Blog

A Panoramic Primer on Probate: Part Two –  Marshalling Assets

by

Upon receipt from the Court of the Letters of Authority appointing a person as Personal Representative (PR) of the decedent’s estate in an informal or formal probate, the PR has the authority to begin taking action with regard to the assets of the estate. These “probate assets” (owned in the decedent’s individual name which do not designate a beneficiary or co-owner) may consist of bank accounts, investment accounts, stock, savings bonds, tangible personal property (furniture, jewelry or a vehicle), and real estate. This article explores the initial steps to be taken by the PR to administer typical probate assets. The process of collecting the probate assets is known as “marshalling the assets.”

Investigate Financial Accounts and Other Assets

A PR’s first step is to investigate and determine the assets of the estate by reviewing the deceased’s files, mail and tax returns, and contacting an estate planning attorney with whom the decedent may have worked. The PR should contact the estate attorney who will guide the PR through the steps necessary to access each asset.

The PR should take steps to identify and safeguard the tangible personal property of the decedent. Some items require special treatment due to their nature. For example, firearms must be handled according to Massachusetts laws.  If the decedent owned a vehicle, the PR should maintain appropriate insurance on the vehicle prior to the distribution, transfer, or sale of the vehicle according to the wishes of the decedent.

Consolidate and Manage Financial Accounts and Other Assets

Once the PR has identified the financial assets, the PR often will consolidate cash assets into one estate account from which the expenses of the estate can be paid.

It is crucial that the PR keep detailed records. The records should include the assets in existence when the decedent died (and those that the PR learns no longer exist), their values, and the actions the PR takes with respect to each asset. Funds deposited in the estate account should be recorded along with estate expenditures such as bank account fees, legal expenses, real estate maintenance or cleaning fees, etc. Keeping detailed records from the beginning of the estate settlement process will assist the PR with the subsequent steps to complete settlement of the estate.

Each estate probate is unique. The assets differ, the family dynamics vary, and the wishes of the decedent must be followed. An experienced estate attorney will provide guidance that best suits the PR’s needs and the estate in question.

The next article will address the distribution of real estate through probate.

April, 2018

© 2018 Samuel, Sayward & Baler LLC

 Lessons Learned from an Injury

by

In late December, I slipped on some ice and broke my right ankle. I had surgery on the ankle in mid-January, and I am still in the process of recovering and working toward “getting back to normal.”  As they say, “hindsight is 20/20”, and I have thought about what may have made the entire experience easier for both myself and my family members, friends, and work colleagues who have assisted me during this time. Below I share a few things that may help you be more prepared in case you encounter a similar situation.

  • Health Care Proxy – Confirm your primary care physician has a copy of your most recent Health Care Proxy naming individuals to make health care decisions for you when you cannot (your “health care agent”). If you go to an unfamiliar hospital emergency room due to the injury, you cannot get your hands on a copy of your current Health Care Proxy, and you are cognizant, you may wish to request a Health Care Proxy from the nurse and complete it.  While it will revoke your current Health Care Proxy, at least you will have given authority to your agent to make health care decisions if surgery is immediately required, and you will have provided the hospital with your agent’s contact information.
  • Power of Attorney – Confirm your Power of Attorney is up-to-date and appoints the individuals you want to be responsible to pay your bills and make financial decisions on your behalf if you cannot (your “attorney-in-fact”). To assist your attorney-in-fact, create a list of the expenses you pay monthly. Include the company, account information, and when payments are typically due. A list of bank accounts from which bill payments could be made may also be helpful to your attorney-in-fact. Tell your attorney-in-fact and one or more trusted family members and/or friends where in your home this documentation can be found in the event of an emergency.
  • Emergency Contact – If you carry a mobile phone, program in the contact information of an “In Case of Emergency (ICE)” person. Smart phones permit you to enter medical identification information, such as allergies, in addition to an ICE person which can be accessed without your password.
  • Online Ordering – Consider online options to get daily and other necessities.  There are several companies online that will deliver items to you at your home. I have ordered everything from medical supplies to groceries online these last few months and it has been incredibly helpful.
  • Gratitude – Have gratitude for the kindness, compassion, and support you receive from family members, friends, and work colleagues while you navigate through the injury and recovery process.

In the meantime, if you visit the office and hear faint clangs and thumps, please do not be alarmed –  that is probably me navigating the office on my crutches while I work toward getting back on my two feet again!

What You Need to Know About Medicare

by

Maureen Baxter, CLU®, ChFC ® and Steven Joshua Samuel JD MBA AIF ®

“Total projected lifetime health care premiums (Medicare Parts B and D, supplemental insurance, and dental insurance) for a healthy 65-year-old couple retiring this year are expected to be $321,994 in today’s dollars.” It’s more important than ever to understand health care costs and choices in planning for .

