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Thirteen Estate Planning Terms You Need to Know

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We recently celebrated National Estate Planning Awareness Week during the week of October 19-25, 2020.  Although it is nice to have an entire week each year devoted to raising awareness of the importance of estate planning, I would argue that 2020 has been National Estate Planning Awareness Year, as the COVID-19 pandemic has brought the importance of estate planning to the forefront of everyone’s mind.  Here at SSB we have had a busy year making sure our clients’ plans are up-to-date, and helping new clients put a plan in place so that they, too, can have the peace of mind an estate plan brings in these uncertain times.

As Estate Planning Attorneys, we know Estate planning is incredibly important and not just for the wealthy.  Estate planning is something every adult should do. Estate planning can help you accomplish any number of goals, including appointing guardians for minor children, choosing a health care agent to make decisions for you should you become ill, appointing an agent to handle your financial and legal matters if you become incapacitated, minimizing taxes so you can pass more wealth on to your family members, and stating how and to whom you would like to receive your assets when you pass away. 

While it should be at the top of everyone’s to-do list, estate planning can often feel overwhelming, and estate plan documents can sometimes seem to be written in their own language.  Here are some important estate planning terms you should know as you think about your own estate plan. 

Assets

Generally, anything a person owns, including a home and other real estate, bank accounts, life insurance, investments, retirement accounts (IRAs, 401ks), annuities, furniture, jewelry, art, clothing, and collectibles.

Beneficiary

A person or entity (such as a charity) that is designated to receive assets from an estate, trust, account, or insurance policy. 

Distribution

A payment in cash or assets to a beneficiary who is entitled to receive it.

Estate

All assets and debts left by an individual at death.

Fiduciary

A person with a legal obligation (duty) to act primarily for another person’s benefit, e.g., a trustee or agent under a power of attorney. “Fiduciary” implies great confidence and trust, and a high degree of good faith. 

Funding

The process of transferring (re-titling) assets to a living trust (a trust created during the creator’s lifetime). A living trust will only avoid probate at the trust creator’s death with assets that are funded into the trust during the trust creator’s lifetime, or that will be automatically payable to the trust (i.e. by beneficiary designation) at the trust creator’s death.

Incapacitated/Incompetent

Unable to manage one’s own affairs, either temporarily or permanently; often involves a lack of mental capacity.

Inheritance

The assets received from someone who has died.

Guardianship / Conservatorship

The court-supervised process of appointing a guardian / conservator to make decisions on behalf of an incapacitated or incompetent person, including health care and financial decisions. 

Marital deduction

A deduction that may be taken on the federal and Massachusetts estate tax returns, it lets the first spouse to die leave an unlimited amount of assets to the surviving spouse free of estate taxes. However, if no other tax planning is used and the surviving spouse’s estate is more than the amount of the federal and/or state estate tax exemption in effect at the time of the surviving spouse’s death, estate taxes will be due at that time.

Settle an estate

The process of winding down the affairs of a deceased person, and includes identifying and valuing of assets, paying debts and taxes, and distributing assets to beneficiaries.

Trust

A fiduciary relationship in which one party, known as the trust creator, settlor or grantor, gives another party, known as the trustee, the responsibility to hold property or assets for the benefit of another party, the beneficiary. The trust should be memorialized by a written trust agreement which specifies the trustee’s duties and powers, the trustee’s obligation to the beneficiary, and the beneficiary’s rights to income or principal from the trust.

Will

A written document with instructions for disposing of probate assets after death. A Will can only be enforced through a probate court. A Will may also include the nomination of guardian for minor children.

If you have any additional questions about estate planning, or would like to consult with an experienced estate planning attorney about your own estate plan, please contact our office. We will be happy to assist you in creating a comprehensive plan that is tailored to your unique needs and goals, so that next year when National Estate Planning Week rolls around, you will have something to celebrate!

November, 2020

© 2020 Samuel, Sayward & Baler LLC

Five Things to Know about Unclaimed Property, You and Your Estate

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“Visit findmassmoney.com and get your money today!” You have probably heard the announcement on the radio and thought it was a gimmick or too good to be true. In fact, the Commonwealth of Massachusetts does hold property, such as bank accounts, stock dividends, uncashed paychecks, and insurance refunds, that appear to have been abandoned because no action has been taken with the property for a period of time (3 years for most properties). This so-called “unclaimed property” can range from a few dollars to tens of thousands of dollars or more. An individual, the Personal Representative (Executor) of a deceased person’s estate, and sometimes the heir of a deceased family member can file a claim to receive the unclaimed property. Here are a few things to consider and know about unclaimed property in connection with you and your estate:

Regularly check to see if you have any unclaimed property

It’s easy to visit the unclaimed property website of the Commonwealth of Massachusetts. If you have lived in states other than Massachusetts, visit that state’s equivalent or this website which searches the databases of multiple states and directs you to the appropriate state link to file a claim.

