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The Do’s and Don’ts of Estate Planning According to the Movie Knives Out

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Over the holidays, I had the pleasure of seeing the movie Knives Out in the theater.  Knives Out is about an elderly author who dies shortly after a family gathering, and the subsequent inheritance of his multi-million-dollar estate.  The plot slowly reveals that the author’s death and his relationships with his family members and employees may not all be as they first seem. Naturally, I was curious to see the extent of artistic license taken versus my “real world” perspective as an estate planning attorney and probate administration attorney with regard to the inheritance and dealing with large estates. Here are a few do’s and don’ts of estate planning according to the movie Knives Out in comparison to the actual practice of estate planning and administration (warning – spoilers ahead).

Do Update Your Estate Plan Regularly to Reflect Your Wishes. In the movie, the author updates his Last Will and Testament shortly before his death and drastically changes who will inherit his estate from his family to an employee, thereby cutting off his family members from receiving any portion of his estate.

Practically, his family members could contest his Last Will and Testament in court for several different reasons in an effort to invalidate the Will and inherit the estate instead.  To combat an anticipated challenge to the Will, a so-called “no contest” provision (also known as an “in terrorem” or “poison pen” provision) may be included in a Will.    The no contest provision basically states that if any person who stands to inherit a portion of your estate challenges the Will he or she will receive nothing.  Such a provision is most effective when a person has something to lose in the event of a contest and it is clear that the Will creator intended to include the provision.  Not all states recognize these provisions as valid but Massachusetts does. Incidentally, part of Knives Out was filmed in Massachusetts at the Ames Mansion in Borderland State Park located in the towns of Easton and Sharon.

Don’t Tell Your Family Members That They Are Disinherited Otherwise It May Result in Your Untimely Demise If You Are A Rich Author. The author tells some of his family members that they are disinherited from his estate and will no longer receive financial support from him while he is alive. This leads to the author’s demise, which is investigated by an eccentric and cunning southern gentleman detective to determine if the author was, in fact, murdered, and by whom. The detective’s quest to discover the murderer leads him to the employee who is named to inherit the estate, which brings us to the last avenue by which the family could inherit the author’s estate: the so-called “slayer statute”. Under the slayer statute, if the person who stands to inherit from an estate is convicted of the deceased’s first-degree murder, second-degree murder or manslaughter, he or she is prohibited from receiving the inheritance (G.L.c. 265, §46).

In reality, it is your decision as to the information you wish to share with your family members about your estate plan. If it is important to you to be transparent about your wishes and you are comfortable sharing that information, you may wish to speak with each family member alone or hold a family meeting or simply provide copies of your estate plan. At the very least, provide your family members with your estate planning attorney’s contact information so they know who to call for guidance after your death.

Do Share Information About The Inheritance After The Person’s Death If You Are The Personal Representative. The Personal Representative (Executor) of the deceased’s estate must administer the estate according to the deceased’s Will or the state intestacy laws. One of the Personal Representative’s administrative duties is to inform those who will be receiving inheritances from the estate. The Personal Representative should work closely with an attorney to administer the estate properly, including filing probate pleadings, to ensure he or she completes all the necessary tasks according to certain deadlines to reduce the risk of liability.

Don’t Expect A Reading of The Will To Learn About Your Inheritance. The reading of the author’s Will is a pivotal and dramatic moment in Knives Out. In reality, readings of Wills rarely take place after the deceased’s death. Instead, copies of the Will are provided to the recipients of the estate by the Personal Representative.  Additionally, the original Will is filed with the probate court along with the pleadings and becomes public record.

If you have some free time and enjoy movies with well-crafted dialogue delivered by a talented multigenerational cast, surprising plot twists and turns, and filmed in Massachusetts, I suggest you see Knives Out. It is not only entertaining but also highlights the importance of having an up-to-date estate plan in place.

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 such as long-term care planning. 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 www.ssbllc.com or call 781/461-1020.

January, 2020

© 2020 Samuel, Sayward & Baler LLC

Five Taxes your Heirs May Pay (or not) After your Death

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Most people understand that estate planning and inheritance planning involves making sure that people you trust can make decisions for you if you become incapacitated during your lifetime, and making sure your assets go where you want them to go when you die.  It should also involve identifying and planning to minimize the five different types of taxes that may be payable by your heirs after your death.

