Attorney Suzanne Sayward discusses Stepped Up Basis, 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.
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5 Ways to Avoid Probate Court
A goal of many clients is to get their estate plan in order because they had to go through the time-consuming and expensive process of probate to deal with their deceased parent’s estate and they don’t want that burden to fall on their families. Probate is the process by which a Personal Representative (also known as Executor) is appointed by the Court to access, manage and distribute the deceased’s estate assets. The court that oversees probates is the Probate and Family Court in Massachusetts. There is a separate Probate Court for each county in Massachusetts. A large volume of probate matters are filed each year in Massachusetts. In addition to estate settlement matters, the Probate Courts also have jurisdiction over divorce, child custody, adoption, and guardianship and conservatorship cases. Most people would prefer to avoid the need for probate to make it easier on their family in the event of their incapacity or death. Here are five ways through careful estate planning that you can take action now to avoid the Probate and Family Court system (for which your family will be very grateful).
1. Avoid Guardianship by Completing a Health Care Proxy
A Guardian is a person appointed by the probate court to make decisions for someone who has been deemed incapacitated (a ‘protected person’). A Guardian is responsible for the well-being of the protected person and is authorized to take comprehensive or specific actions on behalf of the protected person depending on the situation. For example, a Guardian may consent to typical medical care and treatment but needs specific authority from the Court for other types of treatments, such as the administration of anti-psychotic medications. The Guardian must regularly update and report to the Court regarding the care of the protected person. Often it is a family member of the incapacitated person who must petition the Probate and Family Court to be appointed as Guardian.
Guardianships requiring Court supervision can usually be avoided by completing a Health Care Proxy. A Health Care Proxy is a document that appoints a health care agent to make health care decisions on your behalf if you are incapacitated and is a very important part of an Estate Plan.
2. Avoid Conservatorship by Completing a Power of Attorney
A Conservator is appointed by the probate court to manage the financial affairs of an individual who is adjudicated by the court to be unable to do so. The Conservator takes over the bank and other financial accounts of the incapacitated person, pays bills, makes decisions about how funds will be spent, which financial advisor to work with and how to invest your assets, for example. Similar to a Guardian, the Conservator must regularly update and report to the Court about the management of the incapacitated person’s finances, income and expenses. As with a guardianship, a family member is often the one to petition the Court to be appointed as Conservator.
The time and expense of a Conservatorship may almost always be avoided by completing a Power of Attorney. A Power of Attorney is another important Estate Planning document that appoints an attorney-in-fact to make financial decisions on your behalf. Some Powers of Attorney only “spring-to-life” when activated by confirmation of incapacity by a physician. Other Powers are effective immediately upon signing, which can be convenient in the event you need or want the attorney-in-fact to take care of your finances even though you are competent.
3. Sign a Parental Appointment of Temporary Agent (PATA)
Guardianships and Conservatorships also come into play if someone passes away leaving minor children. A Last Will and Testament is the document used to name someone to serve as the Guardian and Conservator of minor children. When someone passes away, it may take a while for the Probate court to appoint a Guardian and Conservator for the minor children. In the meantime, those minor children still need care. To bridge this gap, parents may appoint a temporary agent to care for minor children for a period of 60 days. The Parental Appointment of Temporary Agent (PATA) form designates a person who may make medical, residential and educational decisions for minor children prior to the official appointment of a guardian and conservator by the court. While completing this form does not avoid a visit to the Court, it reduces the apprehension of who will look after your children while legal custody is determined.
4. Create a Trust
Keep in mind that probate is necessary after death for assets that are individually owned and for which there is no named beneficiary. One way to change the ownership but retain full access, use and control of an asset is by having an attorney for trusts create a Revocable Living Trust for you and fund it during your lifetime. If you are the owner of your savings account as “Jane Doe, Trustee of the Jane Doe Revocable Living Trust,” your account is no longer in your individual name and thereby avoids probate. Some, but not all, other types of trusts also avoid probate.
