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Massachusetts’ Highest Court Overturns Case Which Eroded Asset Protection Aspect of Trusts

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Sue_144pxIn our October, 2015 newsletter Attorney Baler reported on a Massachusetts Appeals Court case  that held that a husband’s interest in a trust created by his father was a marital asset subject to division in  his divorce (Pfannenstiehl v. Pfannenstiehl).

That Appeals Court decision was very disturbing to estate planning attorneys because prior to that holding, we could rely on hundreds of years of law holding that assets in a so-called spendthrift trust created by someone other than the beneficiary and managed by an independent trustee were protected from a beneficiary’s creditors.

The lower court’s decision was appealed and on August 4, 2016, the Supreme Judicial Court issued its unanimous decision reversing the Appeals Court holding.  This is very good news for parents who have created trusts as part of their estate plan for the purpose of protecting their child’s inheritance from creditors including a divorcing spouse.   If you are concerned about protecting your child’s inheritance, call Samuel, Sayward & Baler LLC or another experienced estate planning firm and schedule an appointment to meet learn how you can best protect your hard-earned assets from your children’s creditors.

Financial Industry Trends and Updates

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With half of 2016 behind us, we can see a number of developments in the financial industry that will likely have an impact on investors for the rest of the year and beyond. Here are updates in two important areas: Socially Responsible Investing and the Fiduciary Standard for Investment Advisors.

Socially Responsible Investing

Socially responsible investing (SRI), is investing that attempts to evaluate an investment’s social, environmental, and governance policies in addition to its potential to provide returns. Investment dollars placed in SRI or similar strategies have grown 13.1 percent per year between 1995 and 2014 (http://www.cnbc.com/2015/09/24/doing-well-while-doing-good-socially-responsible-investing.html ). Although interest in SRI is widespread, it is most often mentioned by millennials (people born between the early 1980s and early 2000s) and women. (http://www.cnbc.com/2015/09/24/doing-well-while-doing-good-socially-responsible-investing.html).  Four developments are making SRI more attractive to millennials, women, and all investors interested in SRI.

One of the primary developments contributing to the increase in socially responsible investing is the growing realization that including SRI factors in investment criteria does not always mean sacrificing returns, as it did in the past. A 2015 Duetsche Bank analysis of a large number of studies of investment strategies found that a large majority of studies indicated a positive return when SRI investments were added, and roughly 90 percent of studies showed at least a neutral relationship between adding SRI investments and returns. (http://www.tandfonline.com/doi/pdf/10.1080/20430795.2015.1118917).

A second development accounting for growing investment in SRI is that SRI index funds have become more broadly available. For many investors already interested in the low cost, passive strategy of index funds, the availability of low cost index SRI funds is very attractive.  Third, companies are becoming more interested in making business and financial decisions based on the impact they will have on the environment and social outcomes, as companies with strong sustainability scores have been found to show better operational performance with lower risk (http://www.arabesque.com/index.php?tt_down=51e2de00a30f88872897824d3e211b11).

Absence of tools to evaluate and monitor SRI investments has hampered SRI investing in the past.  Recently, Morningstar, one of the most popular resources for evaluating mutual funds and exchange traded funds, started evaluating all funds on their SRI impacts by assigning a “sustainability rating” to each investment. This allows fund investors to evaluate their investments not only on the basis of return and mathematical measures of risk, but also on the environmental, social, and corporate governance.

Fiduciary Standard for Investment Advisors

Many people assume that all financial advisors are required to act in their client’s best interest, known as the fiduciary standard. Unfortunately, the current law permits financial advisors to choose a lower standard:  “suitability.” About two thirds of financial professionals choose this lower standard.

Imagine a waiter promoting  a high priced but mediocre steak dinner and receiving a bonus or commission when you buy it – it may be suitable for your dinner, but it would be in your best interest to be informed about  prime steak,  fresh fish, vegetables and the price and commission, too. Under the current rule, the mediocre steak would be an approved suitable transaction even if the price had not been properly disclosed or compared with better and still affordable alternatives. Under the best interests or fiduciary rule, the waiter would have a responsibility to tell the whole truth about the quality of the meal and the price, as well as the alternative prime steak and fish and vegetables.

