News from Samuel, Sayward & Baler LLC for November 2018 includes the articles: Five Questions to Ask Before Creating an Irrevocable Trust, How to Prepare for a Bear…..After Ten Years of Bull (markets), National Special Needs Law Month – October, Ask SSB, and What’s New at Samuel, Sayward & Baler LLC.
Although all citizens or residents of the United States are subject to the federal estate tax at death, the current federal estate tax exemption of $11.2 million per person means that most of us will not pay a federal estate tax at death. However, Massachusetts has the distinction of being one of only 18 states to impose a separate state estate or inheritance tax on the estates of its residents at death. Massachusetts and Oregon are tied for the lowest amount ($1 million) you can leave tax-free at death. This means that if you live in Massachusetts and own assets valued at more than $1 million, your estate, or your spouse’s estate, will likely pay Massachusetts estate tax at death without proper trust and estate planning.
As anyone who lives in Massachusetts knows, it is not difficult to amass an estate valued at more than $1 million – add up the value of your home, retirement accounts, life insurance, bank and investment accounts and you have calculated the value of your “estate” for estate tax purposes. With tax rates ranging from 6.4% (for estates just over $1 million) to 16% for estates in excess of $10 million, the tax bill can be significant.
What can be done about this? One way married couples in Massachusetts can reduce or eliminate estate tax at death is to use credit shelter trusts. Here are five things to know about these types of trusts:
A so-called “credit shelter trust” is a type of revocable living trust created by married couples. One of these trusts is created by each spouse. The purpose of these credit shelter trusts is to reduce the value of the assets that are owned by the second member of a married couple to die, thereby reducing or eliminating the estate tax payable at the second spouse’s death.
A married individual may leave an unlimited amount of assets to his or her surviving spouse at death without paying any estate tax. Similarly, an unlimited amount of assets may be left to charity estate tax free at death. Finally, in Massachusetts, up to $1 million of assets may be left to any person or entity (other than your spouse or charity) without paying any estate tax. Assets in excess of $1 million left to anyone other than your spouse or charity will be subject to estate tax. Because of this, at the death of the second member of a married couple, when assets are passing to children or other heirs, significant estate tax may be due. Credit shelter trusts work by holding or “sheltering” up to $1 million of assets in the trust of the first spouse to die following the first spouse’s death. The surviving spouse may serve as the Trustee of the deceased spouse’s trust, and may use the trust assets as needed. However, because those assets are not “owned” by the surviving spouse they are not “taxable” in the surviving spouse’s estate.
In order for credit shelter trusts to work as intended, each spouse must own assets in his or her own trust, or structure assets so that assets automatically flow into the trust of the first spouse to die at his or her death. Any amount of assets can be held in each spouse’s trust, however the maximum amount that can be sheltered from estate tax for Massachusetts purposes is $1 million. Trust assets in excess of $1 million will typically be held in a sub-trust that will qualify for the marital deduction (so that estate tax on those assets is deferred until the surviving spouse’s death). Assets such as cash, investments, residential or commercial real estate and life insurance are all great assets to use to fund a credit shelter trust. Retirement accounts (such as IRAs, 401(k)s, 403(b)s, etc.) are typically not used to fund a credit shelter trust as the income tax advantages of paying these assets directly to the surviving spouse may be lost.
Meet with an experienced trust and estate planning attorney to discuss whether your estate will be subject to estate tax at death, how much estate tax will be payable by your heirs, whether you have assets appropriate to fund a credit shelter trust, and how much estate tax can be saved by creating an estate plan that includes credit shelter trusts for you and your spouse. If you decide to proceed, the estate planning attorney will prepare credit shelter trusts for both spouses, along with so-called “pour-over” Wills that direct any probate assets into the trusts at death. Your trust and estate planning attorney should provide you with detailed instructions about how to “fund” your trusts – which means changing the ownership or beneficiary designation on your assets so that the appropriate assets are either owned by or payable to your respective trusts at death. A final and most important step is for you to follow those instructions and fund your trusts appropriately. It is not unusual for credit shelter trusts to be created but not funded. Unfortunately, if credit shelter trusts are not funded the anticipated estate tax savings will not be achieved.
