Summer is finally here, and you may have plans to spend time at your vacation home with family and friends.  If you own a vacation home or are considering purchasing one, it is wise to create a plan for keeping the home in the family at your death or selling it if associated costs become unaffordable.  There are a number of options for keeping vacation homes in the family such as gifting a vacation home or putting a vacation home in a Trust or an entity.  Below is a short list with the upsides and downsides.

Wills. Individuals can distribute property they own in their individual names to the people whom they choose upon their deaths via their Wills. However, assets transferred under a Will must go through the public probate court process, which can be time-consuming and expensive.  Probate avoidance is a great gift you can give to your family.

Gifting.  Individuals can make gifts of vacation homes during their lifetimes.  The property would avoid probate and be removed from the individual’s taxable estate, thereby avoiding estate tax on the property. Many people consider gifting a house to avoid paying estate tax.  However, on the downside, the donor gives up control of the asset, and the asset is subject to the reach of the creditors of the donees who receive the property.  Also, the donee’s tax basis in the property would be “carryover basis”.  Tax basis is used to calculate the tax payable upon the sale of property.  Individuals who receive gifts of property have a basis in the property that equals the price the donor paid for the property.  If an individual inherits property at a person’s death, the basis in the property will “step up” to the value of the property at the time of death.

An important consequence of gifts made during life and after death is the basis of property.  If a parent purchases property for $500,000 and transfers it to children during life, then the children will have the same basis as the parent ($500,000).  If the children sell the property for $1 million, the children will pay tax on gain in the amount of $500,000 (the difference between the $1 million sale price and the $500,000 tax basis).

However, if the parent dies owning property worth $1 million and leaves the property to his or her children, the children will have a stepped-up basis in the property of $1 million.  If the children sell the property upon the parent’s death, no gain will result.  The children will not pay income tax upon selling the property.  However, the property will be includable in the parent’s estate and subject to the estate tax.  The Massachusetts estate tax rate ranges from 4.6% to 16%.  Combined federal and Massachusetts capital gains rate can be 20% to 25%.  Thus, opting until death to pass property to children may be favorable for tax reasons.

Trusts.  Assets titled in trusts during a person’s lifetime avoid probate. This is one of the reasons for placing property in a trust. A person who creates a revocable living trust is the grantor.  Upon transferring title of an asset to a revocable trust, the grantor retains control of the asset and usually serves as Trustee of the trust and is the sole beneficiary of the trust during his or her lifetime.  The grantor can name a Trustee to manage assets in the trust for the remainder beneficiaries (i.e. those who will be the beneficiaries at the grantor’s death).  Trusts can be structured to provide creditor protection for property held in trust against a beneficiary’s creditors such as a divorcing spouse, tax liens and bankruptcy.  Property in this type of trust will get a step-up in basis at the death of the grantor.

Entities.  A limited liability company (LLC) or a family limited partnership (FLP) can own a home and transfer the ownership of a home to future generations. An LLC or FLP can provide rules for a home’s use and operation, limit ownership of the underlying property to family members and provide buyout terms so that an individual family member cannot force a sale of the property.  Payment of repairs, insurance and taxes can be outlined with family members paying into an account for cleaning and maintenance annually or paying costs for the time that they use the vacation home.

A vacation home is a great gift, and passing it on to your loved ones is a wonderful way to continue family traditions and promote family bonding. It is important to consider all of your estate planning options in relation to a vacation home. Make sure you have a plan in place to ensure your vacation home continues to be a blessing and does not become a curse

One of the most frequent concerns I hear from clients in my estate planning and elder law practice is the fear of losing their home to the nursing home if they need long-term care.  This is a valid concern when it comes to Medicaid and estate planning.  Long-term care can cost upwards of $14,000 per month.  If the long-term care recipient is not able to pay those costs, then Medicaid (sometimes called MassHealth in Massachusetts) will pay. However, there is a cost associated with having MassHealth pay long-term care costs.  First, in order to be eligible for Medicaid benefits to pay for that care the applicant must meet the strict financial criteria imposed by the program.  Second, to the extent a Medicaid recipient owns assets at his death, the state can seek reimbursement from those assets for the funds it expended on the Medicaid recipient.  So, what happens to the home when the owner needs long-term care?  Here are five things to know about Medicaid and the home.