The Department of Labor (DOL) is responsible for regulating company retirement plans as well as all types of  Individual Retirement Accounts ( IRA, Roth IRA, SEP IRA). Recently, the DOL changed its rules, requiring that all financial professionals act with the account owner’s best interest in mind. For the most part, it requires compensation by fee rather than by commissions that might motivate the financial professional to make recommendations based on the commission rather than on what is best for the public.  The change to the fiduciary standard goes into effect April 10, 2017 and applies only to retirement accounts.

Although the DOL’s rule is an important improvement for consumers, it isn’t perfect. First, there is an important exception to the rule, known as the “Best Interests Contract.” This exception allows financial professionals to be paid on commission if they provide a written statement to the consumer confirming that what is being recommended is in their best interest. Second, the new rule applies only to retirement accounts. Government agencies that regulate the  investment accounts that are not retirement accounts have announced that they are considering eliminating the lower suitability standard, but they have not done so yet. Third, the new law is not in effect until April 10, 2017.

How might you find out if your current financial advisor is a fiduciary? The first way, of course, is to ask whether s/he is a fiduciary and whether that applies to your retirement and non-retirement accounts as well. As always, review these and other important financial issues with your trusted advisors.

Securities and Advisory Services offered through Commonwealth Financial Network®,

Member FINRA/SIPC, a Registered Investment Advisor.

Samuel Financial LLC 858 Washington Street Suite 202 Dedham, MA 02026 781-461-6886

Five Times to Review and Update Your Estate Plan

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Maria_144pxAlthough many people would prefer to sign their estate plan documents, file them away and never look at them again, the reality is that your estate plan is always a work in process.   Family situations change, financial situations changes and laws change. In order for your estate plan to effectively achieve your goals, your plan needs to change periodically to address your current priorities.  The estate plan you created when you were 30 years old is no longer appropriate at age 50.

How do you know when it’s time to create an estate plan or update your existing plan?  Here are five stages of your life when reviewing and updating your plan is important:

  1. Stage One – Engaged and Newly Married Couples. If you are planning to marry, meet with an estate planning attorney to get advice about whether or not a prenuptial agreement is appropriate for your situation.  These agreements can ensure that assets owned by you prior to marriage, or inherited during the marriage, will not be part of the assets that are subject to division by the Court in the event of divorce.  If you are newly married, remember that if you do not create a Will that contains your instructions about what happens to your assets at death, the laws of the Commonwealth provide one for you.  If you die when you are married but have no children, your assets may be divided between your surviving spouse and your parents.   Creating a Will is the only way to ensure your assets pass exactly as you intend.  You may also wish to create or update your Power of Attorney and Health Care Proxy so that your new spouse has the authority to make decisions for you if you become incapacitated.  Finally, it is important to review and update beneficiary designations on life insurance and retirement plans to ensure those assets pass as you wish in the event of your death.
  1. Stage Two –Married Couples with Young Children. If you have young children, your estate plan needs to do two important things:  address the care and custody of your children and address the management and distribution of the assets you will leave for your children.  Your Will is the document in which you will name a guardian for your minor children.  The guardian is the person who will care for your children in the event of your death.  The guardian will decide where your children will live and attend school, what type of health care your children will receive, and make other day-to-day decisions regarding your children’s care and upbringing.  If you do not have a Will naming a guardian, family members or others may “petition” the Court to appoint them as your children’s guardian, and the Court will have the difficult job of choosing among those who ask to be appointed without the benefit of your input.  There’s a good chance someone you would not choose may be appointed.  Don’t lose the opportunity to put your children in the right hands.  After you have made sure that the right people will be raising your children in the event of your death, you need to make sure that the inheritance you leave them is preserved and protected for them.   Creating a trust that sets the “rules” for managing assets for your children and names a trusted person to oversee the funds for them is the best way to do this.  Trusts are not just for those with millions of dollars.  Think about the assets your children would receive if you passed away – consider your home, your life insurance, your retirement accounts, your savings and investments.  Then think about how you feel about your children receiving those assets at age 18.  If this makes you uncomfortable, a Trust should be a part of your estate plan.  A Trust allows you, rather than the state, to specify at what age or ages your children will be entitled to receive those assets.  While funds are held in trust for your children’s benefit, the Trustee can use them for a child’s education, living expenses, health care expenses, or for other purposes you specify.
  1. Stage Three –Married Couples with Teens and 20-somethings. Trust planning is a crucial component of a good estate plan when you have teenagers or young adults as well.  No matter how mature your 20-somethings may be, they may still fall victim to the bad judgment or hair-brain schemes of others.    Trusts can very effectively protect inherited assets from so-called “creditors” and “predators.”  Young adults may spend money irresponsibly or make loans to ‘friends’ that are never repaid.  Young adults are more likely to have car accidents or get into other types of trouble that create liability. They may marry young and have their marriage end in divorce.  All of these potential issues put inherited assets at risk, and are all possibilities that a good estate plan can address if your plan is updated as your children age.  Finally, this is a good stage to introduce the concept of estate planning to your child who, at age 18, is considered an adult in Massachusetts.  Have your adult child sign a Health Care Proxy and Power of Attorney so you can assist them with decision-making if your child has a serious illness or disability.
  1. Stage Four –Married Couples Approaching Retirement Age. Just because your children are out of the house and perhaps married with children of their own does not mean you should not keep your estate plan updated.  If you have a child with a disability or other issues (such as substance abuse), your estate plan should address lifelong planning for that child.  At this stage in your life, the value of your estate (home, bank accounts, investments, retirement accounts and life insurance) is likely as large as it will ever be.  Review the value of your estate with your estate planning attorney and discuss whether estate tax planning is advisable.  This planning will reduce the amount of estate taxes your children will pay following your death.  If you have grandchildren, consider planning that leaves some assets directly to your grandchildren or in trust for them, both to leave a legacy to the younger generation and also to save estate taxes in your children’s estates.  Finally, have a conversation with your estate planning attorney about long-term care planning and discuss the advisability of purchasing long-term care insurance.  Make sure your health care documents and powers of attorney are up-to-date so that if an unexpected illness occurs, people you trust can act for you, last-minute planning can be done, and the expense of Court involvement can be avoided.
  1. Stage Five –Enjoying Your Golden Years. You made it! But no rest for the weary when it comes to estate planning. This can be the stage of your life when your estate plan does the heavy lifting, and it’s more crucial than ever to make sure that your plan is appropriate to your current situation.  Review your powers of attorney and health care documents (again) with your attorney and make sure they are up to date and the people you have named to make decisions for you are still appropriate.  Review long-term care options and planning issues.  How is your health?  Do you intend to stay in your home for the long term? What are your options for housing and care if you are not able to remain at home?  What do they cost?  How would you pay for them if needed?  Will it be possible or necessary for you to qualify for public benefits, and if so are there steps you should take to make that easier if and when necessary?  If you or your spouse is diagnosed with a chronic illness or condition (i.e. Parkinson’s disease, Alzheimer’s disease, dementia), see your estate planning attorney immediately and make the necessary changes to your plan before the ill spouse is no longer competent to participate in planning.  A different type of planning may be appropriate to ensure that if the spouse who is not ill predeceases the ill spouse, assets will be available to care for the ill spouse.  If protecting assets for children against liability for long-term care is one of your planning goals, it is important to discuss this early on, before any care is needed, and decide if protecting assets is appropriate and possible given your particular situation.

Recently, I received a call from a child of clients for whom I had done estate planning when my clients were in their 40’s and their children were young.  Now, one of my clients was in a nursing home and the other had recently died.  Although we had sent these clients reminders every year to review and update their plan, they had not done so.  Unfortunately, an updated plan could have left their children and my surviving client in a better position than they now find themselves.

Good estate planning attorneys maintain relationships with their clients throughout their lives and encourage their clients to review and update their plans periodically.  Next time your estate planning attorney reminds you to review your plan, listen to her and set up an appointment if it’s been awhile since you’ve reviewed your plan.  You, and your family, will be glad you did.

Five Facts to Know about Wills

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Sue_144pxYour Last Will and Testament is an important estate planning document that most adults should have  and update from time to time. Although I have never met anyone who does not know what a Will is, I do hear many misconceptions from clients about Wills.  Here are five facts to know about Wills.

