By Steven Joshua Samuel (February 2011)

You may be able to reduce some of your most challenging 2010 education and health expenses with help from The American Recovery and Reinvestment Act of 2009 (the “Stimulus Plan”) and other recent tax changes. Here’s a summary of six examples and how to obtain more information for each.

Education Expenses
The American Opportunity Credit, the former Hope Credit, has been expanded to include more benefits for 2010 education expenses. Individuals with adjusted gross income of up to $80,000 ($16,000 for joint filers) are now eligible for the full tax credit of up to $2,500. A tax credit directly reduces the amount of tax you owe and is more valuable than a tax deduction, which reduces the amount of income subject to taxation. Tuition, books, supplies and equipment are eligible expenses and a computer may now qualify in some cases. Use IRS form 8863 to claim the tax credit.

The Lifetime Learning Credit allows eligible taxpayers a lifetime total of a $2,000 tax credit for undergraduate, graduate and professional degree courses, including continuing education programs and any classes designed to improve job skills. Education expenses for a spouse and dependent child qualify and there is no limit to the number of years the education program may run. There are some limits regarding income and eligibility, and only one kind of credit may be taken for a student in the same tax year.

529 College Plan changes expand the definition of qualified higher education expenses to include, for example, computer equipment and internet access. You’ll find these and eleven other ways to offset college and post-graduate education costs explained in IRS Publication 970 “Tax Benefits for Education” at www.irs.gov.

Health Care Expenses
Small Business Health Care Tax Credit is included in the Affordable Care Act, which became effective March 23, 2010. A tax credit of up to 35 percent of health insurance premiums paid is available to small businesses with 25 or fewer full- time employees. To be eligible, the company must pay at least 50 percent of individual coverage for each employee who must have average earnings under $50,000 per year. Locate IRS Form 8971 or news release IR-2010-96 at www.irs.gov for more details.

Employer Coverage for Employee’s Children Under Age 27 is now generally tax free to employees. Employers with * cafeteria health plans may permit employees to make pre-tax contributions to cover this expanded benefit. This also applies to self-employed persons who qualify for a health insurance deduction on their federal income tax returns. See IRS news release IR-2010-53 for more information.

Medicare Part D Prescription “Donut Hole ” Rebate of $ 250 is provided by the Affordable Care Act for Medicare recipients who have reached their drug plan coverage gap. The rebate is not taxable. For information about how to obtain the rebate, see www.medicare.gov.

Remember to consult a qualified tax and financial advisor before making any important financial or tax decisions. For additional timely and helpful financial and investment information, visit www.samuelfinancial.com.

* A cafeteria plan is an employer-written plan complying with Section 125 of the Internal Revenue Code, which enables employees to pay for certain benefits such as health and child care with pre-tax dollars.

Samuel Financial, Inc. is located at 858 Washington St. Dedham, MA 02026 and can be reached at (781)461-6886. Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. Neither Samuel Financial, Inc. nor Commonwealth Financial Network offer tax or legal advice.

By Attorney Suzanne R. Sayward (January 2011)

We conclude our three-part series on understanding Trusts with a column about what it means to serve as a Trustee. (If you missed the first two columns in this series, visit our website at www.ssbllc.com.)

In my practice, it is very common for clients to name adult children or other family members as successor Trustees to serve upon the incapacity or death of the client. Serving as a Trustee is a privilege and an honor, but it is also an enormous responsibility and can be a time-consuming, challenging job. Most of the time, neither the “appointer” nor the “appointee” has a good understanding of what is involved. The duties of a Trustee are numerous and varied, depending upon the type of trust, the terms of the trust, and the trust assets. This month’s column focuses on five duties common to all Trustees.

1. A Trustee owes a fiduciary duty to the beneficiaries. A Trustee is a “fiduciary,”‘ meaning that he owes the highest duty of loyalty, good faith, and fair dealing to the beneficiaries of the Trust. Generally speaking, that means the Trustee must always act in the best interests of the beneficiaries, not in his own best interest. Examples of actions that would be considered a breach of a Trustee’s fiduciary duty include using Trust assets to invest in a business owned by the Trustee, purchasing real estate from the Trust for the Trustee’s personal use, or personally profiting from his service as Trustee by taking a commission on the sale of real estate. It goes without saying that a Trustee who misappropriates Trust monies has breached his fiduciary duty.