In this article, Maureen Baxter, a Commonwealth Financial Network Colleague (with some editing by Steven Joshua Samuel) will explain the basics of Medicare and how it coordinates payments with other plans.

Medicare Alphabet Soup

Familiarizing yourself with Medicare’s terminology is a great first step:

  • Part A: Generally covers inpatient hospital services
  • Part B: Usually covers doctor and outpatient services
  • Part C: Known as Medicare Advantage and is an alternative to original Medicare Parts A and B plus D (This plan is similar to a preferred provider or HMO coverage. It typically offers drug coverage, as well as vision and dental care. Your client must first enroll in original Medicare to be eligible for Part C Medicare Advantage coverage. The cost of the plan may be the same as that of original Medicare, but there could be additional charges depending on the plan selected.)
  • Part D: Prescription coverage

WHO MAY ENROLL IN MEDICARE AND WHEN

Individuals age 65 or older are eligible for Medicare. Medicare requires enrollment at triggering events, as well as at specific times throughout the year. If you are receiving retirement benefits under the social security program, you will be enrolled automatically in Medicare at age 65. If you are covered by a group health plan with 20 or more employees, you may opt out of Part B and Part D coverage without penalty.

A specific triggering event—for example, if you are Medicare-eligible and lose group employer coverage—requires that you enroll during the special enrollment period. Enrolling within eight months of a triggering event will avoid Part B penalties but may not prevent coverage gaps. It is best to start the enrollment process at least three to four months before a triggering event in order to avoid gaps in coverage or missing a penalty deadline.

A key factor in determining a Medicare penalty is whether an individual has “creditable coverage.” So, it’s worth taking a closer look at what this means and the potential financial costs.

Creditable Coverage and the Medicare Penalty

Individuals approaching age 65 should verify that their current insurance is considered creditable coverage for Medicare purposes to avoid permanent surcharges. For example, if you are 65 or older, COBRA coverage, group employer plans for businesses with fewer than 20 employees and retiree health plans are NOT considered creditable coverage for Medicare Part B. This means they do not avoid the Part B enrollment penalty. These plans, however, may qualify as creditable coverage to avoid the Part D enrollment penalty.

Here’s a breakdown of the permanent premium surcharges:

  • Part B. Individuals pay a surcharge of 10% of their Part B premium for each 12-month period they fail to enroll.
  • Part D. The penalty is 1% of the “national base beneficiary premium” per month. In 2018, the national base beneficiary premium will be $35.02 per month. This 1% penalty is applied to the total number of months an individual is without creditable coverage. This surcharge is added to the Part D premium.

Supplemental Coverage

Individuals who are covered under original Medicare Parts A and B plus D, might consider the purchase of Medigap coverage. Medigap, also known as Medicare Supplement Insurance, offers supplemental coverage for expenses that traditional Medicare does not cover. This includes vision care, dental care, medical coverage during international travel and copays.

Medigap plans are required to provide specific core coverage. In addition, they are regulated under state law to offer additional supplemental coverage. The coverages and costs vary between plans. There are multiple plans to choose from, each identified by a letter (e.g., Plan A through D or Plans F, G, K, L, M, and N). Unless there is a change in law, effective 2020, the popular Plan F, as well as Plan C, will no longer be available to new enrollees.

Who Pays First?

The coordination of claim payments between Medicare and other health insurance coverage is another factor that can directly affect a client’s health care costs. The Centers for Medicare & Medicaid Services brochure, Your Guide to Who Pays First (available at www.medicare.gov/Pubs/pdf/02179-Medicare-Coordnation-Benefits-Payer.pdf), outlines coordination of benefits for Medicare-eligible individuals. It indicates when Medicare is the primary or secondary payer for services under different retiree health plans.

Let’s look at some common scenarios and how Medicare coordinates payments.

Employer health plans. If an employer has fewer than 20 employees, Medicare is the primary payer and the employer coverage is the secondary payer. As such, individuals who are 65 and covered under a spouse’s employer plan or are still working and covered under an employer plan should enroll in Part B. If the plan is not considered creditable coverage for part D prescription coverage, those persons should enroll in Part D.

If an employer has 20 or more employees, the employer plan is the primary payer and Medicare is the secondary payer.

Keep in mind that there are special rules for persons with disabilities. You should contact Medicare to clarify coordination of benefits.

TRICARE Government Health Coverage for Military Members and Dependents.  If you are 65 and covered under TRICARE, Medicare is the primary payer for Medicare-covered services and TRICARE is generally secondary, unless services are received in a military hospital.