1. You don’t have to sell it, but there will be a lien. Many people think that they must sell their home in order to be eligible for MassHealth benefits. Sometimes they believe this because they have been told so by the long-term care facility caring for their loved one.  This is not the case. The home is a so-called ‘non-countable’ asset (up to $878,000 of value in 2019) for purposes of determining Medicaid eligibility.  That means that a person can receive Medicaid benefits to pay for nursing home costs and still own his home.  However, the Commonwealth will file a lien against the property with the registry of deeds unless the owner’s spouse or a child or sibling who meets specific requirements is still living in the home.  The amount of the lien is the amount the state pays on behalf of the Medicaid recipient. As such, the house cannot be sold during the owner’s lifetime without re-paying the state.  In addition, the applicable MassHealth regulations require that the lien be satisfied within 9 months of the appointment of a Personal Representative following the death of the homeowner.

2. Keeping the home can be challenging. Although the regulations permit a Medicaid recipient to own her home, this can be challenging since all but a small amount of the recipient’s monthly income must be paid to the nursing home each month.  As such, there is no income available to pay the real estate taxes, insurance, utility bills and the cost of upkeep on the home.  In some cases, family members will pay these expenses and hope to be reimbursed when the home is eventually sold. In other cases, the home will be rented and the rental income used to pay the property expenses.  Both of these options present challenges and should be thoughtfully considered before embarking on either and require proper Medicaid planning with an attorney that specializes in long-term care matters.

3. Transferring ownership of the house to the spouse in the community is usually advisable. Many married couples own their home as tenants by the entirety which is a special form of joint ownership for married couples.  This form of ownership means that when one spouse dies, the house belongs entirely to the surviving spouse without the need for probate.  Although the house is a non-countable asset and the state is not permitted to file a lien against the property if there is a spouse residing in the home, it is usually prudent to transfer the home into the name of the community spouse when one spouse needs long-term nursing home care.  The reason for this is to protect the home from a lien (see #1 above) in the event the community spouse predeceases the nursing home spouse. There is no ineligibility period imposed for transfers of assets between spouses (see #4 below).

4. Special rules for certain transfers of the home and the look-back period.   The general rule for long-term Medicaid benefits eligibility is that if the applicant (or his or her spouse) gave away assets within the 5-year period preceding the application for benefits, he or she will not be eligible for benefits.  This is sometimes referred to as the Medicaid look-back period. This penalty applies to transfers of the home as well as other assets even though the home is a non-countable asset.  However, there are some exceptions to this transfer penalty rule.   The most commonly used exception is the exception for transfers between spouses.  The Medicaid regulations permit assets, including the home, to be transferred between spouses without the imposition of any penalty period.  Taking advantage of this exception is a good way for a married couple to protect the home from a Medicaid lien or claim when one spouse needs long-term care.  Other exceptions to the transfer penalty include transfers to a blind or disabled child, to a child who has provided care to the applicant (subject to a variety of requirements), and to certain types of trusts.

5. Long-term care insurance can help. Long-term care insurance is insurance that pays for care at home, in assisted living, or in a nursing home.  This type of insurance can be expensive, however, there is a lot of flexibility in the type of policies available and the amount of coverage that can be purchased.  Massachusetts has a law preventing the state from filing a lien or claim against the home if the Medicaid recipient has a long-term care insurance policy which meets certain minimum criteria.  In order to protect the home, the policy must:  1) have a minimum benefit of $125/day; 2) provide coverage for a period of at least 2 years; and, 3) still be in place at the time of admission to a long-term care facility. (Note that long-term care policies issued prior to March 15, 1999, need only provide for $50/day of coverage in order for the owner to be eligible for the lien exception.)