5. Designate Beneficiaries of Certain Assets
Another way to avoid probate is to designate one or more beneficiaries of certain assets. Assets that have designated beneficiaries pass outside of probate. You may be familiar with designating your spouse as the primary beneficiary on your IRAs, 401(k)s and life insurance policies. After you pass away, your spouse will complete a form provided by the financial institution to receive the asset. However, designating beneficiaries can be a trap for the unwary. If the designated beneficiary is also deceased and there is no contingent (back-up) beneficiary designated, the asset must be probated. For this reason, it is important to periodically review your designated beneficiaries with your legacy planning and estate planning attorney and confirm them with the financial institution.
At Samuel, Sayward and Baler LLC, we will advise you about the best estate plan to avoid a trip to the Probate and Family Court and which is tailored to your needs and goals. Once your estate plan is in place, you may rest easy knowing that you have made it simpler and faster for your family to manage your estate if you become incapacitated or pass away.
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 and Vice President 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.
March, 2021
© 2021 Samuel, Sayward & Baler LLC
Long Term Care Insurance & CCRC’s
Attorney Abigail V. Poole discusses Long Term Care and CCRC’s (Continuing Care Retirement Community), 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.
The Importance of Letters of Intent
One of the purposes of a Trust is to provide a structure for the distribution of assets after the lifetime of the creator of the Trust (the Grantor of the Trust) to the beneficiaries of the Trust who are designated to receive the Trust assets after the Grantor passes away.
In some cases, Trust assets are distributed outright to beneficiaries, meaning the Trustee has no discretion over when or if the beneficiaries receive the Trust assets. As soon as debts and taxes are paid, and the Trust assets are distributed from the Trust to the beneficiaries and the Trust terminates.
However, in many cases, Trusts are created for the purpose of providing oversight and management of the Trust assets for beneficiaries following the Grantor’s death. This may be done because the beneficiaries are minor children. In such cases, the Trustee will use the money for the children to ensure their living expenses are covered, their education is paid for, and the beneficiaries have a chance to mature before they are given control of inherited assets. Or it may be that a beneficiary is not good at managing money, is in a difficult marriage, has spendthrift tendencies or a gambling habit. In such cases, the Trust is created to protect the inherited assets. Control of the Trust assets will remain with the Trustee who will apply the Trust resources for the beneficiary as the Trustee determines to be prudent. Or it may be that the beneficiary has special needs or is disabled in some way, and the Trust assets are there to provide for the beneficiary’s needs in ways that will not disqualify the beneficiary from receiving or being eligible to receive needs-based public benefits.
In all of these circumstances, it is the job of the attorney drafting the Trust to communicate the Grantor’s intent while at the same time making sure that the Trust instructions are flexible enough to allow the Trustee to respond to changed circumstances or unanticipated events that arise following the Grantor’s death. Because of the need for flexibility, mandating specific directions in the Trust document can be unwise, both because they may tie the Trustee’s hands, and also because they may become inappropriate as the beneficiary ages or circumstances change.
On the other hand, the intent of the Grantor of a Trust is extremely important, as it is that intent that should inform the Trustee’s decision-making from how the Trust assets are managed to how the Trustee exercises discretion for the benefit of the Trust beneficiaries.
Enter the letter of intent – an excellent tool that a Grantor can use to spell out his intent and provide guidance to the Trustee without memorializing these intentions in the Trust document. Think of a letter of intent as the Grantor’s private instructions to the Trustee. A letter of intent should be written by the Grantor in the Grantor’s own words. In it, the Grantor should state the reasons for creating the Trust, tell the Trustee about the beneficiaries, and express the Grantor’s wishes for the way the Trustee should use the Trust resources to help the beneficiary.
For example, the Grantor of a Trust that is intended to manage assets for the Grantor’s minor children may express his wish that his children attend private secondary school and that tuition be paid for by the Trustee, that his children be allowed to travel to visit relatives abroad, or be encouraged to study abroad in college, or that his daughter’s love of horseback riding or his son’s passion for the saxophone be fostered and encouraged.