There are specific rules for TRICARE-insured military members enrolled in specific plan types. Generally, if you are retired, you should enroll in Part B to remain eligible for TRICARE (including drug coverage). Speak with your benefits counselor for detailed information.

Federal employees health benefits (FEHB) plan.  For a 65-year-old person covered under an FEHB plan and still an active employee, FEHB plan is primary payer and Medicare is secondary. Once you are no longer an active employee, the FEHB plan for Part B is not considered creditable coverage; then, Medicare is the primary payer. On the other hand, FEHB may be creditable coverage to avoid the Part D prescription plan penalty, as well as serve as the client’s supplemental gap plan. Again, it is important to check with a benefits counselor.

Retiree employer health plan. Medicare is the primary payer and the retiree health plan is secondary when a person is 65 and covered under a retiree employer health plan.

Once you are no longer an active employee, the retiree health plan for Part B is not considered creditable coverage; thus, Medicare is the primary payer. This plan may be creditable coverage to avoid the Part D prescription plan penalty and may serve as a supplemental gap plan. In any case, it is important to discuss your situation with a benefits counselor.

Health Savings Accounts

Once you enroll in Medicare Part A, you may no longer contribute to a health savings account. If you are considering collecting social security benefits, in general, they should stop making contributions six months before enrolling in Medicare Part A to avoid a potential health savings account contribution penalty.

What’s New for 2018?

Medicare premiums are means tested: the higher your modified adjusted gross income (MAGI), the higher your monthly premium. People with a higher MAGI pay a surcharge, known as the income-related monthly adjustment amount (IRMAA). In the case of IRMAA for Medicare, your MAGI generally includes all taxable income (e.g., retirement account distributions, capital gains and interest), plus dividends from tax-free bonds, interest from savings bonds used to pay higher education tuition and fees and foreign earned income excluded from gross income. For 2018, the premium cost will be based on your 2016 MAGI.

Hold harmless rule. The hold harmless rule protects current social security beneficiaries from increasing Medicare costs in a year where there is no or a very low cost-of-living adjustment. When this rule applies, any increase in premiums for Medicare is absorbed by a smaller group of recipients: new enrollees and current beneficiaries subject to IRMAA.

In 2018, the interaction between the annual cost-of-living increase for social security benefits and the hold harmless rule may result in a jump in premium costs for those already enrolled in Medicare. Social security recipients will receive a 2-percent increase in benefits for 2018. Therefore, the hold harmless rule will not apply, and the costs for Medicare increases will be spread across most current recipients. Those previously protected may see an average increase of $25 per month. Medicare beneficiaries who previously saw their costs spike will see a leveling of their premium costs.

MAGI threshold limits. There is a second change in 2018 that will affect higher-income recipients who fall under IRMAA. The top three MAGI threshold limits for IRMAA have been compressed (see Figure 1).

In 2017, the top Part B IRMAA threshold for a married couple filing jointly was a MAGI greater than $428,000. The monthly premium per person for a new enrollee was $428.60 per month. Compare this with 2018, where the top Part B IRMAA threshold for a married couple filing jointly will be a MAGI greater than $320,000. The monthly premium per person for a new enrollee will be $426.50 per month.

So, what does this mean? A new 2018 Medicare enrollee with a MAGI for tax year 2016 of $267,001 will be charged a higher premium due to the compression of the table: $348.30 per month versus $267.90 per month.

You may appeal the IRMAA surcharge amount for specific life-changing events. Specific life-changing events that qualify for appeal include death, divorce, loss of pension, loss of income-producing property, or an error in the determination records. Further information on the appeal process is available on the U.S. Department of Health & Human Services website (https://www.hs.bov/about/agencies/omha/the-appeals-process/part-b-premium-appeals/index.html).

Want to Know More?

There are a number of resources available for Medicare-eligible clients on the State Health Insurance Assistance Program (SHIP) website (www.shiptacenter.org). These programs offer free counseling from trained counselors who can guide you through your decision-making process for Medicare, as well as discuss specific coverage needs. Another useful resource is Medicare Interactive (www.medicareinteractive.org/), a free online tool that assists with Medicare decisions. The Medicare website also offers a comparison chart of basic options (https://medicare.com/medicare-suppliment/medigap-plan-benefits-chart/), as well as state-specific links for information on coverage, costs, and companies that offer plans in individual states.

We’ve Got You Covered!

Contact us for Medicare fact sheets outlining key components of the Medicare program. We’ll also do our best to answer your questions about this important topic.

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.

 

Ask SSB

by

Q:       My mom passed away a few months ago.  She had a will that leaves everything to me and my sister equally.  That means we don’t have to go through probate, right?