Make it a good estate planning habit to check for unclaimed property annually, such as when you file your taxes each year.

Complete the claim online

The Massachusetts Unclaimed Property Division website requests your name (and your town of residence), then locates all unclaimed property that matches the information you provided (as does the multi-state database). You simply select the claim that applies to you, provide additional information and submit the claim electronically. The Unclaimed Property Division will then mail you documentation to complete and return, then mail a check representing the amount of unclaimed property owed to you. The representatives at the Massachusetts Unclaimed Property Division with whom I have interacted were extremely helpful in answering questions and addressing concerns, so do not hesitate to be in touch with them.

The Personal Representative of your estate will file a claim to receive your unclaimed property after your death

If you do not file a claim to receive any unclaimed property while you are alive, the Personal Representative of your estate will be responsible for doing so. The Personal Representative has a fiduciary obligation to consolidate all assets associated with your estate after your death, including unclaimed property. Typically, it is more complicated for the Personal Representative to receive the unclaimed property because he or she must provide additional documentation, including a death certificate and proof of his or her authority over your estate as Personal Representative via Letters of Authority issued by the Probate Court.

Something to keep in mind is that if significant unclaimed property is discovered several years later, obtaining it for the estate may be further complicated if the original Personal Representative is deceased, or one or more of the beneficiaries of the estate are deceased.

Your surviving heirs may file a claim to receive your unclaimed property after your death instead

If there was no need to appoint a Personal Representative of your estate at the time of your death, and if the unclaimed property amount is less than $1,000, and if the beneficiaries of your estate are undisputed, it is possible to avoid the rigmarole of a probate court proceeding to obtain the unclaimed property. For example, if you have a surviving spouse or a sole surviving child, the so-called “Affidavit of Heirs” form may be completed by the beneficiary instead. The Affidavit of Heirs is unique to the Unclaimed Property Division and provided by the Division representative. It requires the heirs (beneficiaries) of the estate to be identified and to swear the information on the form is true and correct, and the heir is entitled to the unclaimed property.

Deposit your unclaimed property funds upon receipt; beware of taxes!

You should deposit the unclaimed property check upon receipt. If the Personal Representative of the estate receives the check, he or she should deposit it in the estate bank account along with any other estate assets. After the expenses of the estate are satisfied, the Personal Representative will divide and distribute the remaining funds among the estate’s beneficiaries. Keep in mind that income taxes may be payable for the year the unclaimed property is received depending on the type of property claimed. A knowledgeable accountant should be contacted to provide advice on this matter.

It’s good Estate Planning practice to remember to check for unclaimed property in your name annually, so you can save your heirs or the Personal Representative of your estate the trouble of claiming that property after your death. At Samuel, Sayward & Baler LLC, our estate planning attorneys and probate attorneys regularly guide and assist our clients who are serving as Personal Representatives of estates to receive and properly deposit unclaimed property. If you live in Massachusetts and find yourself needing assistance in claiming the unclaimed property of a deceased person, we would be happy to help you.

Attorney Abigail V. Poole is an associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA).  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020. 

November, 2020

© 2020 Samuel, Sayward & Baler LLC

To Gift or to Loan?

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If you live in Massachusetts you know that the prospect of buying your first home is a daunting one given the high cost of real estate.  Parents often want to help their children with their first home purchase by making a gift or a loan to the child to use toward the down payment.  For parents (or grandparents) who are in a financial position to do this, it is important that everyone involved understand whether the funds are gift or a loan and the consequences of each. This is also an important Estate Planning question. Read on for factors to think through when providing funds to a child.

If it’s a gift,

  • A gift to a person (as opposed to a gift to a charity) is not tax deductible by the person who makes the gift.
  • A gift is not income and should not be reported on the recipient’s income tax return. 
  • For most people, there is no reason to be concerned about gift tax even if the amount of the gift exceeds the annual gift tax exclusion amount of $15,000 (2020) per person per year.  
  • Even though it is unlikely that there will be any gift tax payable (under current law you would need to gift more than $11.6 million over your lifetime before there would be any gift tax payable) you may be required to file a gift tax return (form 709) reporting the gift. 
  • You are not entitled to repayment (this may seem as though it goes without saying, but that is not always the case in my experience).  
  • Making a gift could help your child qualify for a mortgage and you may need to provide a gift letter. 
  • Making a gift may be advantageous to you from an estate tax perspective as the gifted assets will reduce the value of your estate for estate tax purposes.
  • If you have more than one child, consider whether you want to make any changes to your estate plan to ‘even up’ the distribution of your estate among your children to account for the gift to one child.

