With Halloween fast approaching, it’s time to turn our attention to ghosts, goblins and other scary things!  Estate planners are not easily frightened – no matter how many do-it-yourself Wills we see.  However, there are things that come across our desks from time to time that give us a good scare.  Here are a few of my personal favorites:

1. Forgotten beneficiary designations. Your Will and Trust are estate plan documents that contain your instructions about the distribution of your assets at your death.  However, your Will only controls the distribution of assets you own in your individual name (with no joint owner or beneficiary designated) and your Trust only controls assets owned by or payable to the Trust at your death.  Assets like life insurance and retirement accounts usually have a designated beneficiary who will receive those assets at the death of the account or policy owner.  That beneficiary designation controls the distribution of those assets regardless of what your Will or Trust may say, and if you are like many of my clients with significant life insurance policies and/or significant retirement savings, those designations likely control the distribution of a large portion of your wealth.

It is common for clients to name their spouse as beneficiary on these types of assets, but that is like leaving your Halloween candy half-eaten, because your work is only half done.  It is just as important to designate contingent beneficiaries properly.  These are the beneficiaries who will receive the asset if the primary beneficiary is not living.  Be thoughtful about this designation and get advice from your estate planning attorney about how to make proper designations.  If you name your children equally as contingent beneficiaries, make sure you understand what happens if a child predeceases you.  The beneficiary designation form may give you the option to pay a deceased beneficiary’s share to his children, but if those children are minors, this could haunt the family for years if a conservatorship is required.  And the family will get a real fright if an ex-spouse receives life insurance proceeds because the designation was not changed after divorce.

2. “Winner takes all” Wills. If a married couple has no children, their estate plan will often leave all assets to each other.  The more difficult question is who should receive the assets when the second member of the couple passes away?  Let’s say Sally decides to leave all of her assets to her sister Jane if her husband Harry does not survive her.  Harry decides to leave all of his assets to his brother Bob if Sally does not survive him.  Sounds simple right?  But this plan is a haunted house of horrors for Jane or Bob.  If Harry dies first, all of his assets pass to Sally, and when Sally dies, all of the assets owned by Sally (including Harry’s assets) will pass entirely to Jane under Sally’s Will, and Bob would receive nothing.  This is probably not what the parties intended. In situations like this, care should be taken to draft the estate plan carefully so that the intended beneficiaries of both spouses benefit as desired.

3. Unfunded Trusts. A Trust document is an impressive and imposing thing to behold.  It carefully set outs the instructions for distribution of assets after death, and includes appropriate administrative provisions that ensure the Trustee can act to manage the Trust assets and pay taxes fairly and appropriately.  When you sign your Trust you should feel a sense of accomplishment.  But signing your Trust document is only the first step in the planning process.  When you create a Trust, your estate planning attorney should give you detailed instructions about how to “fund” your Trust.  Trust funding is the process of re-titling assets into the name of your Trust, or designating your Trust as the beneficiary of life insurance or other assets.  Unfunded Trusts can have serious consequences, including the delay and expense of a probate proceeding, lost opportunities to shelter assets from estate tax, and assets passing outright to beneficiaries with special needs or who are otherwise in need of asset protection. Make sure you follow your attorney’s trust funding instructions and take the time to fund your Trust so that your estate plan will work as intended.

4. Improper estate tax apportionment. If you are a resident of Massachusetts, and the assets you own (bank accounts, real estate, life insurance, retirement accounts, etc.) are worth more than $1 million at the time of your death, your estate will need to file an estate tax return with the Commonwealth of Massachusetts, and pay any estate tax that is due.  If you leave your estate (including any assets passing outside your estate) equally to your children or other heirs, and your Will directs your Personal Representative to pay the estate taxes from your estate before distributing the remaining assets to your heirs, all is well.  The tax will be paid “off the top”, and your heirs will each receive an equal share of what remains in the estate and the assets passing outside the estate, with the tax burden being shared equally by the heirs.  However, if you leave assets passing outside your estate differently than your estate assets (for example, if you leave your IRA to a favorite grandchild), you need to consider how the estate tax will be paid.  Unfortunately, many standard estate tax provisions in Wills or Trusts fail to take into account how the assets are being distributed, particularly those assets (like retirement accounts or life insurance) that may pass by beneficiary designation in a different manner than your other assets.  The hair-raising result may be that certain beneficiaries end up paying a disproportionate share of the tax.  This is not only inequitable, but can result in some serious family disharmony.