  1. Federal Estate Tax – When a United States citizen or resident passes away, the estate of the deceased person may be required to file a federal estate tax return and may have to pay a federal estate tax. The estate tax is a one-time tax that is payable after death on the value of your “estate”, which is essentially any assets you own or control at the time of your death.  A federal estate tax return is due on the nine-month anniversary of the deceased’s date of death, and any estate tax due must be paid by that time to avoid interest and penalties from accruing.

The good news for most people is that the federal estate tax exemption is $11.58 million as of January 1, 2020 ($11.4 million in 2019).  This means that if the value of the assets you own at the time of your death (your so-called “taxable estate”) is less than the exemption amount, you do not have to file a return or pay a federal estate tax.  Estate tax is also not payable on the value of assets left to your surviving spouse or to charity.  The federal estate tax exemption is adjusted annually for inflation.  On December 31, 2025, the federal tax law that gave us such a large federal exemption amount will “sunset” unless Congress takes action.  Upon sunset, the federal estate tax exemption amount will revert to the prior level, adjusted for inflation, most likely a little more than $5 million.

If your “estate” is greater than the federal estate tax exemption, speak to your estate tax planning attorney and tax advisors about planning steps you can take to reduce or eliminate any federal estate tax your estate may have to pay.  Don’t forget about trusts when it comes to estate tax –  certain type of trusts, as well as gifting strategies, including charitable giving, can be effectively reduce the estate tax payable at death.

Keep in mind that even if you do not owe federal estate tax at death, it may still be advisable for the Personal Representative of your estate (formerly known as your Executor) to file a federal estate tax return so that your surviving spouse’s estate can take advantage of your unused federal estate tax exemption.

  1. State estate tax – If you live in Massachusetts, you live in one of 18 states plus the District of Columbia that has a separate state estate or inheritance tax. If you die a Massachusetts resident, your estate must file a Massachusetts estate tax return if the value of your estate is $1 million or more.  This is a relatively low threshold.  For many residents of Massachusetts who own a home, have a retirement account of significant value, and own life insurance, this is a tax they should be aware of and plan for.

There are several bills pending in the state legislature that would raise the Massachusetts estate tax exemption amount, however none of them has succeeded to date.   Until the exemption amount is increased, as with the federal estate tax, the Massachusetts estate tax can be reduced if not eliminated with thoughtful estate tax planning with the advice of your attorney.  As with the federal estate tax, a Massachusetts estate tax return must be filed and any tax paid within nine months after death.

  1. Personal Income Tax – No matter what time of year you pass away, final state and federal income tax returns will have to be filed to report the income you earned or received during the year of your death from January 1 through the date of your death. It is important to keep good records of your income and deductions, and to keep your tax records organized, so that your heirs or others who are settling your estate will be able to provide your tax preparer with the information necessary to prepare your final personal income tax returns, and so that those returns can be filed timely to avoid penalties and interest that may accrue and be payable by your estate.

It is also important to keep your personal income tax filings up to date while you are alive.  Collecting information necessary to file the deceased’s final personal income tax returns is hard enough.  Trying to reconstruct past years’ records in order to file returns that are past due is difficult, time consuming, and can be very expensive when interest and penalties for unpaid taxes start to add up.  Keep in mind that the Personal Representative of your estate can be personally liable for any unpaid tax liabilities. This is not a legacy anyone should leave.

  1. Fiduciary Income Tax – The fiduciary income tax is a little-known income tax payable by estates and trusts on income earned during the year. For example, if you die owning 1000 shares of Exxon stock and a three-family rental property, those assets are part of your “estate” at your death. The dividend income received on the Exxon stock and the rental income paid by the tenants residing in your rental property after your death is “income” earned by your estate.  This income must be reported on a fiduciary income tax return each year your estate remains open.  If these assets are owned by a trust, income earned on trust assets is also reported on a fiduciary income tax return.

Fiduciary income tax can be very steep, considering that the tax brackets are such that estates and trusts reach the highest federal income tax bracket of 37% at only $12,750 of income.  To avoid paying unnecessary fiduciary income tax, it is best to plan with your attorney to ensure your estate will be administered efficiently, and that any trust you create is structured properly with tax savings in mind, even if assets will stay in trust for the benefit of your heirs.

  1. Income Tax on Retirement Accounts– The government kindly allows us to save money in our retirement accounts – IRAs, 401ks, 403bs – without paying federal or state income tax on the funds contributed to those accounts. The end result is that many people have large “qualified” retirement accounts on which income tax has never been paid.