If it’s a loan, 

  • It is important to document the loan with a Promissory Note. 
  • Even if you do not choose to charge interest on the loan, the IRS may think differently and may ‘impute’ taxable interest income to you.  Consult with your accountant to make sure you understand the income tax consequences of the loan.
  • Interest charged on the loan and paid to you as the lender is taxable income to you in the year received.
  • Consider whether the loan should be secured by a mortgage.  Even if you are not concerned about repayment, doing so may protect your investment in the event your child gets divorced, is sued, files for bankruptcy, etc. 
  • Consider what you will do if the loan is not repaid as expected. 
  • The outstanding balance on the loan will be an asset of your estate and you may want to specify that the Promissory Note should be allocated to the debtor child’s share of your estate. 

Seeing a child settled in their first home is a good feeling for parents and helping a child get there is a goal for many parents.  However, before you hand over that big check, decide whether you’re making a gift or a loan and make sure your child knows as well.   

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.

October 2020

© 2020 Samuel, Sayward & Baler LLC

October Newsletter

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News from Samuel, Sayward & Baler LLC for October 2020  includes the articles: Five Taxes your Heirs May Pay (or not) After your Death,  We remember two champions of equality and justice: Chief Justice Ralph Gants and Justice Ruth Bader Ginsburg, Your Year-End Financial Planning Checklist; 10 Suggestions to Help You Stay on Track, Ask SSB with questions about preparing a MassHealth application for long-term nursing home care costs  and an update of What’s New at the Firm including a farewell to Jennifer Poles who we will sorely miss.

Year-End Financial Planning Checklist

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10 Suggestions to Help You Stay on Track
Presented by Steven Joshua Samuel JD MBA AIF®

Although 2020 has been a year of unexpected changes, one routine has remained consistent: the fourth quarter means it’s time to begin organizing your finances for the new year. To help you get started, here’s a checklist of key topics to think about, including new tax and retirement considerations related to the COVID-19 pandemic.

1) Max out retirement contributions. Are you taking full advantage of your employer’s match to your workplace retirement account? If not, it’s a great time to consider increasing your contribution. If you’re already maxing out your match or your employer doesn’t offer one, boosting your contribution to an IRA could still offer tax advantages. Keep in mind that the SECURE Act repealed the maximum age for contributions to a traditional IRA, effective January 1, 2020. As long as you’ve earned income in 2020, you can contribute to a traditional IRA after age 70½—and, depending on your modified adjusted gross income (MAGI), you may be able to deduct the contribution.

2) Refocus on your goals. Did you set savings goals for 2020? Evaluate how you did and set realistic goals for next year. If you’re off track, we’d be happy to help you develop a financial plan.

3) Spend flexible spending account (FSA) dollars. If you have an FSA, note that the Internal Revenue Service (IRS) relaxed certain “use or lose” rules this year because of the pandemic. Employers can modify plans through the end of this year to allow employees to “spend down” unused FSA funds on any health care expense incurred in 2020—and let you carry over $550 to the 2021 plan year. If you don’t have an FSA, you may want to calculate your qualifying health care costs to see if establishing one for 2021 makes sense.

4) Manage your marginal tax rate. If you’re on the threshold of a tax bracket, you may be able to put yourself in the lower bracket by deferring some of your income to 2021. Accelerating deductions such as medical expenses or charitable donations into 2020 (rather than paying for deductible items in 2021) may have the same effect.

Here are a few key 2020 tax thresholds to keep in mind:

  • The 37 percent marginal tax rate affects those with taxable incomes in excess of $518,400 (individual), $622,050 (married filing jointly), $518,400 (head of household), and $311,025 (married filing separately).
  • The 20 percent capital gains tax rate applies to those with taxable incomes in excess of $441,450 (individual), $496,600 (married filing jointly), $469,050 (head of household), and $248,300 (married filing separately).
  • The 3.8 percent surtax on investment income applies to the lesser of net investment income or the excess of MAGI greater than $200,000 (individual), $250,000 (married filing jointly), $200,000 (head of household), and $125,000 (married filing separately).

5) Rebalance your portfolio. Reviewing your capital gains and losses may reveal tax planning opportunities; for example, you may be able to harvest losses to offset capital gains.