5. Real estate with no tenancy. Have you ever looked closely at the deed to your home? If you are married, you should see your name and your spouse’s name, followed by some words that have important implications for the ownership of your property and what happens when you pass away.  These words specify the different forms of “tenancy” for real property in Massachusetts.  Owning property as “tenants in common” allows each individual owner to pass on her share of the property free from any claim by the other owner.  At an owner’s death, her interest in the property will be subject to probate and will be distributed to her heirs under the terms of her Will.  The surviving owner will have no say in who inherits the other owner’s interest in the property, and will have no claim to that interest unless the other owner is the recipient of that interest under the deceased owner’s Will.  Property owned as “joint tenants” or as “tenants by the entirety” (the form of joint ownership for married couples in Massachusetts) has a different result. Upon the death of a joint owner or tenant by the entirety, the deceased owner’s interest passes automatically (without probate or any other action required) to the surviving joint owner.  Beware of real estate with no tenancy indicated after the names of the owners.  If that is the case, the property is deemed to be held as “tenants in common” and the surviving owner may be spooked by the realization that he does not own the entire property when the co-owner dies.  Even if the co-owner is the beneficiary of the deceased owner’s estate and becomes full owner of the property in that manner, it will not be without significant delay and expense that could have been avoided with proper planning.

Like the house that hands out the full-size candy bars on Halloween, an experienced estate planning attorney can be your best bet for making sure your estate plan operates as you intend so your beneficiaries have no unwelcome surprises.  Happy Fall and an enjoyable Halloween to all!

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.

October 2017

© 2017 Samuel, Sayward & Baler LLC

With the abundance of information available to everyone today, including so-called ‘fake news’, it is not surprising that my clients sometimes have misconceptions about estate taxes, trusts, probate, and other estate and elder law matters.  In the spirit of the back-to-school season, here is a quiz to test your estate planning knowledge.

Q. True or False. You only need to worry about paying estate tax if your estate is worth more than $5 million.

A. False. The estate tax, sometimes referred to as the death tax, is a transfer tax.  That means that the value of the assets a person owns at death and passes on to his beneficiaries is subject to a tax.  There is a federal estate tax and many states impose their own estate tax.  To mitigate the harshness of the tax, the law permits each person to pass on a certain amount free of the estate tax (the exemption amount).  The federal estate tax exemption is $5,490,000 per person in 2017.  Given this very high amount, very few people need to be concerned about the federal estate tax.

However, Massachusetts has its own estate tax which allows for a $1 million per person exemption.  A person’s ‘estate’ for estate tax purposes includes real estate, bank accounts, investments, retirement accounts, life insurance, and all other assets. Given the high value of real estate in Massachusetts and the recent robust stock market, many people in Massachusetts have estates valued in excess of $1 million.  It is especially important for married couples to be aware of the value of their estates because they will lose one of those $1 million ‘freebies’ if they do not do any planning.  If that happens, their beneficiaries can end up paying the Commonwealth $100,000 or more of tax that could have been avoided.

Q. True or False. If you have a trust, the inheritance you leave your child will be protected from the reach of a divorcing spouse.