Depending on the value of your assets, creating and properly funding credit shelter trusts can reduce or eliminate the Massachusetts estate tax payable at the death of both spouses. A couple of examples will illustrate the tax savings credit shelter trusts can accomplish. Example #1: Jim and Sue have assets of approximately $1.5 million. If all assets are owned jointly or left to the surviving spouse at the first spouse’s death, the surviving spouse will have $1.5 million of assets at her death and will pay Massachusetts estate tax of approximately $70,000. If instead the first spouse to die leaves $700,000 of assets in a credit shelter trust for the benefit of the surviving spouse, the surviving spouse will have a taxable estate of only $800,000 ($1.5 million minus $700,000), and no estate tax would be payable at the surviving spouse’s death. In this example, creating and funding credit shelter trusts will save Jim and Sue’s family $70,000 in Massachusetts estate tax. Example #2: Bob and Jean have assets of approximately $5 million. If all assets are owned jointly or left to the surviving spouse at the first spouse’s death, the surviving spouse will have $5 million of assets at her death and her estate will pay Massachusetts estate tax of approximately $400,000. If instead the first spouse to die leaves $1 million in a credit shelter trust for the benefit of the surviving spouse, the surviving spouse will have a taxable estate of only $4 million ($5 million minus $1 million), and $290,000 of estate tax would be payable at the surviving spouse’s death, a savings of $110,000.
Credit shelter trusts are an important trust and estate planning option and a staple of the estate planning attorney’s toolkit for clients who have a taxable estate. However, the proper preparation and funding of these trusts is crucial to ensure they will work as intended to achieve the desired estate tax savings. If your assets are in excess of $1 million and you live in Massachusetts, you may be able to realize significant estate tax savings by using credit shelter trusts as part of your estate plan. The best place to start is a consultation about your particular situation with an experienced trust and estate planning attorney.
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). 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, 2018
© 2018 Samuel, Sayward & Baler LLC
Make things easier for the people you love.
In 2008, the U.S. House of Representatives passed a resolution to congratulate the Celtics as NBA World Champions. That same day, the House passed a bill declaring that the third week of October would be National Estate Planning Awareness Week, recognizing that half of the country does not have an estate plan.
An estate plan specifies how you want your assets distributed after death and identifies people to distribute your assets after your death and make decisions for you if you become incapacitated. Estate plans protect you in the event of sickness, accidents and unexpected death so the assets you have worked so hard to earn benefit your loved ones. Estate plans help you save time and money by avoiding probate, the complex court process that is required to retitle assets from a decedent to his or her heirs, and making your intentions clear.
Estate plans also include your choice of trusted people to make your financial and health decisions and to care for your children if you cannot. 70% of parents have not created a Will naming their children’s caretakers in the event of their deaths.
If you die without an estate plan, each state has a default law that dictates who receives your assets, and a court decides who handles the administration of your estate and who serves as guardian of your minor children. Estate plans ensure that you and not the courts will make these decisions.
Below is a list of important documents that make up a typical estate plan.
Even if you have an estate plan in place, review and update your documents every few years to make sure that your documents will work in light of changes in the law and changes in your life and that the people you have appointed are still appropriate.
October, 2018
© 2018 Samuel, Sayward & Baler LLC
Many of our attorneys here at Samuel, Sayward & Baler are active in the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). Members of the National Academy of Elder Law Attorneys (NAELA) are attorneys who are experienced and trained in working with the legal problems of aging Americans and individuals of all ages with disabilities. Established in 1987, NAELA is a non-profit association that assists lawyers, bar organizations and others. The mission of NAELA is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of people with special needs and people as they age. MassNAELA’s mission is to be a leader in both elder law and special needs law in Massachusetts.