The tax laws require money to be withdrawn from retirement accounts, and state and federal income tax paid, when we reach a certain age, or within a certain period of time after the account owner dies.  The SECURE Act, signed into law by President Trump just before Christmas as part of the budget bill, makes significant changes to these rules.

If you have large retirement accounts, it is important to understand the changes made to these tax rules by the SECURE Act, how much your beneficiaries will have to withdraw from these accounts and when, and to plan to minimize the income taxes payable on those distributions if possible. This is not as easy as it used to be now that the SECURE Act is law; however, there are still planning options to consider that can have a big impact on how much of those accounts may be lost to income taxes after your death.

Death and taxes (and estate tax and income tax planning!) are not most people’s favorite topic (present company excluded), however you can save your heirs a lot of money, and maximize the inheritance they receive, if you take the time to understand the taxes that are potentially payable at death and take steps to plan to minimize or eliminate these taxes before they become due.

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), and currently serves on the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. 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.

January, 2020

© 2020 Samuel, Sayward & Baler LLC

“I Just Need a Will”

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Potential clients sometimes call our estate planning and elder law firm to make an appointment to see an attorney stating that they “just need a Will.”  Ironically, a Will is often the least needed estate planning document.  For many people, their estate will pass to their intended beneficiaries without a Will exactly as it would if they had a Will.  That’s because the Massachusetts intestate law that determines the people to whom an estate will be distributed in the absence of a Will, is in keeping with the distribution and inheritance planning wishes of many people.

Massachusetts law regarding wills and inheritance provides that if a member of a married couple dies without a Will and all of the couple’s children are children of the marriage, then the estate of the deceased spouse will pass entirely to the surviving spouse.  If the surviving spouse later dies without a Will without having remarried, her estate will pass to their children in equal shares.  Further, many married couples own all of their assets jointly (their home, bank accounts, investment accounts) or have beneficiaries designated to receive their assets (IRAs, 401Ks, life insurance, etc.).  In that case, no assets pass under the terms of the Will and instead pass by operation of law (joint ownership) or via the ‘contract’ made with the financial company or life insurance company when that beneficiary designation form was completed.

Of course, for people who do not have a situation that fits neatly under the intestate statute, a Will, and often a Trust, is vital.  This includes blended families, people who have beneficiaries with disabilities or special needs or beneficiaries who struggle with addiction or beneficiaries who are spendthrifts.  It also includes those with minor children and those who want to reduce estate tax or provide creditor protection for the inheritance they leave their beneficiaries.

Frankly, the essential estate plan documents that everyone over the age of 18 should have in place include a durable Power of Attorney and a Health Care Proxy.  These documents appoint someone to pay bills, manage assets, deal with the insurance company and make medical decisions if the person making those documents has an accident or gets sick and cannot do those things for himself.  The law does not make it easy for someone to do these things in the absence of Power of Attorney or Health Care Proxy.  In the case of incapacity without those documents in place, the law requires a court proceeding to appoint a conservator to manage an incapacitated person’s finances and another court proceeding to appoint a guardian to make medical decisions.  These are expensive, time-consuming, and public proceedings and best avoided.

Give us a call us at 781-461-1020 and let us help you create the right estate plan (even if you just need a Will) for your family.

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.

 December, 2019

© 2019 Samuel, Sayward & Baler LLC

Five Important Numbers to Know for Long-Term Medicaid Benefits

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“What happens if I need long-term care in a nursing home and I can’t afford to pay for it?” I hear this question frequently from clients who are concerned about long-term care because the cost of nursing home care is so high. In Massachusetts, nursing home care costs anywhere from $11,000 to $17,000 per month ($132,000 to $204,000 per year) and continues to increase regularly. The short answer is Medicaid (MassHealth), a joint federal/state government benefits program, will cover your long-term care nursing home expenses so long as you meet the medical and financial eligibility criteria for the program. Here are 5 important numbers to keep in mind with respect to eligibility for long-term care Medicaid benefits in Massachusetts.

You Must Be 65 Years of Age or Older. 

The first hurdle to apply for and receive Medicaid long-term care benefits is that you must be 65 years of age or older.

You May Not Have More Than $2,000 of Countable Assets. 