2. A Trustee has a duty to carry out the terms of the Trust. Sometimes clients are under the impression that a Trustee is in the position of making all decisions regarding distributions from the Trust. While some Trusts may grant the Trustee discretion to make certain types of distributions, the Trustee may not act contrary to the terms of the Trust. For example, if the Trust instructs the Trustee to sell all real estate and distribute the proceeds equally among the beneficiaries after paying expenses, the Trustee does not have the authority to do otherwise. The beneficiaries have the right to know the terms of the Trust; therefore, the Trustee may not refuse to divulge information about their interests.

3. A Trustee has a duty to account to the beneficiaries. The Trustee has a duty to keep accurate records of all Trust financial activity and to share that information with the Trust beneficiaries on a regular basis. The reports of financial activity that a Trustee provides to the Trust beneficiaries are called Trust accounts. The Trustee’s accounts should include an inventory of the assets held by the Trust, the value of the Trust assets, the income earned on the assets in the Trust, any gain or loss realized from the sale of Trust assets, and the expenses and distributions paid out of the Trust. The beneficiaries have the right to inspect the Trustee’s account and to object to any item they may find inappropriate.

4. A Trustee has a duty to safeguard the Trust assets. The Trustee is responsible for safeguarding the assets held by the Trust. For example, if the Trustee fails to adequately insure the house and it burns down, the Trustee is responsible and will have to make up the loss from the Trustee’s personal monies. Similarly, the Trustee has a duty to invest the Trust assets in a reasonable and prudent manner. If the Trustee fails to do so and the trust assets lose value, the Trustee can be held responsible. In some circumstances, Trustees must obtain a surety bond from a bonding agent to ensure the beneficiaries will be protected in the event the Trustee fails to adequately protect the Trust assets.

5. A Trustee has a duty to properly administer the Trust assets. The Trust assets must be kept in the name of the Trust and not in the Trustee’s personal name. The Trustee must not co-mingle the Trust assets with her own funds. In most cases, the Trust will have its own taxpayer identification number assigned by the IRS. The Trustee must file all required income tax returns and pay the tax properly owed by the Trust. The Trustee must provide the beneficiaries with the tax documentation the beneficiaries need to file their own income tax returns.

The above represents some of the broad duties that are required of every Trustee. The specific tasks involved in serving as a Trustee are numerous and varied. If you find yourself in the privileged position of being named as a Trustee for a family member or friend, consult with a qualified attorney for advice about fulfilling your duties and successfully carrying out your responsibilities as Trustee.

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.

Attorney Suzanne Sayward is a partner with the Dedham law firm Samuel, Sayward & Baler LLC and served as the 2009 president 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.

By Attorney Suzanne R. Sayward (December 2010)

Continuing with our three-part series on understanding Trusts, this month’s column discusses reasons why someone might create an Irrevocable Trust. (If you missed last month’s column on Revocable Trusts, visit our website at www.ssbllc.com.) An Irrevocable Trust is a trust that cannot be changed once it is created. Further, once you transfer an asset into an Irrevocable Trust, you usually cannot remove it from the Trust. Irrevocable Trusts are used for very specific reasons. Here are five reasons why you might consider using an Irrevocable Trust as a part of your estate plan.

1. You want to protect assets from having to be spent down on long-term care costs.

The cost of nursing home care in Massachusetts is about $10,000 per month. There are essentially three ways to pay for nursing home care: 1) long-term care insurance; 2) private pay (that is you just write a check each month for your care); or, 3) Medicaid. Medicaid is the state and federally-funded program that pays for long-term nursing home care if a person is both medically and financially eligible. In order to be financially eligible, a person cannot have more than $2,000 in so-called countable assets. To prevent people from giving away their assets in order to qualify for benefits, Medicaid imposes a period of ineligibility following the gratuitous transfer of an asset. In most cases, the ineligibility period for giving away assets is five years from the date of the gift. For people who feel confident that nursing home care will not be needed for more than five years, or who have other sufficient assets or long-term care insurance to pay for their care during the five-year ineligibility period, transferring assets to an Irrevocable Trust can be an effective way to preserve assets for children.