MassNAELA is celebrating National Special Needs Law Month in October by distributing copies of the Special Needs Advocacy Toolkit [link here, but should link to our website page where toolkit can be found]. Attorneys who practice in the area of special needs law assist families in financing care, and provide them with the legal tools for financial management such as powers of attorneys and trusts, as well as understanding Medicare and Medicaid, special needs trusts, and a student’s right to an independent educational plan, housing options, and other issues.
Here at Samuel, Sayward & Baler , we assist clients who have family members with special needs to design an estate plan that will ensure their family member is provided for in ways that protect eligibility for public benefits and address other important issues. We also work with disabled individuals to ensure they have appropriate planning documents in place to allow loved ones to assist them as needed and to manage their own assets if appropriate. Special needs trusts, powers of attorney, health care proxies and HIPAA authorizations are all important documents that we discuss and implement for these clients. If you have questions about the legal documents that you or a family member with disabilities should have in place, please make an appointment to meet with one of our attorneys.
October, 2018
© 2018 Samuel, Sayward & Baler LLC
As the US stock “bull market” enters its tenth year since beginning in 2009 (meaning ten years of increasing stock prices), articles about “the coming bear market” (a stock market drop of 20% or more) have been appearing in the financial press with some frequency. For retirees and people considering retiring in the next few years, the prospect of a 20% or greater drop in stock prices is alarming and certainly worth consideration and preparation. So, let’s look at the most recent prior bull and bear markets starting with the numbers and then, how you might prepare for the next Dow Bear.
The Dow Jones Industrial Average, a benchmark of stock of the 30 largest US companies, is often used as a measure of bulls and bears. On July 17, 2007, the Dow reached a then all-time high of 14,000. The Dow Bear that followed is sometimes called the Great Recession, because it was the most serious bear market in the lifetime of most investors. Stock prices began dropping in July 2007 and the Dow reached its lowest point, 6,443 on Friday, March 6, 2009.
The best way to have prepared for the 2009 Dow Bear would have been to consult your crystal ball and sell all your stock on the July 17, 2007 Dow peak of 14,000. You’d also have to start buying stock when on March 6, 2009 the Dow Bear reached its bottom of 6,443. The Dow began rising after March 9, 2009, reached its prior high of 14,000 in February 2013 and continued marching higher to its current roughly 26,000 level. If only predicting the peaks and valleys of the Dow was that easy! If you’re confident you can predict the future, you’re prepared for the Dow Bear and you can stop reading now.
If you’re still reading, you know better than to think that you’ll be able to predict the future accurately during each of your many years of investing and retirement. Those of us who do not own a working crystal ball need another approach. One other way to prepare is to ensure that you can avoid selling stock during a bear market.
But how can you avoid selling stock when you might need it to cover expenses? And, how can you avoid selling stock when stock prices are dropping dramatically and you have white knuckle level fear that your savings might be wiped out entirely? Here are steps you can take to prepare for and survive the next Dow Bear.
Step #1: Estimate the amount you need from your investments for as many years as you can imagine necessary for the Dow Bear to recover and become the Dow Bull.
After the Great Recession, it took four years, until 2013, for the Dow to reach its earlier peak of 14,000. That four year recovery period is the longest time from Dow Bear to Dow Bull in the lifetime of most people reading this article. If you want to be more conservative, use five years or longer. Estimate how much you need to withdraw from your investments for living expenses plus a cushion for 4-5 years or longer. Why a cushion? For unexpected expenses and a comfort level to deal with the fear that the Dow Bear causes.
For example, if a couple’s living expenses are $75,000 annually and their total social security benefits are $30,000 then they need to withdraw $45,000 each year from their investments. For a five year period that is $225,000.
Step #2: Determine how you could cover the 4-5 years of expenses you’ve estimated in Step #1 without selling stock.