A:        I wish I could get a hold of the person who started this tale: “If you have a will, you do not need to go through probate.”  This is one of the most common misconceptions among our clients.  I am happy to dispel this rumor once and for all!

The concept of ‘going through probate’ actually has nothing at all to do with whether or not you have a will.  A will is simply a document that outlines who you would like to receive your assets when you pass away.  A will states who you would like to serve as your personal representative (formerly known as executor), whether you have specific instructions about the distribution of certain assets and if you have minor children, who you would like to serve as guardian for those children.  If you do not have a will, the Commonwealth of Massachusetts has one for you.  This is called the intestacy statute.  However, you may not agree with what the intestacy statute says—sometimes its terms are surprising.  Having a will overrides the intestacy law and allows you to state clearly what your wishes are once you pass away.  It can also make the probate process run more smoothly as it allows you to make certain elections in the document (such as a waiver of surety on a bond or license to sell real estate) which can often expedite the whole process.

The answer to your question lies not in the having or not having of a will but rather what assets a will controls and what processes you have to go through to gain access to certain assets when a person passes away.  This is where probate comes in.  A will only has control over probate assets—these are assets that are held in the deceased person’s sole name with no joint owners and no named beneficiaries.  Most IRAs, 401Ks, life insurance policies and investment accounts give the owner the ability to name a beneficiary.  This beneficiary designation takes priority over the terms of the will with respect to that particular asset.  Even better, the beneficiary often has immediate access to the asset upon providing a death certificate.  Likewise, assets titled in the name of a trust are non-probate assets which pass according to the terms of the trust and not the decedent’s will.  Therefore, these assets are not subject to the probate process either.

So, the act of going through probate is only required if the deceased person has probate assets (remember—assets with no joint owner, named beneficiary and not held in a trust).  The will is the roadmap that determines how the probate process will play out but having a will, in and of itself, does not avoid probate.  There you go—this myth is BUSTED!

5 Things That Can Derail Your Estate Plan

by

As we often tell our clients, although you would like your estate plan to last forever, it probably won’t.  Things change, laws change, family circumstances change, and your estate plan needs to change with it if you want it to continue to accomplish your planning goals.  For most people these goals include making sure the right people are making decisions on your behalf and making sure your assets get where you want them to go with a minimum of delays, estate settlement costs and estate taxes to pay.

Here are five things that can derail even the best estate plan.

  1. Change in Marital Status. In Massachusetts, if you create an estate plan when you are married and then get divorced, the divorce will automatically revoke any provision in your estate plan documents that benefits your former spouse or any of his or her relatives (other than children you may have in common), and any beneficiary designations in life insurance or retirement plans that name a former spouse as long as you had the power to change those designations prior to the divorce. A divorce also revokes any nomination of your former spouse or his or her relatives to serve as your Personal Representative, Trustee, health care agent, etc.   This may seem like exactly what you want to happen, and convenient that it happens automatically. However, you need to consider whether your documents address who will serve in these capacities if your spouse is disqualified, or who will receive your assets if provisions in favor of your spouse are automatically revoked.  Also, although the law makes provisions regarding the automatic revocation of beneficiary designations, it is not wise to rely on these provisions, for example, as to life insurance issued by an out-of-state financial institution or a retirement account subject to federal ERISA law.  Reviewing your documents and beneficiary designations and changing them as necessary is always the best approach.  If you create an estate plan while you are single and then get married, your marriage will no longer revoke your Will (as was the case under prior law) but be aware that Massachusetts law gives your spouse a right to receive a certain portion of your estate whether your Will provides that or not.  Make sure you understand what the law provides and create documents that consistent with your intentions if necessary.

 

  1. Death or Incapacity in the Family. Estate plan documents typically name certain individuals – your spouse, children, siblings, friends – to handle certain duties during your lifetime (as attorney-in-fact or health care agent) or after your death (as Personal Representative or Trustee), and also as beneficiaries of your estate.    If someone named in your estate plan documents passes away before you or becomes incapacitated and unable to perform the duties they were nominated to perform, this can be an issue if successors have not been named in the document.  Further, if the person is still alive but is not able to perform those duties appropriately, they may still insist they are able to do so when you (and others) may know they are not a good choice anymore.  A little off topic, but also not uncommon, is the situation where a family member or friend is named as the guardian of minor children in a parent’s Will, but that person is no longer a good choice.  To avoid probate court involvement in designating successor fiduciaries, and to avoid people serving who are no longer appropriate, make sure you revisit the people you have named in your documents from time to time and make changes as needed.  If a beneficiary named in your estate plan is no longer living, make sure you understand how the documents (or beneficiary designations) will operate and where the assets designated for the deceased person will go instead, and make changes if necessary.