2. You want to keep life insurance proceeds from being taxable in your estate.

Although the new federal tax law enacted on December 17, 2010, exempts estates valued at less than $5 million from federal estate tax (for the next two years), Massachusetts imposes an estate tax on estates valued at $1 million or more. One common estate tax planning strategy is to buy life insurance so that surviving family members do not have to liquidate real estate or borrow money to pay the estate tax. While life insurance proceeds are not taxable income to the person who receives them, life insurance is a taxable asset in the estate of the insured if the insured was also the owner of the policy. If instead an Irrevocable Life Insurance Trust (often referred to as an ILIT) owns the life insurance policy, the proceeds are not part of the insured’s estate.

3. You want to transfer your home or vacation home to your children in a tax favorable manner.

There is a special type of Irrevocable Trust permitted under the Internal Revenue Code that can be used to gift a primary residence or a vacation home to children at a reduced value. This type of trust is called a Qualified Personal Residence Trust (QPRT). Here’s how it works:

Say, for example, Mom owns a primary residence or vacation home worth $600,000 that she wants to gift to her three children. She could transfer it directly to the children; however, this is not the most ‘tax-wise’ way to gift the property. Instead, Mom could transfer the property to a QPRT. Mom would be the beneficiary of the QPRT for a certain number of years. While Mom is the beneficiary she would have exclusive use of the property. At the end of that specific time period, the property belongs to the children and it is not part of Mom’s taxable estate.

Although the transfer of the residence to the QPRT is a taxable gift, it is not a gift of the full fair market value of the property since Mom has kept the right to use the property for a predetermined period of time. The value of the gift is determined using a formula that includes the value of the property and the number of years the parent retains the right to use the property. If, in this example, Mom was 72 years old and kept the right to use the property under the QPRT for eight years, the value of the gift would be about $370,000. The QPRT would allow Mom to gift a $600,000 home to her children for a gift and estate tax ‘cost’ of just $370,000. The ‘catch’ with using a QPRT is that if the parent dies prior to the expiration of the term, the full value of the property at the time of her death is included in her taxable estate.

4. You want to make qualifying annual exclusion gifts to minors.

Many people know they can make annual gifts of a certain amount each calendar year to any number of people without estate or gift tax consequences. The current annual exclusion gift is $13,000 per calendar year per person. In order to qualify as an annual exclusion gift, it must be a “present interest” gift. That is, the recipient must have immediate access to and control over the gift. Parents and grandparents may want to make gifts to minor children or grandchildren, but do not necessarily want the child to have access to the funds at a young age. There is a special type of Irrevocable Trust allowed under the Internal Revenue Code which addresses this issue. If the Trust is properly drafted, then gifts to the Trust will qualify for the annual gift tax exclusion, but the Trust beneficiary’s right to gain access to the funds is restricted until the beneficiary reaches age 21.

5. You want to protect governmental benefits for a person with disabilities.

Individuals with disabilities may be eligible for a variety of governmental benefits that provide income and medical care. Many of these benefits are needs-based, meaning that in order to qualify, a person may not have assets in excess of the program limit, which might be as low as $2,000. There are two situations in which Irrevocable Trusts can be used to protect such benefits. The first is when a disabled individual acquires assets in her own right, such as proceeds from a lawsuit arising from an accident that caused the disability. In that case, assets in excess of the program limit can be transferred to an Irrevocable Trust, sometimes called a Special Needs Trust. Provided the Trust strictly complies with the statutory requirements, the transfer of the assets and the existence of the assets in the Trust will not cause the individual to lose her benefits.

The second situation is when parents or grandparents want to make gifts to a child with disabilities. A Trust can be created for the benefit of an individual with special needs to receive such gifts. In this situation, the Trust may be Revocable or Irrevocable. Such a Trust can receive gifts made for the benefit of the disabled person and the Trustee can use the funds to enrich the beneficiary’s life. Gifts to the Trust would not qualify for the annual gift tax exclusion as noted above. However, for many people this is not an issue, given the new $5 million federal estate and gift tax exemption limits.