Possible sources to cover living expenses without selling stock include: income from employment, cash, selling non-stock investments such as bonds or real estate and borrowing from a line of credit. There are pros and cons in relying on each of these sources, depending on your circumstances. For example, using borrowed funds from a line of credit is not generally considered an acceptable way to invest. Real estate as a source of living expenses would work if the real estate produces sufficient and consistent rental income. Cash and bonds are better choices.
Here is one example: Jack and Jill would like to be able to spend $75,000 annually after taxes and are retired. Their total social security benefit after taxes is $30,000 and they have $750,000 in retirement savings mostly in tax deferred IRA accounts and a checking/savings account of $25,000. They are conservative and prefer to have 7.5 years of annual expenses in non-stock investments. That being said, Jack and Jill might choose to keep $300,000 of their $750,000 in bonds and the rest in stock, a ratio of 40% bonds and 60% stock.
Preparing for a Dow Bear, especially after a decade of a Dow Bull, is worth consideration. As always, consult your trusted financial, tax and legal advisors when considering issues important to your financial future.
Samuel Financial LLC is located at 858 Washington Street, 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. Fixed Insurance products and services offered through CES Insurance Agency.
October, 2018
© 2018 Samuel, Sayward & Baler LLC
Q: What is the difference between a Will and a Trust?
A: That is an excellent question and one we get from many people. Both Wills and Trusts are documents used to direct how assets will be distributed when the maker of the Will or Trust dies. However, a Trust can do so much more than a Will.
A person’s Will controls the distribution of his or her probate assets. Probate assets are bank accounts, investments, real estate, tangible personal property, and other assets which are owned in a person’s individual name and which do not have a designated beneficiary. A probate proceeding is therefore required to transfer title from the deceased to his or her heirs. For example, a bank account in someone’s individual name which does not name a beneficiary will be a probate asset when the owner passes away. A bank account which is held jointly with another person is not a probate asset when the first joint owner dies as ownership of the account passes automatically to the surviving joint owner. An IRA that names a beneficiary who is alive when the IRA owner dies is also not a probate asset as ownership passes automatically to the beneficiary.
A Trust controls the distribution of assets that are titled in the name of the Trust or which pay into the Trust when the Trust maker dies. A Trust can be a valuable asset management tool for the trust maker should he experience a period of incapacity during his or her lifetime. A Trust can be used to avoid probate when the maker of the Trust dies. This is a desirable goal since probate is usually expensive, aggravating, and time-consuming. A Trust can be used to control the distribution of a beneficiary’s inheritance. This is important if you have young beneficiaries, a beneficiary with disabilities, beneficiaries who are not responsible with money, or beneficiaries who have creditor issues or other troubles. Distributing an inheritance to a beneficiary in any of those circumstances often leads to the loss of the inheritance. A Trust can be used to protect a beneficiary’s inheritance from the beneficiary’s creditors such as a divorcing spouse, lawsuits, or bankruptcy. A Trust is an excellent vehicle for ensuring that a beneficiary with disabilities does not lose valuable governmental benefits. Trusts are commonly used for tax planning and to achieve planning goals for blended families.
The bottom line is that while Wills and Trusts both perform similar functions (i.e. distributing a person’s assets when they pass away), a Trust is a more efficient way to accomplish that function and has far more versatility than a Will.
To learn more about Wills and Trusts and what is right for your situation, call Jennifer Poles to make an appointment with one of our experienced estate planning attorneys.
October, 2018
© 2018 Samuel, Sayward & Baler LLC
(Saving Your Heirs Money with Proper Estate Planning)
As Estate Planning Attorneys we often get questions about Estate Taxes. The Estate Tax, often called ‘the Death Tax’, is a tax on the value of assets owned at the time of death. The Estate Tax is completely separate from the income tax and it is little understood by most people because it is usually not encountered until it is too late to do anything about it. Understanding the Estate Tax is an important element of Inheritance Planning. Here are five things to know about the Estate Tax.
