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Five Life Events That Merit a Review and Update of your Estate Plan
Creating an estate plan (Will, Trust, Power of Attorney, etc.) is a key step in making sure that your wishes are carried out and that your family is taken care of in the way you wish when you pass away. But an estate plan is not a ‘one-and-done’ proposition. Life happens and when it does…well, it may be time to adjust your plan.
Read on for five situations that call for a review and update of your estate plan.
- Your marital status changes. In Massachusetts, a change in your marital status impacts your current estate plan (even if you haven’t created an estate plan!). Marriage confers certain rights, including the right of spouses to inherit from each other. How much of your estate your spouse is entitled to inherit depends on whether you have children together, whether either of you has children from a prior relationship, or whether neither of you has any children. Regardless of your situation, most people prefer to decide for themselves what their new spouse will inherit rather than have the government make that decision. Similarly, divorce impacts your estate plan in that your former spouse is effectively ‘deleted’ as a beneficiary under your Will and removed from fiduciary positions. While this is usually the desired outcome as to a former spouse, the law also removes any of your former spouse’s relatives as beneficiaries and from fiduciary positions which may not necessarily be the intention. For example, a former spouse’s sibling may still be the person you would name as the guardian for your minor children. Further, although the law may “remove” these individuals from your plan, you should update your plan to include appropriate people in their place as beneficiaries and fiduciaries.
- You have a child. The law in Massachusetts provides that if a person dies with a child surviving (or more remote descendants in cases where a child has predeceased the parent) the child will inherit from the parent before assets would pass to anyone else (other than a surviving spouse who is first in line to inherit). However, the law also deems that adult-hood is reached at age 18. That means children who inherit from parents who have not created an estate plan that provides otherwise, will be entitled to receive the full amount of their inheritance at age 18. Prior to reaching age 18, a child’s inheritance will be managed for her by a court-appointed conservator if the parents have not created a Trust to manage their estate for their children. Most parents: 1) would prefer to decide who should be in charge of managing assets for their children rather than have the probate court make that decision; and, 2) do not want their children to have full, unfettered access to the inheritance they leave them at age 18. Creating a Trust that designates the people who will manage assets for their children at their deaths and specifies the ages, or events, at which a child will be entitled to full access to their inheritance allows the parents make these decisions rather than the Commonwealth of Massachusetts.
- You or your spouse are diagnosed with a serious illness. While having a child and getting married (and for some, getting divorced) are joyous life events that merit a review and update of an estate plan, not all life events are good. If either you or your spouse is diagnosed with a terminal illness, or with a serious disease or condition such as Alzheimer’s, Parkinson’s, or dementia, that could result in the need for long-term care, reviewing and updating your estate plan is not just important but often urgent. There may be actions needed to reduce taxes or to preserve assets from being consumed by expensive long-term care costs that should be implemented right away. In addition, it is important to make sure there is documentation in place such as a robust durable Power of Attorney and a comprehensive, up-to-date Health Care Proxy so that you are able to make decisions for a spouse who may lose the ability to do so as a result of the illness. These documents need to be created while the maker still has the capacity to do so.
- Your spouse passes away. Reviewing and updating your estate plan when a spouse passes away is a prudent action to take.
People usually name their spouse to the primary fiduciary roles of Personal Representative, Attorney-in-fact, Health Care Agent, and Trustee. While there is often a back-up named to those roles, reviewing your estate plan to re-visit whether that designated alternate is still the right person to serve and updating your plan to designate a successor to your new primary fiduciary is a smart thing to do. - One of your fiduciaries or beneficiaries dies or becomes ill. When someone you designated as a fiduciary in your estate plan passes away or becomes ill such that they would no longer be able to carry out those duties, it is time to update your estate plan. Similarly, when a beneficiary dies or becomes ill, a review of the provisions of your estate plan as they relate to that person is sensible. Your estate plan most likely includes a provision directing what should happen to the share of a beneficiary who predeceases you. However, it has been my experience that clients’ thinking often changes when one of their beneficiaries predeceases them and they want to update their plan to change their distribution provisions. Similarly, if a beneficiary of your plan is diagnosed with a disease or condition such as Alzheimer’s or dementia, meet with your estate planning attorney to consider whether leaving money to that person is still a good idea. Many individuals who need long-term care are eligible for needs-based governmental benefits to pay for that care. Receiving an inheritance can cause them to lose that eligibility.