The prospect of losing one’s home to long-term care costs is scary.  However, there are steps that can be taken to reduce the risk that this will happen.  If you or a loved one are faced with the prospect of long-term care or entering a nursing home and want to protect your home or other assets from loss to future long-term care costs, seek advice from an experienced elder law attorney to learn about your options for doing so.

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. 

June, 2019

© 2019 Samuel, Sayward & Baler LLC

Think about everything you own – perhaps you have personal possessions, savings bonds, real estate, life insurance, and financial accounts such as checking and savings, investment, and retirement accounts. Your physical personal possessions, such as your vehicles, furniture, clothing, jewelry, artwork, boats, collectibles, and other items are known as your “tangible personal property”.

Some tangible personal property is financially valuable – consider the countless stories you hear of a person discovering that the painting she bought at a garage sale is worth millions.

However, often the most significant value of tangible personal property is its sentimentalmeaning to you and your family. For example, your mother’s costume jewelry which you remember seeing her wear during special occasions. If you have siblings or other family who have similar emotions and memories attached to the same item, tangible personal property can quickly become a source of serious conflict between family members after death.

To avoid conflict that will damage the relationships between your surviving family members, speak with a qualified estate planning attorney to determine how you may best direct the distribution of your tangible personal property. One option is to identify and direct what happens with a specific item in your Will (and/or Trust). For example, the Will can state that your $3,000 statue is to be sold and the sale proceeds distributed equally among your children after your death. However, you must carefully consider whether disposing of your tangible personal property in your Will makes sense. If you later decide the statue should instead be distributed to your daughter, you will need to change your Will which will involve another trip to your lawyer’s office and another fee to make that change.

The better option is often to list specific items and their recipients on a tangible personal property memorandum. Under Massachusetts law, a memorandum that is incorporated by reference in the Will is legally enforceable even though it is a separate document from your Will and one that you can change on your own at any time. For instance, if you later prefer the statue to be distributed to your son instead of your daughter, you may update the memorandum yourself without the time and expense of changing your Will.

A third option is to distribute specific items of tangible personal property to the family member you wish to receive it while you are alive. Before doing this, consider whether you will miss the item, whether other family members will dispute that gift after your death (in which case you should document the transfer in writing), and whether you will be upset should the recipient decide to sell it or give it to someone else without consulting you.

Beyond the specific items you wish to distribute to certain recipients, it is important that your Will also describe what happens to all your other tangible personal property. For example, the Will may state that your other tangible personal property is to be distributed equally among your children. If your children do not want your remaining tangible personal property, your Will may direct your Personal Representative (Executor) to sell it, donate it to charity, and/or otherwise dispose of your tangible personal property.

A little inheritance planning goes a long way, especially after you are gone. At Samuel, Sayward and Baler LLC, we recognize the importance of maintaining family relationships, and look forward to tailoring your estate plan to fit your tangible personal property distribution wishes now and for the future.

May, 2019      

© 2019 Samuel, Sayward & Baler LLC

As an estate planning attorney, I see a lot of clients who try to take matters into their own hands to save money, time or both.  I also see the unfortunate estate planning missteps and the results, including the time, cost and effort required to correct the mistakes that could have been easily avoided by seeking legal advice from an experienced lawyer.  Here are a few things to avoid on your way to an appointment with a qualified estate planning attorney to discuss your own estate plan, and a couple of others to keep in mind once you get there.

