

Read on for 5 ways in which the best laid estate plans can be derailed. 

  1. Assets are distributed other than by way of the Will or Trust.  In some ways a Will is the “distributor of last resort.”  For example, if you own assets jointly with another person, or if you designate a beneficiary to receive an account (‘pay-on-death’ or ‘transfer-on-death’), then those assets are not going to pass under your Will or Trust.  If someone provides for specific bequests in her Will, such as $5,000 to my sister Jane or $1,000 to the Animal Rescue League, but has her children as joint owners or pay-on-death beneficiaries on all of her accounts, then those specific bequests will not be paid.  Make sure you understand how your assets will be distributed and that you own your assets in a way that will achieve your distribution goals. 
  2. Taxes are not factored in – part 1. There are two types of taxes to be concerned about when planning your estate:  income tax and estate tax.  For the most part, inherited assets are not income taxable to the recipient.  For example, if my aunty leaves me $50,000 in her Will, that is not taxable income to me.  However, qualified retirement accounts such as IRAs and 401ks are an exception to this rule.  If my aunty names me as the beneficiary of her $50,000 IRA, that will be taxable income to me.  Consequently, I will not actually receive a $50,000 bequest; it will be diminished by the state and federal income taxes I must pay. 
  3. Taxes are not factored in – part 2.  Estate taxes are imposed on the value of the assets that a person owns at death and that are distributed to someone other than a spouse or charity.  Currently, the federal law provides for a very large exemption from estate tax of almost $11.6 million per person.  That means that if the value of a person’s estate is less than $11.6 million, there is no estate tax payable to the IRS.  Massachusetts has its own estate tax system which allows for an exemption of $1 million dollars.  If your estate is more than $1 million, be aware that the amount you will be passing on to your beneficiaries will be less than the full value of your estate. In addition to being aware of the tax liability, it is also important to specify in your estate plan who is going to bear the burden of the tax.  For example, say you have a family business worth $2 million and other assets (home, investments, retirement accounts) totaling $2 million.  Your daughter works in the business so in your Will you leave the business to her.  Your Will then leaves the rest of your estate (the residue) to your son.  There will be $280,000 of estate tax payable to Massachusetts.  Who will pay that tax?  Should it be borne equally by your children.  If so, does the business have the liquidity to pay its share?  Should the tax be paid entirely from the residue of your estate (the share going to your son)? What’s ‘fair’?  Your estate plan should state your intentions. 
  4. Estate assets change over time and the estate plan is not updated.  It is very important to review and update your estate plan from time to time because things change.  This happens often with distributions of tangible personal property such as jewelry and collectibles.  I have seen a number of situations where the Will or accompanying memorandum leaves a particular piece of jewelry to a someone but that item has been sold or cannot be found when the testator dies.  It is particularly troublesome when the item cannot be located and no one has any information about whether it was sold or intentionally given away during the deceased’s lifetime – it’s in those situations that the finger-pointing begins… 
  5. The possibility that a beneficiary will predecease the testator is not factored into the planning.  Your Will or Trust should include provisions stating what will happen in the event one or more of your beneficiaries predeceases you.  For example, if you leave $10,000 to your grandchildren Gary and Caroline in your Will, what should happen to that bequest if Gary predeceases you? Should Gary’s share be distributed to Gary’s children? Should it be distributed entirely to Caroline? Should it lapse?  

These are just a few of the pitfalls that can derail your intentions for the distribution of your assets after your death. When you take the time to consider and decide how your estate should be distributed among the people you care about, make sure that your wishes are actually carried out at your death by working with an experienced estate planning attorney  to create your Will or Trust, and then reviewing your estate plan with your attorney every few years.  Happy planning! 

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.

August, 2020

© 2020 Samuel, Sayward & Baler LLC

The CARES Act Upends the Rules on Distributions from Retirement Accounts

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As if the passage of the SECURE Act on January 1st of this year did not create enough upheaval in the world of qualified retirement plans, along came the “Coronavirus Aid, Relief and Economic Security” Act (the CARES Act) on March 27, 2020 and added even more.  The CARES Act upends the fundamental rules for who must, and who may, take distributions from qualified retirement plans such as IRAs, 401ks, 403(b)s and 457 plans in 2020.

A Refresher on Qualified Retirement Plans

Qualified retirement plans such as 401ks and IRAs allow people to set aside some of their earned income for their retirement in a tax-favored way by deferring the income tax due on the funds contributed to the plan until such time as the funds are withdrawn.  Roth plans work the opposite way – they are funded with post-tax dollars but no tax is owed on amounts withdrawn.   In both types of qualified retirement plans, the funds in the plan grow tax-free.

As the purpose of these plans is to encourage people to save for retirement, the law discourages withdrawals prior to age 59.5 by imposing a 10% penalty on amounts taken out of the plan before reaching that age.