There are other reasons why using an Irrevocable Trust may be appropriate for your particular situation. Everyone’s circumstances are unique. Whether or not an Irrevocable Trust is appropriate for your situation depends on your circumstances and goals. In every case, you should consult with a qualified estate planning attorney to review your estate planning needs and develop a plan that meets your family’s goals.

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.

Attorney Suzanne Sayward is a partner with the Dedham law firm Samuel, Sayward & Baler LLC and served as the 2009 president 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.

By Attorney Maria Baler (November 2010)

Although Trusts are commonly used in estate planning, these documents are confusing to many. To shed some light on this subject, the next three articles in this series will focus on Trusts. In this article we will discuss the basics and importance of a Revocable Living Trust. Next month, we will discuss the use of Irrevocable Trusts. Finally, since family members are often named to serve as trustees, we will conclude with an article discussing the responsibilities of the trustee.

A Trust is a legal document created to accomplish certain family, tax, or other financial objectives. It is helpful to think of a Trust as a private agreement between the person who creates the Trust (called the “Donor” or “Grantor”) and the person the Donor designates to manage the Trust assets (called the “trustee”) for the benefit of the Trust’s “beneficiaries.” A living trust, sometimes called an inter vivos trust, is a Trust that exists and can own assets during the Donor’s lifetime. A testamentary trust is one created by the Donor’s Will and takes effect only after the Donor’s death. A revocable trust can be changed or terminated by the Donor after it is created. Revocable Living Trusts are used frequently, but that does not mean everyone needs one. A Revocable Living Trust could be a good estate planning tool for you if it helps you achieve your goals.

Here are five reasons to use a Revocable Living Trust as a part of your estate plan.

1. You have young children. In most families, parents wish to leave their assets to their children after the death of both parents. However, if both parents die while a child is still young, the child will have full control over and access to his inheritance at age 18. Most children do not have the experience to wisely manage large sums of money or real estate at age 18. For this reason, many parents with young children create a Revocable Living Trust as a part of their estate plan. Such a Trust typically provides that after both parents’ deaths, the child’s inheritance will be held in trust for the child’s benefit and managed by a more experienced trustee. The Trust document will specify the age or ages at which the child would be entitled to receive distributions from the Trust. While a child’s inheritance is held in Trust, the Trust will permit the trustee to use the Trust funds for the child’s benefit, including paying for the child’s education, helping the child to buy a house or start a business, or for any other reason the Donor/parent may specify. Holding assets in trust for a young child will protect the child from making unwise decisions and may also offer protection from a child’s creditors.

2. You want to minimize the time and expense involved in settling your estate and preserve your privacy. A probate court proceeding, often called “probate,” is required to transfer assets that are owned by a deceased person at death to his or her heirs. In Massachusetts, the probate process can take a year or more to complete and has been slowed in recent years by budget cuts which have reduced the number of court personnel. Probate can be expensive due to the court filing fees and attorneys’ fees involved in probating an estate. Probate is also a public process, as the probate court file, including a list of the assets in the estate and their value, the expenses, debts and taxes that are paid by the estate, and to whom and in what amounts the estate assets are distributed, are all public record. Assets owned by a living Trust at the death of the Donor will avoid probate and the related delay and expense of a probate proceeding. Living Trusts are also private documents, which are not filed with the Court or made a part of the public record, maintaining the privacy of the Donor and the beneficiaries.

3. You want to reduce estate taxes. Estate taxes may be payable at death if the value of the assets (including life insurance, retirement accounts, real estate, investments, cash, etc.) owned by the deceased person exceeds $1 million. A certain type of revocable living Trust, called a “credit shelter trust,” can be used by married couples to reduce the estate tax payable after both spouses’ deaths. This type of revocable living Trust can maximize the value of the assets passing to children or other heirs provided the Trust is properly created and funded prior to death.