If the Trust is for the benefit of a beneficiary with special needs, the Grantor may want to express wishes regarding the child’s need for specific therapies or enjoyment of certain experiences – for example a yearly trip to Disney World. A letter of intent can also set out a parent’s vision for their child’s future – for example, wanting the child to be able to live independently with a companion, or in a group home setting.
The beauty of a letter of intent is that it can be changed as often as necessary, to keep pace with the Grantor’s changing desires for the beneficiaries without the need to update the Trust document. This can be especially useful where the intended beneficiaries of the Trust are young, and their needs and interests, and the Grantor’s goals for them may change from year to year – for example, if a child’s passion for the saxophone this year turns into a passion for the trumpet, or soccer, or chess next year.
The letter of intent need not be perfect or all encompassing, and as time passes, may no longer be relevant. For example, if the Grantor dies while beneficiaries are young, the Grantor’s intent as expressed in that letter will be frozen in time. However, a Trustee will be able to take some useful guidance from the letter that can be applied as the beneficiaries age.
As a Grantor, writing a letter of intent is not an easy exercise, or one that should be done in haste. However, done thoughtfully and mindful of the fact that it is to be used as a roadmap of your intentions for the people you intend to benefit with the assets you leave behind, it can be a very fulfilling exercise. If the letter is modified as time goes on and circumstances change, you have an opportunity to leave the best possible evidence of your intentions for those you have entrusted with carrying out those intentions after your lifetime.
If you have questions about creating your own letter of intent, please contact our office. We will be happy to assist you.
Selling Your Home When it’s Not in Your Name
Attorney Maria Baler discusses selling your home when it’s not owned in your name, such as if it’s owned by a Trust or if you own a life estate interest in your home, on Smart Counsel for Lunch
5 Types of Trusts – How to know which Trust is Right for You
We include a column in our law firm’s quarterly newsletter called ‘Ask SSB’ in which we answer questions posed by readers. Recently, a reader asked about the different types of trusts and which one was right for her. As with most estate planning questions, the answer to, ‘what’s best for me?’ is, ‘it depends.’
There are far more than 5 types of trusts and each type of trust is intended to accomplish different goals. Read on to learn about 5 types of commonly used trusts.
- Revocable Living Trust. A Revocable Living Trust is one of the most common estate planning tools. Reasons for using a Revocable Living Trust include probate avoidance and providing management of assets for beneficiaries (such as young children) who are not yet mature enough to manage assets for themselves or for whom an inheritance should be protected from ‘creditors or predators.’ The basic “players” in any trust are the Grantor (sometimes called the Settlor or Donor), the Trustee and the beneficiary. The Grantor is the person (or persons in the case of a married couple) who creates the Trust. The Trustee is the person (or persons) who is in charge of managing the trust assets, and the beneficiary is the person (or persons) who is entitled to receive distributions from the trust. In a Revocable Living Trust, these three roles are often the same person while the Grantor is alive. For example, if I create a Revocable Living Trust, I am the Grantor. I will name myself as the Trustee of the trust and I will also be entitled to receive distributions from the trust. After the Grantor’s death, a successor Trustee will take over management of the trust assets for the benefit of the successor beneficiaries named by the Grantor to benefit from the Trust assets after the Grantor’s death.
- Testamentary Trust. A Testamentary Trust is a trust created under a Will. A testamentary trust comes into existence only when the testator (person who created the Will), dies and the Will is probated. A Testamentary Trust cannot be used to avoid probate. In fact, a Testamentary Trust requires that any assets allocated to it to be subject to the ongoing jurisdiction of the Probate Court. The primary reason for incorporating a Testamentary Trust into a Will is for long-term care planning purposes. There is a federal regulation that provides that assets funded into a trust via a Will are not deemed to be countable assets in determining whether the surviving spouse of the testator is eligible for Medicaid (MassHealth) benefits to pay for long-term care. Testamentary trust planning is often used for married couples where one person is at heightened risk of needing long-term care.