 

  1. Beneficiaries with Issues. There are few perfect families, and sometimes a person who is named as a beneficiary of your estate plan will hit a rough patch.  Maybe your child is in a bad marriage and headed for divorce and you are concerned that your daughter’s inheritance may be shared with her estranged husband.  Maybe your favorite nephew has developed an affinity for sports betting and you are concerned about how he will manage an inheritance he may receive from you.  Maybe a family member is an unfortunate victim of the opioid crisis that has hit Massachusetts hard.  Maybe a beneficiary has recently become disabled and you are concerned that an inheritance may disrupt receipt of public benefits.  If any of these situations arise in your family, take another look at your estate plan and update your plan as needed.  It may be that you want to disinherit a troubled individual altogether or retain their inheritance in trust in a way that it will be protected from their troubles but still be available to help them through the rough patches.  An estate plan can do all of this and more, but proper planning is required.

 

  1. Lack of Trust funding and Improper Beneficiary Designations. Even the best estate plan can be derailed if attention is not paid to how assets are owned and how beneficiaries are designated.  It is important to follow your attorney’s instructions regarding these matters to be sure the way in which your assets are owned and beneficiaries are designated is consistent with your estate plan.  In our office, we provide our clients with written trust funding and beneficiary designation instructions.  It is important to make sure the instructions are followed as to existing accounts or assets, and as to any new accounts that may be opened or new beneficiary designations that may be made after your plan is in place.  It is always a good idea to sit down with your estate planning attorney at least every 5 years or so to review asset ownership and beneficiary designations, and make sure they are as they should be.

 

  1. Change of Domicile. Many of my clients (especially after this past winter) think about moving to warmer locations when they retire, even if they want to spend some time in Massachusetts during the year.  It is important that your estate plan documents reflect where you consider yourself to be domiciled – where you intend to make your permanent home.  Although estate plan documents created in Massachusetts will be valid in Florida (or any other state), it is generally a good idea to have your estate plan documents updated when you move to another state. In addition to making sure your documents operate cost effectively and efficiently under the laws of that state, your documents should be written in the state in which you are domiciled.  This is especially important if you are moving from a state (like Massachusetts) that has a separate state estate tax, to a state (like Florida) which has no state estate tax, when your documents will serve as evidence of your intention to be domiciled in your new state.  Further, documents like powers of attorney and health care proxies are often state-specific, and you will want those documents to be used easily in your new state without any question or delay.

Like it or not, an estate plan is not something you can create and forget about.  Family circumstances change, the laws change, and often your goals change.  For these reasons, your plan should be reviewed regularly, revised as needed, and kept up-to-date so it will be ready to do its job whenever and wherever it’s needed.

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.

April, 2018

© 2018 Samuel, Sayward & Baler LLC

What does a Snowstorm have to do with Estate Planning?

by

The snows and no-snows of March set me to thinking about disruption.  When I was a kid, waking up to a foot of snow was one of the most joyful events of my life – especially if it happened on school day.  As an adult, I have the opposite reaction.  In fact when I looked out the window on March 22nd and saw that the meteorologists’ prediction of a huge overnight snowfall was a complete bust, I was filled with delight.  In thinking about my two-selves’ different reactions to snow, I came to the conclusion that it is all about disruption.  As a kid, I loved unexpected disruptions – a snow day, a fire drill, a fight at recess.  As adults we are not so fond of disruptions – some people even dislike holidays!  In many ways, undertaking estate planning is about planning to minimize disruption when the unexpected happens.  The events that we are planning for when we create an estate plan are sickness and death.  If you, your spouse, your parent or your grandparent, gets sick or has an accident and is incapacitated as a result, that is a very disruptive event not only to person who is incapacitated but also to family members who are caring for the ill person.  Decisions about health care will need to be made, bills will need to be paid, maybe the house will need to be sold.  These added tasks are disruptive to the lives of the people who must take them on, but it is even worse if the incapacitated person does not have a Health Care Proxy and Durable Power of Attorney that legally authorize people to make health care decisions, pay bills, deal with real estate, file tax returns, etc.  If no such documents exist, then family members are forced to petition the probate court for guardianship and/or conservatorship in order to obtain the legal authority to make decisions and take action.  Believe you me, there is nothing quite so disruptive as having to deal with the probate courts – not to mention the expense involved in any court proceeding.  Similarly, if someone dies without a Will or Trust, the cost, time and aggravation of settling the estate are multiplied – more disruption!  You can reduce the disruption caused by incapacity and death by getting your affairs in order and creating (or updating, if it’s been a while) an estate plan.  As to the next snow storm….my advice, flee to Florida!