4. You have a child with special needs. Families who have a child with special needs must have a plan in place to ensure the child’s needs will be met in the future. It may be important to ensure assets will be managed for the child’s benefit for her entire lifetime as the child may never be capable of managing assets. Further, many people with special needs are eligible for public benefits that provide medical care or income for food and shelter expenses. Qualification for those benefits can be adversely affected if the special needs child receives an inheritance from a parent. It is not necessary to disinherit a special needs child to protect her eligibility for public benefits. Trusts can be used very effectively to maintain a special needs child’s eligibility for benefits after the parents’ deaths. Such a “Special” or “Supplemental Needs” Trust can also provide long-term management of the child’s inheritance and additional resources to meet the child’s needs that are not addressed by the public benefits she may be eligible to receive. These types of Trusts provide an important safety net for a child with special needs that does not depend on the goodwill or good fortune of siblings or other family members.

5. You want to ensure that your assets are properly managed for your benefit if you become incapacitated. An effective estate plan includes planning for how you will be cared for and how decisions will be made in the event you become incapacitated. By creating and funding a Revocable Living Trust of which you are the beneficiary during your lifetime, you provide a mechanism for your assets to be managed and used for your benefit during any period of incapacity that occurs during your lifetime by a Trustee that you choose. This type of planning may avoid the need for a guardianship or conservatorship proceeding in the Probate Court while maintaining your privacy.

Attorney Maria Baler is an estate planning attorney and a partner with the Dedham firm Samuel, Sayward & Baler LLC. She is also a director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). For more information, visit www.ssbllc.com.

By Steven Joshua Samuel, JD, MBA, AIF® (October 2010)

Recent changes in the law and U.S. Department of Labor (DOL) rules about 401k plans provide opportunities and more information for employees. Companies offering 401k plans will soon be required to provide more easy-to-understand information about 401k plan fees, investment choices, and investment expenses to their employees. Accountability of 401k Plan fiduciaries and investment advisers is being increased. New types of investments are being offered within 401k plans with the goal of making investment decisions easier.

Here are five facts you should know about these changes and other 401k matters. As with all other important investment decisions, review all options with your investment and tax advisers as they relate to your particular situation.

1. Transfer of 401k Funds to Roth 401k Now Available

Most people are familiar with Roth IRA accounts. While a Roth IRA does not provide a tax deduction for contributions, the gain in the account is not taxed and all withdrawals are tax free.

Until 2006, the advantages of a Roth were available only in an IRA account and not in a 410k plan. In 2006, employers were given the choice of adding a Roth 401k to traditional 401k plans. The Small Business Jobs Act of 2010 allows employees to move money from their 401k into a Roth 401k account, even if they are younger than 59 ½. Previously, IRS rules allowed only people who were over 59 ½, disabled, deceased or who changed employers to move money from a 401k to a Roth.

2. Plan Fiduciaries Now Must Disclose 401k Fees and Expenses

Until recently, employees were given very little information about 401k plan fees and investment expenses. On October 14, 2010, the DOL, which is responsible for regulating 401k plans, issued new disclosure rules.

DOL regulations now require that 401k plan fiduciaries (the people in the company who are responsible for decisions about the plan) provide employees with quarterly statements showing the amount and nature of fees and expenses deducted from the employee’s 401k account. Basic information (and access to more comprehensive information) about each investment offered by the plan and the cost of each must also be provided in a format that allows employees to compare the investments available under the plan.

3. Company Officials and 401k Plan Advisers Are More Accountable

In recent years the Courts and the DOL have placed more responsibility on company officers and 401k advisers for ensuring that employees who participate in 401k plans are treated fairly. Until recently, employees could take legal action only against the company sponsoring the plan if they believed that 401k fees were excessive or investment choices inadequate. A 2008 US Supreme Court case expanded the rights of employees by permitting an employee to sue not just his company, but also to sue plan fiduciaries personally.

Employers are generally accountable for providing employees with education about their 401k investment choices. Proposed DOL regulations would hold investment advisers delivering this information for a fee to a “fiduciary” standard, meaning they must avoid conflicts of interest and place the employees’ interests ahead of their own. Advisers who are paid by commission may be subject to a lower standard of responsibility.

4. Target Date Funds: A Cautionary Note

Several investment companies now offer a type of mutual fund, known as a Target Date or Life Cycle fund, in 401k plans. These funds automatically shift investment funds between stocks and bonds on some periodic basis, with the goal of managing risk, increasing return, and becoming more conservative as the target date for the goal nears. According to DOL, about 7% of all money in 401k plans in 2009 was in a Target Date or similar fund.