- Supplemental Needs Trust. A Supplemental Needs Trust is commonly used to preserve needs-based governmental benefits for a person with disabilities. Many benefit programs have an asset limit of $2,000 for eligibility. If someone who receives Supplemental Security Income (SSI), for example, were to receive an inheritance of more than $2,000, they would lose the SSI benefit until the amount in excess of $2,000 is spent down in an allowable manner. Giving the assets away is not an allowable spend down. Transferring excess assets to a first-party Supplemental Needs Trust is an allowable spend down. The downside to this type of Supplemental Needs Trust is that it must provide that Medicaid benefits received by the beneficiary during his lifetime be ‘paid back’ to the state at the beneficiary’s death. With respect to a future inheritance this problem is easily avoided by the creation of a third-party Supplemental Needs Trust. This is a trust created by someone other than the beneficiary. For example, parents of a child with disabilities, can create a third-party trust for the benefit of their child into which the child’s inheritance would be paid at the parents’ deaths. A third-party Supplemental Needs Trust does not need to include a payback provision, and assets in the Trust will not cause the beneficiary to lose needs-based governmental benefits. Assets remaining in the trust at the death of the disabled beneficiary may be distributed to other family members.
- Irrevocable Income Only Trust. An Irrevocable Income Only Trust is often used to preserve assets from having to be spent on future long-term care costs. Given the very high cost of long-term care, many people worry that if they have the misfortune to end up in a nursing home all of their assets will be spent on the cost of their care and they will not be able to preserve any assets for their children. The way this type of trust works is that the Grantor of the trust transfers assets (a house or an investment account, for example) to the trust. The terms of the trust permit only income to be distributed out of the trust to the Grantor during his or her lifetime. The trust must prohibit the distribution of any principal to the Grantor. That means, the grantor cannot receive the transferred assets back. There is a 5-year ineligibility period for long-term care Medicaid benefits following the transfer of assets to this type of trust. After the 5-year period, the assets in the trust are not deemed to be ‘countable’ for purposes of determining the Grantor’s eligibility for Medicaid benefits to pay for nursing home care costs. Be aware that this is easier said than done, as MassHealth, the agency that administers the Medicaid program in Massachusetts, does not view such trusts favorably and looks hard to find ways to invalidate them.
- Irrevocable Life Insurance Trust. In addition to long term care planning, irrevocable trusts are created to reduce estate taxes. There are many types of irrevocable trusts used for estate tax planning: Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trust (QPRTs), Gift Trusts, and Charitable Trusts, to name a few. An Irrevocable Life Insurance Trust (ILIT) is used to remove life insurance from the insured’s taxable estate. Although life insurance is not income taxable, it is a taxable asset for estate tax purposes. While this is less of an issue than it used to be under our former federal estate tax laws (our current federal estate tax law means that only the very wealthiest estates are subject to federal estate tax), estate tax is still an issue for people who live in states like Massachusetts which has its own estate tax system. In Massachusetts, estates in excess of $1 million are subject to estate tax. If someone has assets such as a house, a 401K plan, bank accounts and investments totaling less than $1 million when they pass away, there will not be any Massachusetts estate tax. However, if that person also has a $1 million life insurance policy, then their taxable estate is $2 million and there will be estate tax due to the Commonwealth of $100,000. If the life insurance policy was owned by an Irrevocable Life Insurance Trust, then it would not be included in the taxable estate and the estate tax liability would be eliminated.
The best way to determine the Trust that is best for you and your situation is to consult with an experienced estate planning attorney. If we can help you with that planning, please contact us.
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.
January, 2021
© 2021 Samuel, Sayward & Baler LLC
POA, Bills and Incapacity, Oh my!
Attorney Abigail V. Poole discusses How to make sure your bills get paid if you become incapacitated, on Smart Counsel for Lunch
Recording of Smart Counsel Series Webinar on College Planning for Young Adults
This week’s video on Smart Counsel for Lunch is a recording of last week’s Smart Counsel Series Webinar on College Planning for Young Adults. Don’t miss this webinar if you have children that are planning to go to college in the next year or two. Learn how to have everything in place for them when they leave home for the first time. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.