Medicaid has strict limitations with regard to the value of assets an individual may own and qualify for long-term care Medicaid benefits to pay for nursing home care.  Assets may be deemed to be “non-countable,” “inaccessible” or “countable.”  Countable assets include assets such as bank accounts, investments, most retirement accounts and the cash value of life insurance, to name a few.  An individual may have only $2,000 in countable assets in order to be eligible for long-term Medicaid benefits.  Non-countable assets include pre-paid burial accounts, one automobile and a primary residence.  Inaccessible assets are less common and include things like the proceeds from a lawsuit that has not yet settled or an anticipated inheritance during the estate administration phase and before distribution. Countable assets above that $2,000 threshold must be spent down (in permissible ways) before eligibility will be achieved.

A Spouse Living in the Community May Keep an Additional $126,420 of Countable Assets.

If the individual who is residing in the nursing home and applying for Medicaid benefits has a spouse who is living in the community (i.e. not in a nursing home) that community spouse has asset limitations, too.  The spouse is allowed to own only $126,420 of countable assets for 2019.  This amount, called the Community Spouse Resource Allowance (CSRA), is typically increased every year. This means that a married couple living in Massachusetts may have a combined total of $128,420 in countable assets (2019).  If they have additional countable assets, such as an investment account or an IRA worth $100,000, then those funds must be spent down before the nursing home spouse will be eligible for Medicaid benefits.  An experienced elder law attorney can advise a married couple of options for dealing with excess assets in this situation.

Beware the 5-Year Look Back Period!

An important thing to remember about Medicaid benefits eligibility is that Medicaid will review any transfers of your assets made within the five years (60 months) prior to the Medicaid application.  This is often referred to as the 5-year look back period. Medicaid can request copies of account statements for the last five years to check for gratuitous transfers.  For example, if you gifted $15,000 to your child three years prior to applying for Medicaid benefits, Medicaid will view this as a disqualifying transfer of funds because you could have otherwise utilized that money to cover a month of your nursing home expenses. Disqualifying transfers made within the 5-year look back period will result in a period of ineligibility.

The Applicable Divisor is Currently $367.21 Per Day.

Medicaid determines the period of ineligibility for Medicaid benefits due to a disqualifying transfer by dividing the value of the asset transferred by the average daily cost of a nursing home as determined by the state. As of November 1, 2019, this transfer divisor is $367.21 per day in Massachusetts. This means that $15,000 you gifted to your child three years ago will result in 41 days of ineligibility for Medicaid benefits to you now.  But here’s the kicker – the disqualification period only begins to run once you have no more than $2,000 of countable assets.  This means that after all of your funds are spent, you will then be ineligible for Medicaid benefits for 41 days. This is a serious ‘trap for the unwary’ and why long-term care planning is so important.

Another trap for the unwary can occur when someone has made a large gift, such as putting the house in the children’s names, and then applies for Medicaid benefits prior to the expiration of five years.  In that case, the ineligibility for Medicaid benefits can extend well beyond five years from the gift.

The financial eligibility rules for long-term Medicaid benefits are complex and everyone’s situation is unique.  The elder law and medicaid planning attorneys at Samuel, Sayward & Baler LLC can assist you with planning in advance to preserve your assets for your family in the event you require Medicaid long-term nursing home care benefits and can help you prepare to navigate the Medicaid application process.

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 such as long-term care planning. 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 www.ssbllc.com or call 781/461-1020.

December, 2019

© 2019 Samuel, Sayward & Baler LLC

In Estate Planning, Preparation Is Key

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It is everyone’s hope that they will die after they have managed to get everything in order so that their family will have an easy time of it and not be left picking up the pieces.  Here are some things to put on your Estate Planning To Do list, to make it easier on your family if you depart this world before tying up all the loose ends:

  1. Identify a place in your house where you keep important information and documents and let trusted family members (or personal representatives) know where that is. I suggest a well-organized filing cabinet with clearly labeled folders containing important information and copies of your legal documents such as wills, trusts, powers of attorney and health care proxies.
  2. Create a list of your assets that includes the institution where each account is located, the account number, your contact person at that institution (if any) and their contact information. Include on this list bank accounts, investment accounts, annuities, life insurance, retirement accounts, etc.    Keep this list updated, and in the place where you keep other important papers so that it can be found.
  3. If you have original stock certificates, savings bonds, cash or other valuables in your house, make a note of where those items are kept so that they are not overlooked or inadvertently thrown out.
  4. Don’t forget digital estate planning. Create a list of usernames and passwords for any important online accounts – financial, photo storage, email, social media, document storage accounts. Keep this list updated and in the place where you keep other important papers so that it can be found.
  5. If you have young children or a child with special needs, consider a letter of instruction that provides important information about your child – the name and contact information for their physician, allergies, other important medical information and other things you think someone should know if they had to care for your children unexpectedly.
  6. Review and update beneficiary designations on life insurance and retirement accounts in consultation with your estate planning attorney to ensure the designations do not disrupt the other provisions of your estate plan.
  7. Do your best to keep your income tax filings up-to-date so that your family will not have to try to piece together that information in order to file income tax returns after your death. This is a painful and expensive process that can lead to lingering liability for family members.
  8. If you have a safe deposit box, make sure at least one other trusted family member’s name is on the box so that they will have access after your death This is especially important if your original Will or other estate plan documents are in the box.
  9. And finally, make sure your estate plan documents are up-to-date, and that you have left instructions for your family regarding where to find them, and the contact information for your estate planning attorney.

Tackle one of these tasks every month, and within a year you will be leaving your family well-prepared if something unexpected occurs.

November, 2019

© 2019 Samuel, Sayward & Baler LLC

Estate Planning and Taxes – Five Things to Know About Taxes After Death

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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.

See the chart for more information on tax deadlines.

 

  1. 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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Natalene B. Ong, Esq. is an estate planning attorney at Samuel, Sayward & Baler LLC, 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

Ask SSB

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Who Should I Name as Executor?

Q:        How do I choose who to name as my Executor, Power of Attorney, Health Care Agent and Trustee?  I don’t want to hurt any of my children’s feelings.

A:        It can be hard to decide who to name to these roles, especially if you think a child will be upset if not chosen.  While you don’t want to make a child feel slighted, the duties and obligations of the executor of your Will (now called a Personal Representative), Attorney-in-Fact under your durable Power of Attorney, and your Health Care Agent are substantial and you must appoint a person who can carry out the responsibilities that each role entails. If you create a Trust as part of your estate plan, be aware that the duties and responsibilities of a Trustee are many and varied.  The roles of Personal Representative, Trustee, and Attorney-in-Fact require a person who is well-organized, not a procrastinator, and willing and able to move a project forward to a conclusion.  He or she should be able to work well with others, such as attorneys and accountants, and also get along well with family members and keep them informed. Most importantly, these roles require someone who is absolutely trustworthy.

Your Health Care Agent should be someone you are comfortable speaking with about your health care wishes and who you can trust to carry out your instructions.  Your health care agent should be able to communicate with your health care providers, not be afraid to ask questions or request explanations, and be able to advocate for you as necessary.

In complex situations or where significant discord between family members is expected, a non-family member may be the best choice.  In any event, you should discuss your concerns with an experienced estate planning attorney who will help you make the right choices.

Taking the Mystery Out of Gift Giving

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We are often asked about the tax rules around gift-giving, especially as the end of the year approaches.  These tax rules are governed by the federal gift and estate tax system, which is wholly separate from the income tax system.  There is no Massachusetts gift tax.

If you give a gift, the money you give is not income taxable to the recipient, nor is the gift tax-deductible by you (the person who makes the gift, who we’ll call the “donor”), unless it is made to a qualified charity.

Federal gift tax, if any, is paid by the donor, not by the recipient.  For federal gift and estate tax purposes, under current law every US citizen has a combined $11.4 million exemption (in 2019) from gift and estate tax. This means that each person can give up to $11.4 million to others, either during their lifetime or at death, without paying any federal gift or estate tax.  A gift tax is payable only after the donor has made combined lifetime and death time gifts of more than $11.4 million.

In addition, certain gifts are exempt from the gift tax.  Exempt gifts include:

  • so-called annual exclusion gifts which currently allow a person to gift $15,000 (in 2019) to any number of people in any calendar year,
  • unlimited gifts to a spouse (provided the spouse is a U.S. citizen),
  • unlimited gifts to qualified charities, and
  • unlimited payments of health care expenses or tuition for another as long as those gifts are paid directly to the educational institution or health care provider.

These exempt gifts do not require the donor to file a federal gift tax return. If a donor makes a non-exempt gift, a federal gift tax return must be filed, even if no gift tax is payable, to track how much of the donor’s gift and estate tax exemption has been used.