However, funds with the same target date for retirement, say the year 2030, may invest in very different ways. Some Target Date funds may target “to retirement” and reach their final conservative retirement allocation in 2030. Other 2030 Target Date funds may target “through retirement” and not reach their final conservative allocation until as long as 10 years or more after the target retirement date. The risk and performance of these two different 2030 Target Date retirement funds could be very different.

Before investing in a Target Date fund within your 401k, be sure to obtain information about where the fund invests your money, understand how the fund will change the allocation among investments as time passes, consider how the fund fits with your other investments, and review the fees charged.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Target Date funds. This and other important information is contained in each fund’s summary prospectus, which can be obtained from your financial professional and should be read carefully before investing.

5. 401k Loans and Withdrawals: Know the Rules

Hard times in investment markets and rising unemployment have forced many people to resort to loans or withdrawals from their 401k accounts. According to an Investment Company Institute report, 17.5% of defined contribution plan (e.g. 401k) participants had outstanding loans as of June 2010. For those who have no better alternative than a loan or withdrawal from a 401k, a review of some applicable rules is worthwhile:

If you leave or lose your job you must repay your loan in full or the loan will be treated as a taxable distribution. In addition, a 10% penalty will be imposed if you are under age 59 ½.
If you have no other source for money for a critical need, a loan is better than a withdrawal if you expect to be able to repay.
If you are still working and under age 59 ½, you will have to qualify for a hardship in order to obtain a withdrawal.
As with all other important investment decisions, consult with tax and investment professionals before taking action.

Steven Joshua Samuel, JD, MBA, AIF® is the founder of the Dedham law firm Samuel, Sayward & Baler LLC and the financial services firm Samuel Financial, Inc. located at 858 Washington Street, Suite 202 in Dedham (781) 461-6886. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network, member FINRA/SIPC, a Registered Investment Adviser. For more information, visit www.samuelfinancial.com.

By Attorney Suzanne Sayward (September 2010)

I often tell my clients that a durable Power of Attorney is their most important estate plan document. A durable Power of Attorney allows someone else to act on your behalf in the event you become incapacitated. The person who creates the Power of Attorney is called the “principal” and the person named to act for the principal is called the “attorney-in-fact.” In most cases, having a durable Power of Attorney will avoid the need for a court appointed guardianship or conservatorship. Here are five important facts to know about Powers of Attorney.

1. In order for a Power of Attorney to remain in effect upon incapacity, it must be ‘durable.’

A Power of Attorney that is not durable becomes void upon the incapacity of the principal. In order for a Power of Attorney to continue to be valid following the incapacity of the principal, the document must specifically state that the Power of Attorney will not be affected by the subsequent disability or incapacity of the principal. This language makes the document a durable Power of Attorney.

2. A Power of Attorney can be ‘springing’ or ‘non-springing.’ A “non-springing” Power of Attorney is one that is in effect immediately. The authority of the attorney-in-fact to act on behalf of the principal is not contingent upon the principal’s incapacity. A “springing” Power of Attorney means the attorney-in-fact has no authority to act under the document until a certain event happens. A springing Power of Attorney will include a provision such as, “my attorney-in-fact shall have no authority to act hereunder unless I am incapacitated as evidenced by a written statement from my physician.” While a springing Power of Attorney can seem like a good way to make sure that your attorney-in-fact does not misuse the document, many financial institutions will not accept a springing Power of Attorney because of concern about liability. It can also be difficult to get a written statement of incapacity from a physician.

3. A Power of Attorney may designate more than one Attorney-in-fact. When someone must assume duties under a Power of Attorney, it can be an overwhelming responsibility; as such, it makes sense in some situations to name co-attorneys-in-fact. For example, in my experience, it is common for parents to name two of their adult children to act as their attorneys-in-fact. This way, the attorneys-in-fact can divide the tasks and help each other as well as mom and dad. Of course, designating co-attorneys-in-fact is not appropriate in every situation – if your co-attorneys-in-fact cannot work well together, then the situation can quickly deteriorate.