Above are just five of the life events that merit a review and update of an estate plan. Other changes such a significant increase in the value of your estate, relocation to another state, a disability affecting one of your beneficiaries, or even the passage of more than five or six years since your last estate plan review, are additional examples of life events that merit a review of your plan. If any of the above situations applies to you, don’t wait to contact your estate planning attorney to schedule a time to review and update your plan. If you have never created an estate plan, now’s a good time to do so. If we can help you create or update your estate plan, please contact our office to schedule a time to meet 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, elder law, estate and trust settlement and probate. 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, 2022
© 2022 Samuel, Sayward & Baler LLC
Establishing Residency in Other States
Attorney Suzanne Sayward discusses Establishing Residency in Other States, for this edition of 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.
As the Massachusetts Estate Tax Turns
The Massachusetts estate planning world watched with bated breath this summer as we came closer than ever to increasing the Massachusetts estate tax threshold from $1 million to $2 million. But alas, it was a false alarm.
As you may know, Massachusetts is one of only 11 states plus the District of Columbia to have a separate state estate tax. Among those states, Massachusetts and Oregon are the two states with the lowest estate value that is subject to estate tax – $1 million. If you die a resident of Massachusetts and own assets valued at $1 million or more, you will currently pay tax on the entire value of your estate.
Every year there are bills filed in the Massachusetts state legislature to increase the Massachusetts estate tax exemption. This year, both the Massachusetts House and Senate passed bills that would raise the estate tax threshold from $1 million to $2 million, and it looked like the bills would be reconciled and become law. However, at the last minute, the Governor raised the possibility that a 1986 law would trigger a requirement that the state return to taxpayers over $2 to $3 billion due to the state’s large budget surplus. Needless to say, that put the brakes on any other form of tax relief until things are sorted out.
In the meantime, what’s a middle-class Massachusetts family to do about saving estate taxes? As we all know, if you own a home in this state you are probably at least halfway to the $1 million estate tax threshold without even trying. Add to that the value of some life insurance, bank accounts, investments and/or an IRA or 401k and you are likely over $1 million without even trying.
For married couples in Massachusetts, credit shelter trusts are a go-to estate tax planning strategy which allows up to $1 million of assets to be “sheltered” in trust at the death of the first spouse to die such that those assets will not be subject to estate tax in the estate of the second spouse to die. The surviving spouse can serve as Trustee of the trust and use the sheltered assets, as needed, for the surviving spouse’s health care and living expenses after the first spouse’s death. If a credit shelter trust is created and funded appropriately, and depending on the size of the estate, the estate tax savings is significant. For example, a married couple with $2.5 million in assets would pay $139,000 in Massachusetts estate tax at the death of the second spouse without any tax planning. If a credit shelter trust is in place and funded with $1 million at the death of the first spouse to die, the estate tax payable at the death of the second spouse would be reduced to $64,000, saving $75,000 in estate tax.
For single individuals, estate tax savings involves giving up control of assets, usually in the form of giving assets away to family members, charities or other beneficiaries. Annual exclusion gifts of $16,000 per year per person can be given to as many individuals as desired each year without the need to file a gift tax return or pay any gift tax (unless these gifts exceed $12 million in total under current law). These annual exclusion gifts, especially if given consistently over time, can reduce the value of the assets that will be subject to estate tax at death, and the corresponding tax that will be paid. Gifts can also be given in unlimited amounts to pay tuition or medical expenses for another person. However, before making gifts during life, the gift giver must carefully consider whether they can afford to do so. Future living expenses and care costs are difficult to predict. It may be smarter to retain control of assets to be sure living expenses and care costs in the preferred care setting can be paid, rather than worry about saving estate tax for heirs. If the value of a person’s assets is diminished at the time of death due to spending on living and care expenses during life, the estate tax will be reduced naturally.