March, 2018

© 2018 Samuel, Sayward & Baler LLC

Five Things to Consider Before You Make Your Child an Owner of your Home

by

Clients often tell me that they want to transfer their house to their children or add a child’s name to their deed because they want to protect the property from a forced spend down or a Medicaid lien in the event they need long-term care. However this is not an action that should be taken in haste.  There are significant consequences to such a transfer and these should be examined carefully.

Here are five things to consider before putting your child’s name on the title to your house.

  1. You will be subjecting your property to the reach of your children’s creditors. If your child’s name is on your home as an owner, your home is subject to the reach of your child’s creditors such as a divorcing spouse, bankruptcy, lawsuit, judgment, unpaid debt, etc.  If your child owns an interest in your home, your child’s creditors may place a lien against the property and you would not be able to prevent that from happening.  In any event, before deciding to make your child an owner of your property, have a frank discussion about any skeletons that may be lurking in your child’s closet – Is there a possible divorce on the horizon? Did your child personally guaranty a loan for his business that is now floundering?  Is your child in trouble with the IRS?  If the answer to any of those questions is ‘yes’ or even, ‘maybe’, adding that child’s name to the deed to your house is not in your best interest.

 

  1. You may lose the right to exclude the capital gain on the sale of the property.   The current income tax laws allow a person to exclude up to $250,000 of capital gain on the sale of her primary residence provided she has owned and occupied the property for two out of the five years prior to the sale.  This is an excellent tax benefit for people who have owned their home for a long time and have seen the value increase significantly.  For example, someone who purchased their home in the 1970s for $50,000 and sells it now for $300,000 would have a capital gain on the sale equal to $250,000 ($300,00 – $50,000 = $250,000).  However, no tax would have to be paid on that gain provided the seller owned the home and occupied it as her primary residence for two out of the five years preceding the sale.  If the home is transferred to the children, then the parent seller would not be the 100% owner of the property at the time of the sale.  If she retained a life estate when she transferred it to the children, or if the children were added as co-owners with the parent, then a portion of the gain would be tax free but the portion of house deemed owned by the children would be subject to capital gains tax (unless the children were living in the home).

 

  1. Once you do this, you cannot unilaterally undo it.   If you transfer your home to your children, or add their name to your deed so that you are co-owners of the property, you cannot unilaterally change this. If you change your mind about the transfer and decide you want to be the sole owner of the property, your children must sign a deed conveying the property back to you.  Even if you have the best children in the world and you are not worried that they would refuse to do as you ask, you still need to be concerned about factors beyond your child’s control such as your child being sued, getting divorced, filing for bankruptcy, becoming disabled, etc.  Any of those events, as well as a host of other troubles, could prevent your child from being able to transfer the property back to you free and clear of the claims of your child’s creditors.

 

  1. If not done properly, your children will lose the stepped-up tax basis in the property.  One of the tax breaks that truly helps the middle class is the stepped-up tax basis that occurs when someone dies owning an appreciated asset. The tax basis of an asset is the starting point in determining the amount of gain realized on the sale of a capital asset such as stock or real estate.   To calculate the tax basis of a home, you start with the purchase price, and add the cost of the capital improvements made to the property.  For example, if mom and dad bought their home for $50,000 in the 1970’s and made $100,000 of capital improvements over the years (i.e. a new roof, new kitchen, replacement windows, etc.) the property now has a basis of $150,000.  If property with a $150,000 tax basis is sold for $350,000 there is a capital gain of $200,000 ($350,000 – $150,000 = $200,000) and that is the amount on which capital gains tax must be paid (but see number 2 above for an exemption on the sale of a primary residence).  However, if the property is still owned by the parents when they die, then the children will inherit the property with a ‘stepped-up’ basis.  This means that the children’s tax basis in the property is its fair market value when the last parent died.  In this example, it means that if the children sell the house for $350,000 then the gain on the sale will be zero ($350,000 – $350,000 = $0) and thus there would not be any capital gains tax to pay.  However, the stepped-up basis is only available if the property is owned at death.  If the parents deed their home to the children during their lifetimes, then the parents do not own it at death and therefore the basis is not stepped-up.  In that case, the children are stuck with their parents’ basis, $150,000 in this example, and will pay capital gains tax on the difference between the sale price and the parents’ basis.