  1. Having a Will does not mean that your estate will avoid probate.    Many times when I am meeting with new clients they tell me that they don’t need to worry about probate because they have Wills.  Whether or not you have a Will is irrelevant to the question of whether or not your estate will need to be probated.  Probate assets are accounts or real estate titled in your individual name that do not have a beneficiary designated to receive the asset at the death of the owner.  Your Will controls the distribution of your probate assets and does not affect your non-probate assets.  For example, if you have a Will that leaves your estate (i.e. probate assets) to your spouse and a life insurance policy that names your sister as the beneficiary, the life insurance proceeds will be distributed to your sister not your spouse.  A probate proceeding will be necessary to transfer any probate assets to your spouse under the terms of your Will.
  1. In Massachusetts we do not use joint Wills; each spouse needs to have his or her own Will. A joint Will is one in which two people (typically a husband and wife) sign one document  that purports to be the Will of both signers.  Massachusetts does not recognize joint Wills and even if it did, I would not advise creating a joint Will. A joint Will becomes irrevocable following the death of the first spouse, meaning that the surviving spouse could not change the Will.   As we know, life is long and things change.  The best decisions made today may be wholly inappropriate ten years from now.  Robbing the surviving spouse of the flexibility to update the Will based on family, financial and other situations that arise following the death of the first spouse is likely to result in some very bad outcomes.
  1. A Will is the most common way to name a guardian for your minor children. If you have minor children, you will designate a guardian and conservator for your children in your Will.  The guardian is the person who will have actual custody of your children and will make decisions about your children’s health care, education, religious upbringing, and residence.  The conservator is the person who will have legal authority over your child’s money.  Your child’s money is the money he has in the bank, in a Uniform Transfers to Minors Account ( UTMA) or a Uniform Gifts to Minors Act (UGMA) account, or his inheritance if assets are left directly to the child instead of in trust (note, this is generally a bad plan).  If you leave assets to your children in trust, the Trustee will manage and control the trust assets, not the conservator.
  1. The Personal Representative named in your Will has no authority to act until the Probate Court approves the Personal Representative’s appointment. The Personal Representative (formerly called Executor in Massachusetts), is the person you name in your Will to settle your estate. It is not uncommon for a person who is named as the Personal Representative in a Will to believe that she can present a death certificate and the Will to the bank or other financial institution and that this will allow her to access the decedent’s bank accounts on behalf of the estate.  This is not the case.  The Personal Representative does not have authority to act until the Probate Court approves the appointment and issues  “Letters of Authority.”  Petitioning the Court for that approval and obtaining Letters of Authority is the start of the probate process.
  1. A Will must be properly signed and witnessed. A document that is titled “My Last Will and Testament.” but is not properly executed will not be recognized as a Will by the Court.  In order to be recognized as a valid Will in Massachusetts, the Will must be in writing, signed by the testator (the person making the Will), and witnessed by two different people.  A Will does not need to be notarized in order to be valid.  However, estate planning attorneys commonly attach a self-proving Affidavit to a Will so that the Will may be allowed by the Court without requiring the testimony of the witnesses following the death of the testator.  The self-proving Affidavit recites the requirements of a valid Will: the testator is over age 18, is of sound mind, intends to sign his Will, is signing it willingly and voluntarily, and is not under any constraint or undue influence.  The self-proving Affidavit does need to be notarized.

If you are over 18 years of age and do not have a Will, contact an experienced estate planning attorney to advise you as to the best plan for your particular situation.  You can be sure that creating a Will will be part of those recommendations!

Attorney Suzanne R. Sayward 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.  She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC.  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 2016

I’m Going On Vacation! I’m Going On Vacation! I Need To Update My Estate Plan!!

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Pam_144pxAs we fly at lightning speed through the month of August, we are reminded as estate planners and New Englanders that evvvvverybody is going on vacation!  Some are off to the Cape or the Islands for a week, others to visit family and friends across the country and some especially lucky ones on that long-awaited riverboat cruise in Europe!

Inevitably, I hear the same shared concerns from clients as they put together their to-do list before they leave for vacation.  The conversation goes about something like this: “I’m embarrassed to say this but my husband and I don’t have current wills.  In fact, we haven’t looked at them since our kids were little. Now we are going on a big trip together and I am sure we need to make some changes because it’s really old.  We leave on August 20th.  Can we get everything done by then?”

The truthful answer is: “No, not well.”  A properly crafted and executed estate plan involves far more than signing a couple of documents before you board an airplane.  Sure, as estate planning and elder law attorneys we are sometimes called upon to put together a last minute plan for an ill client or assist someone with a game-time Medicaid qualifying plan, but the far better advice is to plan ahead.  While this may seem like little comfort as you pack your bags for that big end of the summer trip, use this opportunity to be sure your estate plan is in a better position for your next expedition rather than cramming in an update on the fly.

Here is a quick list of reasons why it’s never a good idea to put together a last minute estate plan.