Although the amount a person may pass on free of any federal Estate Tax has increased significantly over the past few years such that very few people need to be concerned about planning for the federal Estate Tax, such is not the case for Massachusetts residents and residents of other states that have their own Estate Tax systems. If you are wondering about how the Massachusetts Estate Tax may impact the amount you will leave to your beneficiaries and if there is anything you can do about it, then as you can see from the complexities with the Massachusetts Estate Tax detailed in this article, it is important to contact an experienced estate planning attorney based in Massachusetts to discuss your situation.
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, 2018
© 2018 Samuel, Sayward & Baler LLC
Aretha Franklin, the “Queen of Soul” died on August 16, 2018. It has been reported that she died without a Will or Trust. Aretha is in good company, as she has joined the surprisingly long list of celebrities who die without a Will, the most recent of which was Prince.
As an estate planning attorney, I can understand why this happens. A celebrity’s life is complex. They have many different types of assets, multiples homes, and many family and friends who they may have been financially supporting over the years. How do you sort all that out and make final decisions about who gets what? It’s complicated, as are many important things in life. However, many things that are difficult are worth doing. Here’s why it’s important to speak to an attorney experienced in preparing Wills and Trusts about your creating a Last Will and Testament.
If you die without a Will, you are said to die “intestate.” The intestate laws of each state provide a so-called “Will” for those who die without one, as those laws specify who receives your assets if you die without a Will. However, most people do not die intending to rely on the intestate laws for the distribution of their assets, and neither should you. Here’s why:
Although you may be following in the steps of some of the rich and famous if you die without a Will, you and your family will not have the privacy, cost-savings and time-savings benefits that a well-drafted estate plan will provide. Show a little respect to your estate plan and your loved ones and speak with an attorney experienced in preparing Wills and Trusts today!
September, 2018
© 2018 Samuel, Sayward & Baler LLC
The Massachusetts estate tax is a little-understood tax that impacts middle-class families in our fair state every year. If you live (and die) in Massachusetts and own a home, a retirement account, and a life insurance policy, there is a good chance that your “estate” is large enough to be subject to estate tax. Here are answers to five common questions about the Massachusetts estate tax.
Take a moment and consider the value of the assets you own, and whether your estate will be subject to Massachusetts estate tax at your death. Don’t be so quick to say you are not worth $1 million – take the time to add up the value of your home, your bank and investment accounts, your retirement accounts, your life insurance, and anything else of value you may own. If you find your estate is over $1 million, speak to an experienced estate planning attorney about the planning steps you can take to reduce the tax your family will have to pay at your death. They’ll thank you for it.
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). 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.
September, 2018
© 2018 Samuel, Sayward & Baler LLC
Let’s face it – taking a risk now and again can add a bit of spice to life. How else to explain hang-gliding or road-side sushi stands? On the other hand, keeping one’s family and fortune safe from risk is on the list of “lifetime goals” for most people. Estate planning is all about protecting your family and your hard-earned assets by reducing potential risk. A properly prepared and maintained estate plan will greatly reduce the risk that the inheritance you leave to your beneficiaries will be lost to their ‘creditors and predators’. Events that threaten assets and inheritance can include lawsuits, bankruptcies, divorce, disability, failed businesses, friends with ‘get-rich-quick’ schemes, gold-digger boyfriends/girlfriends, and perhaps a beneficiary’s own bad judgment. Increasingly, potential beneficiaries who have substance abuse problems or gambling addictions are of concern to parents and other family members who are planning their estates. Many of these concerns can be addressed by creating an estate plan that includes asset protection and creditor protection for the inheritance you will leave to your family. Since no one knows what the future will bring, taking steps to protect your family and your estate from possible misfortunes that could occur long after you’re gone is just smart business.
August, 2018
© 2018 Samuel, Sayward & Baler LLC