 

  1. You will incur a 5-year ineligibility period for long-term Medicaid benefits.   One of the main reasons for transferring the home to children is to protect the property from having to be spent down to pay for the parents’ long-term care expenses or to avoid the imposition of a lien on the property by the state in the event a parent receives Medicaid (MassHealth) benefits.  The Medicaid eligibility rules disqualify a person from being eligible for long-term care Medicaid benefits if the applicant or the applicant’s spouse gives away assets within five years of applying for benefits. Deeding property to children or adding your children’s names to your deed is considered a disqualifying transfer.  Because of this it is very important to carefully consider the ramifications of a transfer before making it, especially for married people.  There are currently laws in place to protect the spouse of a nursing home resident from having to impoverish herself paying nursing home bills. However, a transfer of assets within five years could wipeout those protections.

While transferring the home to children can be a good way to protect the home from liens or spend down due to a parent’s long-term care needs, it is vital to consider the consequences of such a plan before rushing in.  Consult with an experienced estate planning and elder law attorney to fully understand the advantages and disadvantages of such a transfer before signing away your home.

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. 

March, 2018

© 2018 Samuel, Sayward & Baler LLC

Everybody Speaks a Secret Language

by

A couple of weeks ago I took my car in for a service appointment because the car was all stutter-y and the ‘Service Engine Soon’ light had come on.  The service folks told me that the ‘ignition coils’ needed to be replaced and that the ‘valve cover gasket’ was leaking and also needed to be replaced.  When I picked up the car, the service light was off and the car drove fine – no more stuttering – so clearly the analysis of the problem and the solution were correct.  However, I left the service department a bit lighter in the wallet than when I went in and with no real understanding of what had happened other than my car had been broken and now it was fixed.

This started me thinking about the fact that everybody speaks a secret language.   If I knew how a car engine works, what the parts are, or how they all fit together, my experience may have made perfect sense.  But I don’t.  Terms like ‘ignition coils’ and ‘leaky valve cover gaskets’ are as foreign to me as ‘je suis confus’ (that’s French for, ‘I’m confused’).  The same holds true for other professions – think doctors, dentists and even hairdressers (what the heck is balayage?)!

Estate planning attorneys also speak a secret language that can leave clients puzzled about the advice they receive.  While you may not need feel the need to know exactly what your mechanic means when he tells you that you to replace the evaporative emissions purge control valve on your car, it is important to understand what your estate planning attorney means when she tells you that you need to name a successor attorney-in-fact in your durable Power of Attorney.

Estate planning is about the most important thing to most people – their family.  Understanding how the decisions you make in your Will, Trust, Power of Attorney, etc. (or that you fail to make if you do not have an estate plan) will affect the people you love is vital.  So the next time you are meeting with your estate planning attorney and she advises you to “convey your real estate to a nominee Realty Trust so that it can be used to fund your credit shelter trusts,” make sure she explains ‘the why’ of this to you and that you understand that explanation.  In the meantime, if your mechanic tells you that your car needs a new flux capacitor, you might want to look for a new mechanic!

February 2018

© 2018 Samuel, Sayward & Baler LLC    

Five Do-It-Yourself Estate Planning Moves

by

This is the time of year when New Year’s resolutions about getting an estate plan done (finally) bring people to my office.  Others may decide to take matters into their own hands.  As an estate planning attorney, I am not a big fan of do-it-yourself estate plans.  Whether it’s a so-called Will handwritten on a napkin, or documents created using LegalZoom or any of the other on-line tools, I have never seen a Will or other estate plan document drafted by a client work as intended.  For a variety of reasons, these documents are at worst invalid and at best poorly written, creating ambiguity and inevitably leading to more time and expense in the estate settlement process, which is precisely what the drafter was, I suspect, trying to avoid.  There is no substitute for an experienced estate planning attorney if you want to create an estate plan that will be valid, cost-effective, and accomplish your goals.  However, there are certain things you can do yourself that will go a long way toward ensuring that your estate plan works as you intend.  Here are five of them:

  1. Get Organized. One of the first tasks someone will need to complete after your death is to identify your assets. Your family will thank you if it is easy for them to figure out what you own and where your assets are located. Take the time once a year to create a list of your assets – bank accounts, investment accounts, real estate, life insurance policies, annuity contracts, IRA and 401k accounts, etc.  Include the institution and the account number.  Include information about any safe deposit box you may have and where the key is located. If you have a safe or other place you store assets or important papers in your home, make sure that is on the list.  Finally, and despite all advice to the contrary, include your passwords to online financial, social media, email and other accounts.  Without that information, timely access to your digital assets may be impossible.  After you create this list, update it at least once a year.  Then, put it somewhere where it will be easily found if something happens to you.  If you have a filing cabinet where you keep your asset information, put the list in the front of the cabinet.  Another good option is to make a 3-ring binder where you keep the list along with your most recent account statements.  Organizing the paperwork related to those assets in one location is also a plus.  Any method that works for you is OK. Keep your estate plan documents and the contact information for your attorney, your financial advisor and your accountant in the same location.  Then, tell the person you have named as Personal Representative in your Will what to do when you are gone.  It’s enough to say, “If I get hit by a bus tomorrow, go to the bottom drawer of the filing cabinet in the den and you’ll find everything you need there.”  A little organization and information will make things a lot easier for your family to pick up the pieces when the time comes.
  1. Check Beneficiary Designations. Identify the assets you own that have beneficiaries designated to receive those assets when you pass away – for example, life insurance policies, annuities, IRAs, 401ks and other retirement accounts.  Check with those companies, or with your employer, to confirm who you have designated as the primary beneficiary on a particular policy or account (to receive the asset at your death).  Make sure the primary beneficiary is still the person you want to receive that asset.  If your designated beneficiary is no longer a good choice, obtain the appropriate form and change the beneficiary – now.  Also, confirm that you have designated a contingent beneficiary who will receive the asset if the primary beneficiary is not living at your death, and if you haven’t done so, designate an appropriate contingent beneficiary or beneficiaries.  If the beneficiaries you wish to designate are under the age of 18, make sure you understand how the company in question will handle things at your death.  It may be that they will require a court-appointed conservator for a minor before money can be paid to the beneficiary.  This is a time consuming and expensive process.  Generally, designating a trust for the benefit of a minor beneficiary is a better approach.  If you have large retirement accounts, make sure you understand the rules that will require minimum distributions from those accounts each year to non-spouse beneficiaries after your death, regardless of their age, and the income tax implications to your beneficiaries.
  1. Specifically Identify Special Items. Your tangible personal property – the contents of your home, your car, your jewelry, your boat – are often overlooked in considering how assets will be distributed at death.  If you have tangible property of significant monetary or sentimental value, consider being specific about who should receive these items at your death. Create a list of the items and the people you would like to receive them.  Sign and date the list, and re-sign and re-date it when you make changes.  Keep the list with your asset list (see #1 above) or with your estate plan documents.  This will go a long way to avoid disagreements following your death about who should receive Mom’s engagement ring, grandma’s rocker, or the family’s prized Revolutionary War musket that needs a caretaker that understands and will respect its significance.
  1. Leave Instructions – About your Kids. One of the hardest but most valuable things you can do is write a letter of instruction to your children’s guardian about how you would like your children to be raised if you are not around to do it yourself.  As a parent, it is very difficult to imagine what your children’s life would be like if you are no longer there.  However, all parents have hopes and dreams for their children, as well as practical information about their children that would be useful for someone to have.  So, write it down.  “Dear Guardian, If I am no longer living, these are the things I want you to know about my children…”  Start with the mundane – who their doctors are, what allergies they have, what they like and don’t like (particular food, scary movies, clowns).  Continue with what you hope they will have the opportunity to do in the future – music lessons, a particular summer camp, time each year to visit with extended family who may live far away.  This is a letter you will need to commit to updating as time goes on, since as your children get older much of this information will change.  It’s not an easy thing to do or commit to keeping updated.  However, this kind of information can be invaluable for those who are left to care for your children, and can also give you some peace of mind that if your wishes are known they will be carried out.  Keep the letter with your estate plan documents and your asset list.
  1. Name Legacy Contacts. If you use email or social media, consider naming a legacy contact to whom you can give permission to access your “digital assets” stored with that company after your death. For example, Facebook allows you to designate a Legacy Contact (Settings/General Account Settings/Manage Account) who can manage your account after your die, or you can choose to have your account deleted if you pass away. Google allows you to control what happens to your account through their Inactive Account Manager feature (My Account/Personal Info and Privacy/Control your Content), where you can designate when your account will be considered inactive and what will happen to your Google account, and designate one or more people who will have access to whatever portions of your Google account you choose.  Keep in mind that if you do not use an online entity’s prescribed method of giving someone permission to access your account, and do not provide express permission and direction in your estate plan documents, the company’s Terms of Service Agreement will govern.  In such a case, you and your digital assets are at the mercy of the online provider, which may not allow access following your death or incapacity.

Estate planning is not as easy as do-it-yourself websites may have you believe, and I would not recommend that you try it at home.  Work with an experienced estate planning attorney to create estate plan documents that are appropriate for you and that will accomplish your goals after you are gone.  In addition, consider taking the steps described above to make things easier for those you leave behind.

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.

February 2018

© 2018 Samuel, Sayward & Baler LLC    

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

©2026 Samuel, Sayward & Baler LLP. All Rights Reserved. The information presented on this website should not be construed to provide legal advice, nor does it constitute the formation of an attorney/client relationship. Read the disclaimer.