1. Naming Minors as Beneficiaries.  Beneficiary designations are a convenient way to avoid probate and make sure an asset is paid directly to your chosen beneficiary at death.  You can name a beneficiary on your life insurance policy or retirement account. Many states (including Massachusetts) now permit you to designate a beneficiary on your bank account or investment account.  Many well-meaning parents and grandparents designate their children or grandchildren as beneficiaries of any or all of these types of assets. However, a minor (under the age of 18 in Massachusetts) is not legally able to own an asset.  This means that the financial institution involved (the bank, insurance company, or IRA custodian) will not simply name the minor child or grandchild as the new owner of the account following the original account owner’s death. And this is where the fun begins.  A conservator must be appointed by the Court to receive the asset on behalf of the minor child, and must hold that asset for the minor’s benefit until he or she is 18. The conservator will need to file annual accountings with the Court reflecting the activity in the account, and how any funds in the account were used for the minor’s benefit, until age 18.  The time, effort and expense involved in this process is significant, and unnecessary. In addition, an 18-year-old should probably not have control of significant assets anyway. Leaving your assets to a trust for the benefit of minors or young adults, rather than naming them directly as beneficiary, is usually the better solution, and an attorney who prepares wills and trusts can help guide in preparing a trust appropriate for your situation. 
2. Drafting Your Own Will.  Some people are disappointed to learn that the days of the $100 Will are behind us.  In an attempt to save the legal fees required for an experienced estate planner to draft a Will for them, those same people take to the Internet and draft the document themselves.  I have seen many of these home-grown Wills over the years, most with the same issues – ambiguous and/or conflicting provisions, an absence of administrative provisions specific to Massachusetts law that will allow the administration of the estate to go smoothly and cost-efficiently, and improperly executed documents.  When it comes time to probate one of these Wills after death, all of the money saved up front and more is spent on legal fees trying to resolve the ambiguities and deal with the Court on administrative matters that could have been avoided with proper administrative provisions in the document. I have also seen situations where the so-called “Will” is found to be invalid. For these reasons, doing a Will yourself can be risky business, and is best done by an attorney experienced in Will drafting. 
3. Adding Joint Owners to Bank Accounts Without Due Consideration of the Consequences.  Adding a child’s name to your bank account is a way to give your child convenient access to the account.  The child can run to the bank and get cash for you, sign checks if you are in the hospital, or have ready access to the account to pay post-death expenses.  I am not opposed to this arrangement for small accounts where convenience really is the objective. However, keep in mind that your child is considered the owner of any account on which his or her name appears.  If that child is sued, gets divorced, files for bankruptcy, or encounters other liabilities, that account is considered the child’s asset, and could be reached and the funds taken by a child’s creditor. Joint ownership of accounts can also become an issue after death if your Will does not clearly state what your intention is regarding that account – do you want the funds remaining in the account to belong to the child, or do you want those funds divided equally between all of your children? These are important legacy planning questions that an attorney can help you answer. If your wishes are unclear, the bad feelings and disagreements that result are magnified by the size of the account. All of these issues can be resolved with thoughtful estate planning that includes a power of attorney and/or trust planning, which will allow access to your account by others when needed and division of the account after death consistent with your wishes. 
4. Failing to Fund Your Trust.  If you have a trust, don’t forget to fund it.  Funding your trust means changing the ownership of assets so that those assets are owned by your trust or designate the trust as beneficiary.  When your trust is properly funded, the assets funding the trust will avoid a probate proceeding at your death. If your trust includes estate tax planning provisions, the assets will be sheltered from estate tax at death.  Funding a trust is something that must be done before you die. Once you are no longer with us, the benefits of funding the trust are lost, and probate and taxes cannot be avoided. This is not to say that you should fund your trust willy nilly with any and all assets.  The estate planning attorney who drafted your trust for you should provide you with written trust funding instructions consistent with the goals of your estate plan. Make sure you follow those instructions. If it has been a while since your trust funding was reviewed, and you have acquired additional assets or your goals have changed, sit down with your estate planning attorney again, review your trust funding, and confirm the instructions before proceeding to fund that trust! 
5. Choosing Co-Fiduciaries Unwisely.  Despite every parent’s hope that their children are life-long friends, some siblings just don’t get along. As a parent, it is important to recognize your children’s strengths and weaknesses, and be realistic about their relationship with each other and their ability to work together when deciding who will make financial decisions for you under your Power of Attorney, health care decisions for you under your Health Care Proxy, and who will settle your estate as Executor of your Will or Trustee of your Trust.  These positions are important jobs that will impact you during your lifetime, and impact people you care about after your death. If you name two people who don’t get along or trust each other a job to do together, things will take longer and cost more than they should as the two parties check up on each other, question every action taken by the other, and delay dealing with what needs to be done because the process is so painful. Do yourself and your family a favor and choose your fiduciaries wisely. Don’t worry about birth order or bruised egos.  Choose the person or persons you know will do the job well and treat everyone fairly.