However, for single individuals with assets in excess of the estate tax threshold who are confronted with a terminal illness or a situation where death is imminent, deathbed gifts are a useful strategy to reduce estate taxes payable at death. Gifts made immediately before death will reduce the value of the assets on which Massachusetts estate tax will be paid after death. These gifts are possible only if the gift-giver is competent to make the gifts, or has a Durable Power of Attorney that specifically permits gifts to be made.
A few things to keep in mind when contemplating deathbed gifts:
- If checks are written for gifting purposes, those checks must clear the bank account before death in order for the gift to be effective for estate tax purposes, and therefore it is better to make such gifts using bank checks that will withdraw the funds from the account immediately when the check is issued.
- As with any lifetime gift, gifts of appreciated assets transfer the gift-giver’s basis to the gift recipient, which will result in a capital gain tax if the gift recipient sells the gifted asset at a later date. Holding appreciated assets until death under current law will provide a step-up in basis, eliminating any unrealized capital gain. Consideration of the estate tax savings as compared to any future capital gain tax that would be paid is an important consideration in determining whether gifts of appreciated assets make sense.
- A gift tax return may need to be filed post-death to report any gifts made in excess of $16,000 per person.
- Even if gifts are made that reduce the value of the gift-giver’s assets below $1 million, there may still need to be a Massachusetts estate tax return filed and estate tax paid, although the assets given away will not be subject to tax. This is because gifts over $16,000 per person are considered when determining whether the value of the deceased person’s assets was $1 million or more at the time of death and whether an estate tax return must be filed. However, the estate tax due is calculated only on the value of the assets not given away. Although an estate tax return may still need to be filed, the estate tax paid will be less than if the gifts were not given.
Deathbed gifts are a difficult subject, and something that a family may not wish to discuss at such a sensitive time. However, they are a useful strategy for a single person who may have held off on gifting during life for the reasons mentioned above, and whose estate will be subject to estate tax if gifts are not made. It is important to get advice from an estate planning attorney if such gifts are contemplated, to make sure they are made the right way and using the right assets to achieve the most tax savings.
Stay tuned as we remain hopeful that the Massachusetts legislature will move forward to increase the estate tax exemption sometime soon, and make estate tax planning unnecessary for many residents of the Commonwealth.
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 the immediate past President of 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.
August 2022
© 2022 Samuel, Sayward & Baler LLC
Smart Counsel Series: The Nuts and Bolts of Reverse Mortgages and When to Use Them
To our Clients and Friends:
Please join us for the next presentation in our Smart Counsel Series on Thursday, September 15, 2022, from 6:00 p.m. to 7:00 p.m. virtually via Zoom.
Learn about reverse mortgages and when they may be beneficial in connection with long-term care planning by joining us for this program, The Nuts and Bolts of Reverse Mortgages and When to Use Them.
Reverse Mortgage (HECM) Loan Specialist Stephen R. Pepe, JD, of Reverse Mortgage Funding LLC and Attorney Abigail V. Poole will discuss the basics of reverse mortgages and when they may be a good option to protect assets from being spent-down on long-term care costs. Attendees will have an opportunity to ask questions.
Contact Holly Hayes at 781/461-1020 or hayes@ssbllc.com to reserve a spot for you and a friend.
Suzanne R. Sayward
Maria C. Baler
Abigail V. Poole
Megan L. Bartholomew
Don’t Miss Our College Document Bootcamp Webinar on August 11th @ 6:30 pm
Is your child headed off to college? Do you know the importance of certain legal documents that would allow you to obtain information and assist your child in the event of an unexpected emergency? Please join Attorney Megan Bartholomew on Thursday August 11th at 6:30pm for this important College Document Bootcamp.