On the flip side, since the government wants to collect the tax on these monies eventually, the rules governing qualified retirement plans require that a certain amount be withdrawn each year once the owner reaches age 70.5 (age 72 beginning in 2020 thanks to the SECURE Act).  The amount required to be withdrawn each year from a traditional retirement plan is the Required Minimum Distribution (RMD), sometimes called the Minimum Required Distribution (MRD).  (Note that individuals who fund a Roth IRA or 401K are not required to take withdrawals during their lifetimes.)  Whatever you call it, this amount MUST be withdrawn from the plan and the owner must pay income tax on the amount withdrawn.  In fact, the government is so adamant about this withdrawal that the law imposes a 50% penalty if someone fails to take the full amount of their RMD in any one year.  But not in 2020!

Individuals Required to Take Minimum Distributions are NOT Required to do so in 2020

The CARES Act eliminates the requirement that a person who has reached his required beginning date (i.e. age 70.5 before January 1, 2020) take an RMD in 2020.  For people with large retirement plans who do not need their RMD to pay their expenses, this is a tremendous benefit.  Not only will the amount of the RMD remain in the qualified retirement plan and continue to grow tax free, but the income tax due on the distribution is avoided.  For example, if the RMD on a $1 million IRA is $50,000, not having to take those funds might save $10,000 in tax (15% federal and 5% in Massachusetts).  This is not a deferral of the tax; this is a complete avoidance of it.

Individuals who took a Distribution in 2020 but Wished They hadn’t may put it back

Not only does CARES allow people to skip their RMD for 2020, but it allows people who took their RMD out of their IRAs earlier in the year to return the funds and avoid the tax.  However, you must return the funds to your IRA by August 31, 2020.  If you are in this situation, contact your tax advisor or the custodian of your retirement account as soon as possible to make sure you comply with the rules for returning the funds before the deadline.

Individuals who would have been Penalized for Taking Distributions from Qualified Retirement Plans may be able to do so without Penalty in 2020

Under CARES, if a person under the age of 59.5 is a ‘qualified individual’ he may withdraw up to $100,000 from qualified retirement plans in 2020 without incurring the 10% penalty.  In addition, a qualified individual may spread the tax due on the distribution over a 3-year period.  Alternatively, a qualified individual may re-pay the distribution to the plan within three years and never pay the tax on the distribution – kind-of like a tax-free loan from yourself.

Under CARES, a ‘qualified individual’ eligible for this favorable treatment, is:

Either a person who is diagnosed with COVID-19, or whose spouse or dependent is diagnosed with COVID-19;

Or,

Someone who experiences ‘adverse financial circumstances’ (or whose spouse or household member does) as a result of the pandemic.

The Act includes a number of examples under which ‘adverse financial circumstances’ may occur (being laid off or furloughed, losing child care, being quarantined, or experiencing a reduction in pay) and does not otherwise define adverse circumstances.

The provisions of the CARES Act applicable to qualified retirement accounts can provide significant financial benefit for people who find themselves in either of these circumstances – over age 70.5 and not in need of the annual RMD, or under age 59.5 and in need of funds.  The above is a summary of these rules and of course the devil is in the details.  If you want to learn more about your options under CARES, reach out to your tax or financial advisor to learn how the specific provisions of the Act apply to your situation.

Common Misunderstandings and Mistakes Family Members Make When Serving as Trustees

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Congratulations! You’ve been named as a Trustee by a loving family member. Now what?

Family members are often named to serve as Trustees without any explanation of their role and duties and sometimes without any notice. It is no surprise that family member Trustees make mistakes, some of which become lawsuits. Here’s an outline of the Trustee’s role and responsibilities and some common mistakes family member Trustees make.

Trustee Role and Responsibilities

Family estate plans often include Trusts because Trusts can accomplish many family goals. Real estate and other assets owned by a Trust avoid probate, the costly, time consuming and public process of carrying out instructions in a Will. Trusts can reduce estate taxes, achieve charitable goals, provide for young children or family members with special needs and accomplish other important purposes for families.

Trustees, the people named in Trusts to manage the affairs of the Trust, have administrative, investment and distribution roles. Trustee administrative roles include keeping records of what the Trust owns and reporting on the condition of Trust assets  to the Trust beneficiaries, as well as filing tax returns for the Trust. Trustee investment duties include managing investments directly or choosing and supervising investment advisors. A Trustee’s distribution role is to carry out the instructions in the Trust about what each beneficiary is entitled to receive and when the beneficiary is entitled to receive it.

Common Misunderstandings and Mistakes

Baby boomers are anticipated to transfer close to $70 TRILLION to the next generation. Given the complex nature of Trustee responsibilities, it is no surprise that lawsuits between family members are increasing, often caused by misunderstandings and mistakes by inexperienced family member Trustees. Here are some examples.