  1. Most people do not think clearly under pressure. Even if you are positively certain in that moment that you want to name your baby sister as the guardian of your children or leave all of your assets to one of your three children, these are some of the most important decisions you will ever have to make and they deserve the thoughtful consideration you would give them if you weren’t operating under the gun.  On the other side, even the best estate planners need time to process and draft a perfect plan.  Unrealistic timeframes and pressure can result in mistakes—on your part and ours!
  1. Having the signed documents before your trip does not necessarily mean that your wishes will be carried out. A Will only controls assets owned in your sole name and a trust only controls assets that have been retitled into the name of the trust or where the trust is the named beneficiary.  Even if you and we do our job quickly, financial institutions often require significant paperwork to retitle assets.  This is a process that must be handled with care and attention.  Having the signed documents alone is often only fifty percent (or less) of the tasks required to create a proper estate plan.
  1. We need time to consider all of the variables and issues to put together the proper plan for you. Some clients come to see us to avoid probate, others to minimize estate taxes.  Some come for long-term care planning, others to protect minor children. Some clients have a disabled child who receives public benefits and other have a wealthy child who has a significant estate of their own.  More often than not, a client will have more than one of these issues to address in their estate plan.  All of these issues must be reviewed and considered in detail before any kind of an estate plan can be recommended.  A shot-gun estate plan does not lend itself to this level of proper consideration.
  1. A last-minute “vacation plan” gives our clients a false sense of security.  For all of the reasons mentioned above, an estate plan done under the wire in contemplation of a big trip lets our clients off the hook to some degree.  They can “sleep at night” knowing that they have “something in place” before they go on their trip.  However, we find that despite our insistence that they come back in and reevaluate or do necessary follow-up tasks on a last minute, pre-vacation plan once they have returned, they rarely do and are left with an inferior plan that doesn’t cover all of the bases.  This result is far worse than having made the appointment for the week after you have returned from vacation!

Before you board that plane or boat or train this August, please call to set up an appointment with one of the attorneys at Samuel, Sayward and Baler to review your plan when you return!  Channel all of your motivation to update that plan this fall so that when you head off to warmer weather when the temperature dips below freezing in January and February, you can go off with a clear head!  Of course, if you have any questions before your trip, please feel free to call and check in with one of us!

Have a safe and enjoyable vacation!

Pamela B. Greenfield

August 2016

Five Times to Review and Update Your Estate Plan

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Maria_144pxAlthough many people would prefer to sign their estate plan documents, file them away and never look at them again, the reality is that your estate plan is always a work in process.   Family situations change, financial situations changes and laws change. In order for your estate plan to effectively achieve your goals, your plan needs to change periodically to address your current priorities.  The estate plan you created when you were 30 years old is no longer appropriate at age 50.

How do you know when it’s time to create an estate plan or update your existing plan?  Here are five stages of your life when reviewing and updating your plan is important:

  1. Stage One – Engaged and Newly Married Couples. If you are planning to marry, meet with an estate planning attorney to get advice about whether or not a prenuptial agreement is appropriate for your situation.  These agreements can ensure that assets owned by you prior to marriage, or inherited during the marriage, will not be part of the assets that are subject to division by the Court in the event of divorce.  If you are newly married, remember that if you do not create a Will that contains your instructions about what happens to your assets at death, the laws of the Commonwealth provide one for you.  If you die when you are married but have no children, your assets may be divided between your surviving spouse and your parents.   Creating a Will is the only way to ensure your assets pass exactly as you intend.  You may also wish to create or update your Power of Attorney and Health Care Proxy so that your new spouse has the authority to make decisions for you if you become incapacitated.  Finally, it is important to review and update beneficiary designations on life insurance and retirement plans to ensure those assets pass as you wish in the event of your death.
  1. Stage Two –Married Couples with Young Children. If you have young children, your estate plan needs to do two important things:  address the care and custody of your children and address the management and distribution of the assets you will leave for your children.  Your Will is the document in which you will name a guardian for your minor children.  The guardian is the person who will care for your children in the event of your death.  The guardian will decide where your children will live and attend school, what type of health care your children will receive, and make other day-to-day decisions regarding your children’s care and upbringing.  If you do not have a Will naming a guardian, family members or others may “petition” the Court to appoint them as your children’s guardian, and the Court will have the difficult job of choosing among those who ask to be appointed without the benefit of your input.  There’s a good chance someone you would not choose may be appointed.  Don’t lose the opportunity to put your children in the right hands.  After you have made sure that the right people will be raising your children in the event of your death, you need to make sure that the inheritance you leave them is preserved and protected for them.   Creating a trust that sets the “rules” for managing assets for your children and names a trusted person to oversee the funds for them is the best way to do this.  Trusts are not just for those with millions of dollars.  Think about the assets your children would receive if you passed away – consider your home, your life insurance, your retirement accounts, your savings and investments.  Then think about how you feel about your children receiving those assets at age 18.  If this makes you uncomfortable, a Trust should be a part of your estate plan.  A Trust allows you, rather than the state, to specify at what age or ages your children will be entitled to receive those assets.  While funds are held in trust for your children’s benefit, the Trustee can use them for a child’s education, living expenses, health care expenses, or for other purposes you specify.
  1. Stage Three –Married Couples with Teens and 20-somethings. Trust planning is a crucial component of a good estate plan when you have teenagers or young adults as well.  No matter how mature your 20-somethings may be, they may still fall victim to the bad judgment or hair-brain schemes of others.    Trusts can very effectively protect inherited assets from so-called “creditors” and “predators.”  Young adults may spend money irresponsibly or make loans to ‘friends’ that are never repaid.  Young adults are more likely to have car accidents or get into other types of trouble that create liability. They may marry young and have their marriage end in divorce.  All of these potential issues put inherited assets at risk, and are all possibilities that a good estate plan can address if your plan is updated as your children age.  Finally, this is a good stage to introduce the concept of estate planning to your child who, at age 18, is considered an adult in Massachusetts.  Have your adult child sign a Health Care Proxy and Power of Attorney so you can assist them with decision-making if your child has a serious illness or disability.
  1. Stage Four –Married Couples Approaching Retirement Age. Just because your children are out of the house and perhaps married with children of their own does not mean you should not keep your estate plan updated.  If you have a child with a disability or other issues (such as substance abuse), your estate plan should address lifelong planning for that child.  At this stage in your life, the value of your estate (home, bank accounts, investments, retirement accounts and life insurance) is likely as large as it will ever be.  Review the value of your estate with your estate planning attorney and discuss whether estate tax planning is advisable.  This planning will reduce the amount of estate taxes your children will pay following your death.  If you have grandchildren, consider planning that leaves some assets directly to your grandchildren or in trust for them, both to leave a legacy to the younger generation and also to save estate taxes in your children’s estates.  Finally, have a conversation with your estate planning attorney about long-term care planning and discuss the advisability of purchasing long-term care insurance.  Make sure your health care documents and powers of attorney are up-to-date so that if an unexpected illness occurs, people you trust can act for you, last-minute planning can be done, and the expense of Court involvement can be avoided.
  1. Stage Five –Enjoying Your Golden Years. You made it!  But no rest for the weary when it comes to estate planning.  This can be the stage of your life when your estate plan does the heavy lifting, and it’s more crucial than ever to make sure that your plan is appropriate to your current situation.  Review your powers of attorney and health care documents (again) with your attorney and make sure they are up to date and the people you have named to make decisions for you are still appropriate.  Review long-term care options and planning issues.  How is your health?  Do you intend to stay in your home for the long term? What are your options for housing and care if you are not able to remain at home?  What do they cost?  How would you pay for them if needed?  Will it be possible or necessary for you to qualify for public benefits, and if so are there steps you should take to make that easier if and when necessary?  If you or your spouse is diagnosed with a chronic illness or condition (i.e. Parkinson’s disease, Alzheimer’s disease, dementia), see your estate planning attorney immediately and make the necessary changes to your plan before the ill spouse is no longer competent to participate in planning.  A different type of planning may be appropriate to ensure that if the spouse who is not ill predeceases the ill spouse, assets will be available to care for the ill spouse.  If protecting assets for children against liability for long-term care is one of your planning goals, it is important to discuss this early on, before any care is needed, and decide if protecting assets is appropriate and possible given your particular situation.

Recently, I received a call from a child of clients for whom I had done estate planning when my clients were in their 40’s and their children were young.  Now, one of my clients was in a nursing home and the other had recently died.  Although we had sent these clients reminders every year to review and update their plan, they had not done so.  Unfortunately, an updated plan could have left their children and my surviving client in a better position than they now find themselves.