This Zoom presentation is free and open to everyone, but pre-registration is required. See the flyer included with this email for more information. Of course, if your child can’t make the Bootcamp, they can always call our office to set up a separate appointment to discuss the preparation of their documents with Attorney Bartholomew or one of our other attorneys.
If you or your child is interested in participating in the Bootcamp or having their documents prepared, please have them call our office at 781/461-1020 or email Victoria Ung at ung@ssbllc.com.
Five Things Your Child Should Do Before Going Off to College
As hard as it may be to believe, August is upon us, which means that many of our clients’ children are going to be headed to college, some for the first time. As such, we thought it would be a good time to remind parents of the importance of certain legal documents to allow them to obtain information and assist a child in the event of an unexpected emergency.
Though your child will always be your baby, once they turn 18 they are considered adults in the eyes of the law. This means that, as a parent, you no longer have the legal authority to make decisions on your child’s behalf or to access their medical or educational information without permission. Assuming your child wants you to be able to assist with financial and medical decisions in an emergency and/or would want you to be able to speak with their health care providers and school, here are five things your child should do before they go away to college:
- Sign a Durable Power of Attorney. A Durable Power of Attorney appoints one or more individuals to act on your child’s behalf with respect to financial matters without obtaining the approval of a court. By signing a Durable Power of Attorney granting one or both parents the legal authority to act on their behalf, your child is allowing you to deal with many legal and financial matters, such as banking snafus and tax issues, as well as to obtain access to information on credit cards and bank accounts.
- Sign a Health Care Proxy. A Health Care Proxy designates a person to make health care decisions for your child if your child is are unable to communicate those decisions themself without obtaining the approval of a court. By signing a Health Care Proxy naming you as their health care agent, your child is allowing you to obtain medical information about, and make health care decisions for, them in the event they have a serious health issue and are unable to make their own health care decisions.
- Sign a HIPPA Authorization. A HIPPA Authorization permits the release of your child’s protected medical information by their health care providers to the people listed in the document. By signing a HIPAA Authorization listing one or both parents, your child is allowing their health care providers to speak with you about their medical condition even if your child is still able to make their own health care decisions. This can come in handy if your child is in the school infirmary for a minor medical issue or is hospitalized with a more serious condition but still able to make their own decisions.
- Sign a FERPA Authorization. A FERPA Authorization permits the release of your child’s protected academic and financial information by their college or university to the people listed in the document. By signing a FERPA Authorization listing one or both parents, you child is allowing their college or university to speak with you about their academic and financial information, which may include, for example, information about courses, financial aid, tuition, and disciplinary matters.
- Attend Samuel, Sayward & Baler LLC’s College Document Bootcamp. If your child is looking for a convenient way to get all of the documents discussed in this article done before going away to college, they should sign up for our first ever College Document Bootcamp, which includes:
- A Zoom webinar discussing these documents in more detail on August 11th;
- A personal meeting via Zoom on either August 12th or August 16th with Attorney Megan Bartholomew where she will discuss your child’s specific situation with them and the provisions of the documents she will create for them; and
- An in-person meeting with Attorney Bartholomew on August 19th, 20th, or 21st for your child to sign their documents.
The Zoom presentation on August 11th is free and open to everyone, but pre-registration is required. There is a fee of $550.00 for the other two meetings (including document preparation) and space is limited. See the flyer included with this article for more information. Of course, if your child can’t make the Bootcamp, they can always call our office to set up a separate appointment to discuss the preparation of their documents with Attorney Bartholomew or one of our other attorneys.
If your child is interested in participating in the Bootcamp or having their documents prepared, please have them call our office at 781/461-1020 or email Victoria Ung at ung@ssbllc.com.
© 2022 Samuel, Sayward & Baler LLC
What’s New at Samuel, Sayward & Baler LLC – Don’t Miss Our July 2022 Newsletter
Don’t Miss Our July 2022 Newsletter
Attorney Maria Baler discusses our most recent newsletter, for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more then call us at 781 461-1020. Please find our newsletter below.
Trustee, Beneficiary, Grantor, and more – What do they all mean?