Misunderstanding Fiduciary Responsibilities

By law, Trustees have fiduciary level responsibility to beneficiaries of Trusts, not to the creators of Trusts. Fiduciary level responsibility means the Trustee must make decisions based on what is best for the beneficiaries; and, all Trustee conflicts must be disclosed and addressed in a fair way. This can be very tricky when a Trustee is also one of the beneficiaries.

When investments don’t produce enough money to accomplish Trust instructions to provide education or other costs for every one of several beneficiaries, carrying out fiduciary responsibility can challenge even experienced professional Trustees. And, another challenging situation occurs when investments produce much more money than was expected and potentially put a great deal of money in the hands of very young persons.

Investment Supervision Misunderstandings

Trusts can own life insurance, real estate, stocks, bonds, mutual funds and virtually any other assets. Trustees have a duty to supervise the performance of all investments, not simply be a record keeper and that requires knowledge and experience. For example, life insurance policies owned by Trusts, especially policies with cash value, should be reviewed annually, with updated performance information obtained from the insurance company. Stock, bonds and similar investments need even more frequent attention from Trustees. Trustees must be able to carefully select investment advisors as well as supervise the advisors and be well informed about laws and Trust instructions that guide or limit Trust investments.

Administrative Misunderstandings

Record keeping and taxation of Trust owned property and investments are very different than the same tasks for individually owned assets. For example, Trust income reaches the highest tax bracket (37%) for income over $ 12,950 compared with an individual taxpayer’s income that reaches the 37% bracket at $ 500,000.  When Trust income is distributed to individual beneficiaries, the income is instead taxable at the individual’s rate.

Payment of premium for Trust owned life insurance involves more than sending a check to an insurance company. The payments are usually funded by gifts to the Trust that have to be documented in a particular way and a mistake can void the tax benefit of the Trust.

When Trustees don’t provide periodic accountings to beneficiaries, the result can be more than hurt feelings of other family members. The same is true when Trustees pay themselves fees for their work as Trustees, depending on whether fees are authorized by the Trust and whether the fees are reasonable in relation to the work.

Approaches to Avoiding Trustee Misunderstandings

Future misunderstandings between family member Trustees and beneficiaries are not easily foreseen. Changes in families through marriage, divorce or unexpected financial reverses or gains can upend even the most stable, close family relationships.

People who intend to name family members as Trustees, can help avoid future misunderstandings by a range of methods.  A family member’s interest and willingness to learn about Trustee roles and duties may be an important clue to whether being a Trustee is a good fit for that person. Written materials about Trustee roles and duties are not hard to find and the family’s current legal, tax and financial advisors are another source of education. Selecting a professional Trustee is another choice some families may prefer. Consulting the family estate planning attorney and other close professional advisors is a good place to start in searching for good choices for Trustees.

Samuel Financial LLC is located at 858 Washington St. Dedham, MA 02026 and can be reached at (781) 461-6886.  Securities and advisory services offered through Commonwealth Financial Network ®, member FINRA/SIPC, a registered investment adviser. www.samuelfinancial.com.

Legal services offered through Samuel, Sayward & Baler, LLC are separate and unrelated to Commonwealth. 

Ask SSB

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Q:        My daughter will be heading off to college in the fall and a friend told me that I won’t be able to get information from the college about her grades or even about her health if she was sick.  Is this true and if so, what can I do about it?

A:        Yes, that is true. Once a child turns age 18, she is considered an adult in the eyes of the law and is entitled to the same privacy protections as every other adult. The Health Insurance Portability and Accountability Act (HIPAA) is a federal law that prohibits health care providers and insurers from sharing information about you without your permission.  The law imposes monetary fines on medical providers who violate the HIPAA rules.

Your child may grant you access to her medical information by signing a HIPAA Authorization that releases her medical providers from any liability under HIPAA should they speak with the individuals named on the HIPAA Authorization. In addition to signing a HIPAA Authorization, your college student, and really everyone over the age of 18, should create a Health Care Proxy, that authorizes someone to make health care decisions for her if she is not able to do so herself.

The Family Educational Rights and Privacy Act (FERPA) is a federal law that protects the privacy of student education records. While a student is a minor, FERPA ensures that parents have certain rights with respect to their children’s education records. However, once the student reaches age 18, these rights transfer to the student.

Although you lose the right under the law to have access to this information about your child once she turns 18 years of age, your college student may grant you access to her educational records.  In fact, most colleges and universities have a FERPA Release form that the student may sign authoring release of educational records to parents.

The key here is that your child, not you, must create and sign these documents and that your child will choose who to include on her HIPAA Authorization, who to designate as her Health Care Agent under her Health Care Proxy and whether to grant consent under FERPA.

In Office Meeting Procedures

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Lynne Abe discusses our new In office meeting procedures for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.

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

©2020 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.