The gift tax is complicated, but for most people who want to make gifts to children or grandchildren, the gift tax will not be an issue. If you wish to make a non-exempt gift, it is best to consult with your estate planning attorney and accountant before making the gift so that issues such as timing, and estate, gift and capital gain tax implications can be thoughtfully considered prior to making the gift.

Medicare 101

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As part of our work at Samuel Financial LLC, we connect our clients and their families with experts in many fields, such as social security, taxes, and real estate to name a few.  This quarter, we are giving our firm’s financial column to Peter Stoner and Kathy Barniak, of Stoner & Company — experts on all matters related to Medicare.  The annual enrollment period for people who are new to Medicare or who want to make changes to their existing plans is from mid-October to early December.  Peter Stoner and Kathy Barniak have been a great resource to our firm and our clients.

Medicare 101

By Peter D. Stoner & Kathy Barniak

Medicare Open Enrollment (officially known as the Annual Election Period) begins October 15 and runs through December 7, for plan changes effective January 1.  Most baby boomers remember December 7 as a date that will live in infamy, which makes it easy to recall.  Medicare was introduced in the 1960’s and was part of Lyndon Johnson’s “Great Society”.  Back then, people over 65 had half the income of younger people, but had three times the medical expenses, so something had to be done.

There are two parts of Medicare, Part A, which covers hospital related expenses and Part B, which covers doctor related expenses.  Counterintuitively, one applies for Medicare through the Social Security Office.  You can reach them on-line at www.ssa.gov/retirement, or by calling 800-772-1213.  You can also go to your nearest Social Security Office.

Medicare Part A is used for hospital insurance and covers inpatient stays at medical facilities, as well as, home health care, rehab at nursing homes and hospice care.  Note that if you are spending the remainder of your life in a nursing home, Medicare will not cover custodial care. You will need long term care insurance for that.  Part A has a $1420 “per benefit period” deductible in 2020.  A new benefit period begins once a beneficiary is released from the hospital for 60 days or more, so this deductible can be incurred multiple times each year. Part A has a $0 premium for most people.

Medicare Part B provides medical insurance to help cover physician visits, physical therapy, durable medical equipment and other medical services, such as lab tests and screenings.  It has an annual deductible of $197 in 2020 and 20% coinsurance.  Part B has a premium which is “means tested”, so it is correlated to income.  That premium is projected to be around $145 per month in 2020, but can be as high as around $460 a month for “high wage earners”.

Once someone has Medicare Parts A & B, they have health insurance, but because of the deductibles and coinsurance most people also elect a Medicare Advantage or Medicare Supplement plan.  These are distinctly different types of plans that are confused for one another all the time.

Medicare Advantage (Part C) plans are provided through private carriers who have a contract with Medicare.  In Massachusetts these plans are primarily Health Maintenance Organizations (HMOs) or Preferred Provider Organizations (PPOs), so they all have some form of a provider network.  Generally, referrals are required to see a specialist and most services incur a copayment.  They tend to have low premiums and they offer multiple options with varying premiums, copays and out of pocket maximums.  Usually, the higher the premium, the lower the copayments and the lower the premium, the higher the copayments.  They may also include added benefits like vision and dental, not covered by Medicare, in order to differentiate themselves from other plans.  Most Medicare Advantage plans incorporate prescription (Part D) drug coverage within their product.

Medicare Supplement (Medi-Gap) plans are also provided through private carriers.  They have state mandated benefits and fill in the gaps left by Medicare.  They cover any provider who has a contract with Medicare and specialists may be seen without getting a referral.  No Supplement plan includes prescription coverage, so a separate, or “stand alone” Part D plan must be elected to provide prescription drug coverage.

Part D Prescription Drug Coverage will be provided through 25 different plans in 2020.  Which plan is most suitable depends on your prescriptions.  Premiums and copays vary substantially.  If your prescriptions change during the course of the year, you can change your drug coverage during Medicare Open Enrollment (October 15 – December 7), but in most cases, must retain your existing plan until January 1 of the following year.   There can be an added income assessment to the Part D plan premium for “high wage earners.”.

This is but a brief outline to provide the basics of Medicare.  If you are turning 65 in 2020, or are over 65 and plan to retire, the paperwork for Medicare Parts A & B should be initiated 90 days before the month during which you plan to transition to Medicare.  When your 65th birthday approaches, you will be inundated with literature that is overwhelming and confusing.  You are welcome to call us personally, go to a SHINE counselor at your local Senior Center or use www.Medicare.gov for help.

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