A. True, provided your trust contains the right provisions. Many of my clients worry that the inheritance they leave to their children will be lost if their child gets divorced following the parents’ deaths.  This is a valid concern, especially in Massachusetts where an inheritance is considered marital property unless there is a prenuptial agreement that excludes it.  Leaving a child’s inheritance to her by way of a trust is an excellent way to protect that inheritance from the reach of your child’s creditors including a divorcing spouse, lawsuit, bankruptcy, etc. provided that the trust provides for a continuing lifetime share for your child.  In these types of trusts, a child’s share stays in the name of the trust for the benefit of the child during her lifetime.  Your trust may allow your child to serve as the trustee (manager) of her share, or it may appoint someone else to manage the share for your child.  However, if the terms of your trust direct that the assets be distributed out of the trust to your child following your death, then you are not providing any creditor protection for that inheritance because those assets are now owned in your child’s individual name.   Assets owned in your child’s individual name are vulnerable to the reach of your child’s creditors.  You can incorporate asset protection for your child’s inheritance in your trust, thereby achieving three goals:  probate avoidance, estate tax savings (for married couples), and creditor protection for your child’s inheritance.

Q. True or False. If your spouse is in a nursing home, the state will place a lien on your house.

A. False, maybe. If a person over the age of 55 receives Medicaid (MassHealth) benefits, whether in the community or in a nursing home, the state may recover the cost of those benefits from the Medicaid recipient or his estate under certain circumstances.  If a Medicaid recipient owns an interest in real estate, whether in his individual name, as a co-owner with another person, or as a life estate holder, the state will place a lien against the property to secure its right to recover the amount of the Medicaid benefits it paid if the property is sold during the Medicaid recipient’s lifetime. The state will also file a claim against the estate of a Medicaid recipient to recover the amount of Medicaid benefits paid following the recipient’s death.

However, state and federal regulations provide that if the Medicaid recipient’s spouse is living in the home, then the state may not place a lien against the home. Therefore, if one spouse is receiving Medicaid, the state cannot file a lien on the property so long as the other spouse is living in the home.  But if the non-Medicaid recipient spouse dies first, the property is then at risk for a Medicaid lien.  Because of this, it is very important for individuals who have a spouse facing long term care to meet with an elder law attorney to ensure that their assets are properly titled to avoid a lien or post-death recovery.

Q. True or False. If you have a trust you don’t need a durable Power of Attorney.

A. False. A trust is often created for probate avoidance purposes. The way this works is that during the trust-maker’s lifetime, she re-titles her assets such as real estate, bank accounts and investment accounts into the name of her trust.  For example, Mary Jones’ bank account would no longer be in Mary’s individual name; instead the name on her account would be, ‘Mary Jones, Trustee of the Mary Jones Trust.’  If Mary becomes incapacitated, then the person she named as the successor trustee of her trust would be able to manage the trust assets for Mary’s benefit.  However, retirement assets (IRAs, 401Ks, 403bs, etc.), for example, cannot be retitled in the name of a trust; they must be owned in the individual’s name.  The Trustee of Mary’s trust will not have any legal authority over the retirement accounts.  As such, Mary needs to create a Durable Power of Attorney in which she appoints someone to manage non-trust assets for her should she become incapacitated.  In addition to dealing with non-trust assets, the person appointed in the Power of Attorney would also undertake tasks such as filing Mary’s income tax returns, applying for long-term care benefits, dealing with insurance matters, etc.

Q. True or False. Probate is not necessary if you have a Will.

A. False. Whether or not an asset needs to be probated is solely a function of how that asset is owned by the deceased.   For example, if I have a bank account in my name alone when I die, the bank will not simply give the money to my husband or my children.  The Personal Representative (formerly called Executor) of my estate is the only person who has the authority to access the funds in the account, or any other asset I may own in my individual name and which does not have a beneficiary designated to receive that asset at my death.  Further, it is not sufficient for the person who I have named as my Personal Representative in my Will to show up at the bank with my Will in hand and demand access to my account.  My Personal Representative must file for probate and obtain Letters of Authority from the court which will prove that he has the authority to access the account.

If you answered all of the questions correctly, does that mean I recommend that you create your own estate plan?  Of course not!  In my experience, everyone’s situation is different and has its own unique ‘twists’ which are usually not adequately addressed by ‘canned’ estate plan documents that can be found on the internet.   If you have questions about probate, Wills, Trusts or estate tax planning, call us to schedule an appointment and you can ‘quiz’ us!

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. 

September 2017

© 2017 Samuel, Sayward & Baler LLC