6) Make charitable gifts. Donating to charity is another good strategy worth exploring to reduce taxable income—and help a worthy cause. Take a look at various gifting alternatives, including donor-advised funds.

7) Form a strategy for stock options. If you hold stock options, be sure to develop a strategy for managing current and future income. Consider the timing of a nonqualified stock option exercise based on your estimated tax picture. Does it make sense to avoid accelerating income into the current tax year or to defer income to future years? If you’re considering exercising incentive stock options before year-end, don’t forget to have your tax advisor prepare an alternative minimum tax projection to see if there’s any tax benefit to waiting until January.

8) Plan for estimated taxes and required minimum distributions (RMDs). Both the SECURE and CARES acts affect 2020 tax planning and RMDs. Under the SECURE Act, if you reached age 70½ after January 1, 2020, you can now wait until you turn 72 to start taking RMDs—and the CARES Act waived RMDs for 2020. If you took a coronavirus-related distribution (CRD) from a retirement plan in 2020, you’ll need to elect on your 2020 income tax return how you plan to pay taxes associated with the CRD. You can choose to repay the CRD, pay income tax related to the CRD in 2020, or pay the tax liability over a three-year period. But remember: once you elect a strategy, you can’t change it. Also, if you took a 401(k) loan after March 27, 2020, you’ll need to establish a repayment plan and confirm the amount of accrued interest.

9) Adjust your withholding. If you think you may be subject to an estimated tax penalty, consider asking your employer (via Form W-4) to increase your withholding for the remainder of the year to cover the shortfall. The biggest advantage of this is that withholding is considered to be paid evenly throughout the year instead of when the dollars are actually taken from your paycheck. You can also use this strategy to make up for low or missing quarterly estimated tax payments. If you collected unemployment in 2020, remember that any benefits you received are subject to federal income tax. Taxes at the state level vary, and not all states tax unemployment benefits. If you received unemployment benefits and did not have taxes withheld, you may need to plan for owing taxes when you file your 2020 return.

10) Review your estate documents. Review and update your estate plan on an ongoing basis to make sure it stays in tune with your goals and accounts for any life changes or other circumstances. Take time to:

  • Check trust funding
  • Update beneficiary designations
  • Take a fresh look at trustee and agent appointments
  • Review provisions of powers of attorney and health care directives
  • Ensure that you fully understand all of your documents

Be Proactive and Get Professional Advice
Remember to get a jump on planning now so you don’t find yourself scrambling at year-end. Although this list offers a good starting point, you may have unique planning concerns. As you get ready for the year ahead, please feel free to reach out to us to talk through the issues and deadlines that are most relevant to you.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

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

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

Ask SSB

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October 2020

Q:        I hear that elder law attorneys charge a lot to prepare a MassHealth application for long-term nursing home care costs.  My friend said that when her cousin was in a nursing home there was a service that prepared the application for free.  Why would anyone pay for something that they could have for free?

A:        That’s an excellent question and the answer is sometimes they shouldn’t.  For example, a single person who has assets that are at, or close to, the program eligibility limit of $2,000, does not have an irrevocable trust, and who has not made any gifts of assets during the 5-year period preceding the application, does not need to pay an elder law attorney to prepare a MassHealth application for long-term care benefits.

The reason that single individuals who have assets in excess of the program limit and married couples where one spouse needs nursing home care, should consult with an elder law attorney is that an elder law attorney can provide advice about options for preserving their assets from having to spent down on long-term care.  The savings that can be achieved through planning can be far in excess of the legal fee paid to prepare the application.

For people paying privately for long-term nursing home care, the out of pocket monthly cost in Massachusetts ranges between $10,000 and $15,000 (or more!) per month.  The sooner MassHealth eligibility is achieved, the sooner that monthly outlay will cease or be significantly reduced.

When you engage an elder law attorney you are hiring an advocate who is working for you.  When you use a service recommended by the long-term care facility, you will not receive legal advice about your planning options such as how to preserve your assets or how to achieve eligibility more quickly, nor are you engaging an advocate for your application.  In fact, many of these ‘free’ services are actually paid by the nursing homes.  Keep in mind that it is in the nursing home’s best interest that residents pay privately for their care versus becoming eligible for Medicaid (MassHealth).  That is because the monthly fee that the facility receives for a Medicaid resident is much less than the amount they receive from a person who is paying privately.

If you have questions about whether you should hire an elder law attorney to prepare and file a MassHealth application for long-term nursing home care costs, please contact us to speak with one of our attorneys.

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

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