Good estate planning attorneys maintain relationships with their clients throughout their lives and encourage their clients to review and update their plans periodically.  Next time your estate planning attorney reminds you to review your plan, listen to her and set up an appointment if it’s been awhile since you’ve reviewed your plan.  You, and your family, will be glad you did.

August 2016

Five Ideas to Consider when Leaving a Vacation Home to Heirs*

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Sue_144pxWith full summer upon us, thoughts turn to vacationing.  Whether you love the mountains, the beach, or fishing on the lake, everyone wants to take time to recharge during the carefree days of summer.  Some people are fortunate enough to own a vacation retreat where family members are regularly invited to get away from it all.  Whether it’s a cabin in the woods or a waterfront mansion, passing this beloved property on to future generations in a way that is fair and likely to result in years of happy memory building by generations of family members is a challenge.  In fact, sometimes it is so challenging that the owners die without doing any planning for their vacation home, which can lead to serious conflicts among heirs.

Here are five ideas to consider when a vacation home is part of your estate.

  1. There’s no such thing as setting aside too much money to support the property.     One of the primary areas of discord among co-owners of vacation property is money.  When mom and dad bought the cabin, they factored in the costs of maintaining the property when making the decision to purchase it.  However, for heirs who inherit a percentage of a property, there was no such consideration.  It costs money to maintain the cabin, including paying taxes, insurance, utilities and repairs – and not all inheritors are of equal means.  If you have a vacation home you want to leave to multiple inheritors, plan to leave funds to pay for the upkeep of the property for at least a few years following your death.
  1. Involve the next generation in the planning. When planning for the future of your vacation home, talk to your children about your plans and encourage them to be honest with you. Although you dearly love spending time at the cottage, your children may not feel the same way and they may be reluctant to tell you for fear of hurting your feelings.  Even if your children also love the family vacation home, they may recognize that because of where they live or because of their personal financial circumstances, ownership of the property is just not realistic.  As painful as this may be for parents to hear, knowing who wants to keep the property and who has no interest in owning a second home is vital information in planning.
  1. Consider tax reduction strategies.  In some sad situations, the next generation would love to keep the vacation property, but the estate taxes payable at the parents’ deaths are so steep that they cannot afford to do so.  These days, it is not uncommon to find that the humble lakeside cottage purchased 30 years ago for short money is now worth $2 million or more.  If you are lucky enough to have one of those properties, consider undertaking planning to reduce the tax bite at your death.  Common planning techniques include granting a conservation easement, charitable planning with part of the property, or using a Qualified Personal Residence Trust (QPRT) or other gifting vehicle to reduce the tax value of the property in the parents’ estates.
  1. Transfer during lifetime or at death? Many vacation home owners intend to remain as the sole owners of the property during their lifetimes and leave the property to their heirs at their deaths.  They reason that by doing so, they remain as the sole decision makers and keep all of their options open: they could sell the property, rent it out, change their minds about who will inherit it, etc.  However, transferring ownership to the next generation during the parents’ lifetimes can be good tax planning (see #3 above) or a good way to protect the property from having to be sold to pay for a parent’s long-term care expenses.  Transferring interests to children during the parents’ lifetimes can also serve as a “practice-run” for management of the property.  The parents can tweak their vacation house plan to address issues that arise during their lifetimes while they are still around to do so.
  1. The devil is in the details, or who gets the week of July 4th? In most cases, a vacation home is a seasonal use property.  Even if the Cape house is winterized and can be used in February, not many seek out the beach in the dead of winter.  Whether it’s skiing or beaching, there are usually a limited number of “prime” weeks during which everyone wants to use the property.  Along with the money (see #1 above), deciding how to divvy up these weeks among the inheritors is a key element to planning for the vacation home. The challenge increases exponentially with the greater the number of people involved.  By putting a system in place, parents can reduce the friction that may arise among children with competing interests who are trying to work this out after mom and dad are gone.

If you have a vision of your descendants enjoying your beloved cottage and building memories there for generations to come, take the necessary steps now to make your wishes a reality.  Failing to plan and simply hoping that your children will “figure it out” is the clearest path to family discord.  An experienced estate planning attorney can help you craft a plan that will have your heirs lounging lakeside or speeding down the slopes for years to come.

* Special thanks to my friend and colleague Attorney Timothy Borchers whose work and guidance in the area of planning for the family vacation home has been invaluable to many of us.