What are the different kinds of trusts and why does it matter which one I have?
A: As with many seemingly simple estate planning questions, the answer is far from simple. There are many different types of trusts and the trust that is best for you depends on your particular situation and your goals.
For example, if you have a child with disabilities, you will probably need to create a Supplemental Needs Trust, sometimes called a Special Needs Trust, to protect your child’s needs-based governmental benefits. A Supplemental Needs Trust can be a ‘third-party’ trust or a ‘first-party’ trust, and you may need both. A third-party Supplemental Needs Trust can be revocable or irrevocable. The type of Supplemental Needs Trust that is best for you will depend on your circumstances.
If you want to reduce estate taxes payable at your death, there are a number of different types of trusts that may be suitable depending on your circumstances. Some examples include: credit shelter trusts for married couples, an irrevocable life insurance trust (ILIT), a grantor retained annuity trust (GRAT), a qualified personal residence trust (QPRT), or a gift trust, to name a few.
If your goal is to preserve assets from being spent down on future long-term care costs, an irrevocable income only Trust may be appropriate, or maybe a so-called ‘children’s trust’ would be better.
Perhaps you want to avoid probate at your death. A revocable living trust is the most common type of trust for that purpose. Such a Trust is also likely to be an appropriate part of an estate plan for people who have young children or even young adult children.
There are thousands of books with hundreds of pages written about the various types of Trusts that can be used to achieve estate planning goals. The above are just a few examples of these. The best way to determine which type of trust is best for you is to meet with an experienced estate planning attorney to discuss your unique situation and your particular goals.
What Happens After the Death of a Person Who Received Medicaid Benefits?
Medicaid, also known as MassHealth, is the joint federal and state program that provides public benefits to pay for the care of individuals who are medically and financially eligible because they do not have sufficient assets to cover the costs themselves. If the individual was age 55 years or older and received MassHealth benefits during his or her lifetime, the MassHealth Estate Recovery Unit (“ERU”) is responsible for collecting reimbursement for the costs paid by the Commonwealth. Reimbursement comes from the deceased person’s probate estate. Under Massachusetts law, the ERU must be notified when probate pleadings are filed with the probate court. Thereafter, the ERU files a claim against the probate estate to reserve the right to be paid from the estate. As the recipient’s house is typically the largest asset remaining to be probated, the ERU is often reimbursed from its sale proceeds.
A recent decision by the Supreme Judicial Court of the Commonwealth of Massachusetts highlights the importance of understanding what happens when a person who has received Medicaid benefits during his or her lifetime passes away. In the Estate of Jaqueline Ann Kendall (SJC-12881, December 28, 2020), the Supreme Judicial Court held that the Commonwealth was not entitled to reimbursement from Ms. Kendall’s probate estate (consisting of 50% ownership of a house) because the ERU waited too long to file its claim. While it may seem that the decision favors procrastination for families whose loved ones were MassHealth recipients, this is not necessarily the case. The ERU is permitted under the law to file probate pleadings if no one else steps forward, and may become more aggressive in doing so following the Kendall case.
A better strategy for protecting your assets from nursing home costs is to be proactive and undertake long-term care planning. This may mean conveying property subject to a retained life estate, or crafting a so-called “Medicaid Trust” or “Irrevocable Income Only Trust”, or other options that best fit your needs and goals.
At Samuel, Sayward & Baler LLC, an elder care attorney knowledgeable in long-term care planning will guide you through the advantages and disadvantages of your long-term care planning options. Our estate planning attorneys can help you to avoid probating your house and the subsequent MassHealth claim, and preserve its value for the benefit of your children, in the event you require MassHealth benefits during your lifetime.
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 trust and estate planning, estate settlement and elder law matters. She is an active member and current Vice President 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.
January, 2021
© 2021 Samuel, Sayward & Baler LLC