4. A Power of Attorney should include specific authorization to make gifts of your assets if you intend that your attorney-in-fact be able to do so. The authority to make gifts on your behalf can be important for estate tax planning and for long term care planning. There are a number of cases in which the courts have determined that gifts made by an attorney-in-fact on behalf of the principal were void where the Power of Attorney did not specifically include the authority to make gifts. These cases primarily reflect challenges made by the IRS to the gifts and many resulted in significant additional taxes.

5. A Power of Attorney ceases to be valid upon the death of the principal. A Power of Attorney is only in effect during the lifetime of the principal and the authority of the attorney-in-fact ceases upon death of the principal.

Attorney Suzanne Sayward is a partner with the Dedham law firm Samuel, Sayward & Baler LLC and served as the 2009 president of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). For more information, visit www.ssbllc.com.

By Attorney Maria Baler (August 2010)

Real estate transactions happen with increasing frequency these days, and while real estate can be easily transferred or mortgaged, it is important to seek advice from a qualified professional to adequately protect your property and maintain the integrity of your estate plan.

For example, transfers of real estate between family members and into or out of trusts are commonly done for estate and long-term care planning purposes. Further, the low interest-rate environment we are currently experiencing has made refinancing mortgages more attractive than ever. However, any time you undertake a transaction that involves your real estate, keep in mind the impact it may have on your estate plan and related matters.

Here are five facts to keep in mind when transferring or mortgaging real estate.

Homestead Protection can be disturbed by certain real estate transactions. A Declaration of Homestead is a document that is recorded at the Registry of Deeds to protect up to $500,000 of equity in your home from claims of creditors. A transfer of your home to a family member or a trust can disturb the homestead protection. Some attorneys interpret existing law to provide that refinancing a mortgage can terminate homestead protection if there is language in the mortgage document that waives the existing protection. If you have filed a Declaration of Homestead, make sure you seek the advice of your attorney before entering into any real estate transaction to ensure your homestead protection is maintained.
Changing property ownership can affect real estate tax exemptions. Some cities and towns in the Commonwealth offer property tax exemptions for owner-occupants of property, for owners who meet certain financial criteria, or for veterans and their spouses. If ownership of property is transferred to a trust or to another family member, these exemptions may no longer be available. If you are eligible for a real estate tax exemption from your town, be sure to investigate this carefully before transferring title to your property so that you do not inadvertently lose a valuable benefit.
Title insurance policies can be voided by a change in ownership. Many people purchase owner’s title insurance when they purchase real estate. This coverage offers valuable protection against title defects. Because the decision to purchase title insurance is often made in the haste of purchasing property, many people do not remember they have title insurance. Be aware that transferring the ownership of your property to family members or to a trust can terminate your title insurance coverage. Check with your title insurance company on the steps necessary to continue your title insurance protection when you transfer your property to a trust or to a family member. Often an inexpensive rider is all that is required to continue this valuable protection.
Transferring property into or out of trusts should be handled with care. You may have established one or more trusts as a part of your estate plan. Real estate may be held in trust for a variety of reasons, including avoidance of probate, estate tax savings, asset protection, etc. In connection with refinancing your mortgage, your banker or real estate attorney may suggest or require that you remove the property from the trust in order to refinance the mortgage. This is not uncommon. However, it is vital that you make your estate planning attorney aware of the transaction so that she can properly advise you about transferring the property back into trust after your financing transaction is complete, and about any other effects such a transfer may have. Failure to do so may adversely affect the estate plan you so carefully created.
Transfers of mortgaged property must be done with awareness of the implications. If you have a mortgage on your property, a bank or other lender has agreed to lend money to you on the condition that you agree that your property will serve as security for that loan. Most mortgages prohibit any transfer of ownership without the bank’s consent; however, federal law permits transfers to certain trusts and family members under certain circumstances without violation of the terms of the mortgage. However, your mortgage, the applicable law, and the circumstances of the particular transaction should always be reviewed and legal advice obtained before undertaking a transfer of mortgaged property to determine if the consent of the bank is required.

No matter how simple a real estate transaction may seem, it is always worth taking the time to obtain good advice and ensure you understand all aspects of the transaction.

Attorney Maria Baler is an estate planning attorney and a partner with the Dedham firm Samuel, Sayward & Baler LLC. She is also a director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). For more information, visit www.ssbllc.com.