As in most professions, lawyers speak their own language that is often meaningless to non-lawyers (think, ‘tort’, ‘habeas corpus’ and ‘nunc pro tunc’). Even worse, within the broad category of the law, there are the specialized areas (personal injury, criminal defense, patent law), each of which also has its own lingo. Estate planning attorneys are no different. We use terms such as ‘Personal Representative’, ‘Attorney-in-fact’, and ‘Trustee’ when speaking with our clients without always taking the time to fully explain what those terms mean.
Here’s a primer on some of the more common terms associated with Revocable Living Trusts.
A Trust is an agreement among three parties in which one party entrusts a second party with assets that are to be managed for a third party. A Living Trust is a Trust created by someone during their lifetime and which can be funded with assets during lifetime. The person who creates a Revocable Trust reserves the right to modify the Trust terms at any time and retains access to the Trust assets. While there is such a thing as an oral trust, most Trusts are in writing. A well-written Trust will clearly define the rights and responsibilities of each of the parties to the Trust.
The person who creates a Trust may be called the Grantor, the Donor, the Settlor, the Trustor or even the Trust Maker. This is the person who is entrusting his or her assets to the other party.
The Trustee is the person to whom the assets are entrusted and who accepts the assets and agrees to hold and manage them for the benefit of a third party upon the terms and conditions set out in the Trust. A Trustee is a fiduciary which means that the Trustee owes the highest duty of good faith and fair dealing to the beneficiary.
The Beneficiary is the person for whom the entrusted assets are being held and managed. The benefits which the Beneficiary is entitled to received will be determined by the person who creates the Trust (i.e., the Grantor) and stated in the Trust document. For example, a Grantor may decide that a beneficiary is entitled to receive only the income generated by the assets in the Trust during the beneficiary’s lifetime, and that the Trust assets will be distributed to a different person (the remainder beneficiary) upon the death of the income beneficiary. A Trust may state that a beneficiary is entitled to receive some or all of the principal held by the Trustee at certain times (i.e., when the beneficiary turns 25) or upon the happening of a certain event (i.e., the beneficiary graduates from college). Sometimes a Grantor will grant the Trustee complete discretion to decide if and when and for what reasons distributions may be made to a beneficiary.
Who typically serves in these roles? Well, it is quite common when creating a basic estate planning Trust (a Revocable Living Trust), that the roles of the Grantor, Trustee and Beneficiary are the same person upon the initial creation of the Trust.
Here’s an example of the parties to a typical Revocable Living Trust. Mary Jones creates a Trust she calls the Mary Jones Trust and names herself as the Trustee. During Mary’s lifetime, the Trust assets may be used only for Mary’s benefit. Mary is the Grantor, Trustee and Beneficiary. In her Trust document, Mary names her sister Lily as the successor Trustee.
When Mary become incapacitated, Lily steps into her shoes as Trustee. During Mary’s incapacity, Lily as Trustee, will manage the Trust assets for Mary who is still the beneficiary.
Mary’s Trust states that when she passes away, her children Allison and Barry are the Beneficiaries. Mary is still the grantor of the Trust even when she dies. After Mary’s death, Lily continues to serve as the Trustee for Allison and Barry as Beneficiaries and manages the Trust assets for them in accordance with the instructions in Mary’s Trust.
Don’t let unfamiliar terminology scare you away from creating the plan that is right for you and your family. Consult with an experienced estate planning attorney who will explain complex concepts and specialized terms in an understandable manner, and help you create a plan that reflects your wishes.
If you have questions about creating a Trust or serving as Trustee, please contact us to schedule an appointment with one of our firm’s 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 and trust administration, probate, 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.
July, 2022
© 2022 Samuel, Sayward & Baler LLC
Heirs, Devisees, & Beneficiaries
Samuel, Sayward & Baler discusses Heirs, Devisees, & Beneficiaries, for our Smart Counsel for Lunch Series. Please watch, and call us at (781) 461-1020 if you have any questions or would like to learn more.