Attorney Suzanne R. Sayward 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.  She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC.  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. 

Happy Anniversary to the Federal Estate Tax!

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Maria_144pxIt may (or may not) interest you to know that the federal estate tax has been with us for 100 years, since it was enacted in 1916 by Congress to boost revenues in anticipation of the country’s participation World War I.  Forms of inheritance or estate tax had been around for brief periods prior to 1916 to finance earlier wars, but unlike previous incarnations of the tax, this one stayed in place.

The estate tax is a tax paid at death, by the estate of the deceased, before assets are distributed to heirs.  The estates of deceased Massachusetts residents are potentially subject to both the federal estate tax as well as a separate Massachusetts estate tax.  Whether or not your estate will pay tax depends on the value of the assets you own or in which you have an interest on the date of your death.

Unlike 2016, the 1916 federal estate tax had a top rate of 10% and an exemption amount of $50,000.  Today, the combined federal estate and gift tax “applicable credit amount” is $5.45 million per person (and is annually adjusted for inflation).  This means that every U.S. Citizen can give away $5.45 million, either by making lifetime gifts or leaving assets to heirs at death, without paying a federal estate tax.  If the value of your lifetime taxable gifts and assets left to your heirs at death exceeds this amount, the federal estate tax is imposed at the rate of 40% on amounts over the applicable credit amount.  For a riveting, although dated, history of the estate tax, read the IRS Publication: The Estate Tax: Ninety Years and Counting.

Like 1916, today’s federal estate tax does not affect many people because the estate tax exemption is so high.  In 2013, approximately 2.6 million people died in the United States, but only 4,700 of those people filed a federal estate tax return.

If you are among the lucky few to have an estate large enough to be subject to the federal estate tax, make sure you consult your estate planning attorney about what you can do to minimize the impact of the federal estate tax on your estate and your heirs, as well as ensure that you have a plan for how any estate tax due will be paid at your death.

Coincidentally, 2016 marks the 40th anniversary for the Massachusetts estate tax, which was enacted in 1976 as the successor to the previous Massachusetts inheritance tax.  Stay tuned for a celebration of that anniversary with some interesting facts about the Massachusetts estate tax in my next blog post!

July 2016

Prince died without a Will – What?!

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Sue_144pxIn of 2014 I wrote an article following the death Philip Seymour Hoffman expressing amazement about his failure to create a proper estate plan despite having a large estate and young children. Apparently Prince missed that post because rumor has it that he died without a Will! While it is apparently true that many adults do not have a Will, it still surprises me to hear about people who are surrounded by lawyers, financial planners and other advisors, as Prince was, who still manage to die without a proper estate plan in place. I imagine that at least some of these advisors suggested to Prince that he should do some estate planning.  So I wondered, ‘why don’t people make a Will?’  In order to find an answer to this perplexing question, I Googled it of course.  Here’s what I learned from various sites on the internet:

  • People don’t like thinking about death. Ok, I get that – death is sad. But that is not a good reason to fail to make a Will.  The point of making a Will is to make life easier for your family when you’re gone. If you die without a proper estate plan, including a Will, your family will not only be sad, they’ll be mad that you left them with a big mess.
  • It’s too expensive to make a Will. While it is true that lawyers are expensive and estate planning can be costly, for many people the cost of not planning (taxes, probate costs and attorney fees) far outweighs what it would have cost to create a plan.
  • My family knows what I want and I trust them to do the right thing. Really?  I can’t tell you how many times two members of the same family have told me ‘what mom would have wanted’ and it’s two different things. Further, even if your family does know what you want, they may not be able to carry out your wishes if you did not grant them the legal authority to do so via your Will, or if you own assets in such a way that they are not consistent with those wishes.
  • I don’t have young children so I don’t need a Will.   If you have minor children, then making a Will is not just a good idea, it’s your responsibility as a parent.  However, even people who don’t have young children should have a Will to designate the person who will be in charge of settling their estate (Personal Representative) and to direct how their assets should be distribute at their death.

Making a Will need not be terribly complicated or expensive. Taking care of this important ‘life task’ will not only mean that you have left your family with a roadmap to settling your estate, it will give you a deep sense of satisfaction and relief for having put your affairs in order.  To read more about why you should make a Will as well as to find other articles on estate and long-term care planning, visit the Articles page of our website and schedule an appointment to make your Will!

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

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