Keep these things in mind when thinking about your own estate plan, and hopefully implementing it with the advice and assistance of an experienced estate planning attorney, who can help you avoid these estate planning don’ts.

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), and currently serves on the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. 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.

May, 2019      

© 2019 Samuel, Sayward & Baler LLC

By Kevin Cotton and Steven Joshua Samuel, JD, MBA, AIF® Roth IRA accounts allow a taxpayer to contribute after tax money to an account which is never taxed again. The popularity of Roth accounts has grown and presents unique opportunities for retirement and for supercharging bequests to family or friends after the lifetime of the original owner. Converting Pre-tax Assets Eliminates Future Taxation Some people are fortunate enough to accumulate amounts of money in retirement that are more than enough for their own spending needs. For those taxpayers, converting some of the assets from a traditional IRA to a Roth IRA offers major advantages. Conversions to Roth IRAs are most commonly done with traditional IRA assets, but some 401(k) and other employer sponsored retirement plans even allow for “In-Plan” conversions. Converting money in a traditional IRA to a Roth IRA does require payment of income taxes. However, paying taxes upfront allows assets to then grow tax-free forever.  And, the Internal Revenue Code does not require minimum distributions at age 70.5 from Roth IRAs as it does from traditional pre-tax accounts. It is best to pay the tax using cash not in the traditional IRA for two reasons:

1. So that the entire pre-tax balance is converted, ultimately increasing the after-tax value.
2. To avoid the early withdrawal penalty on taxes paid from the Traditional IRA when the IRA owner is under age 59 ½ at the time of the conversion.

For taxpayers who intend to pass gifts to future generations, a Roth IRA can magnify the gift. Magnifying Gifts to Future Generations with Roth IRAs Roth accounts (or converting traditional IRAs to Roth) can be very effective as an estate planning and wealth transfer tool, especially if gifts to younger people are important goals. Since Roth IRAs do not require owners to take required minimum distributions, the account balance will continue growing and can ultimately result in a much higher balance being transferred to the named beneficiary after the original owner’s death. When a Roth is transferred to a younger beneficiary at death, the Roth becomes the beneficiary’s account. Some factors make the inherited account extremely valuable. Withdrawals from inherited Roth accounts are always free of penalty and are generally tax-free to the beneficiaries. Please note that inherited Roth IRA distributions may be subject to tax if it has been less than 5 years since the original Roth IRA owner funded his or her first Roth IRA. Although required minimum distributions do not apply to original owners of Roth accounts, they do apply to inherited accounts. However, required distributions are taken based on the heir’s life expectancy rather than the original owner’s life expectancy. For this reason, younger people will ultimately have a much higher balance inside the Roth, growing tax-free forever. Two examples of the magnifying effect of gifting a Roth IRA to a younger person follow below. Real Life Scenarios Bob, age 65, is considering leaving his $50,000 traditional IRA to his daughter, Jane, or grandson, Jack. He wants to know whether converting his traditional IRA to a Roth and paying the taxes on the conversion is a better idea. If Bob chooses the Roth conversion, he will pay the necessary tax with money outside of the IRA so that the full $50,000 balance is converted. This will cost Bob anywhere from $5-15,000 depending on his tax bracket, but see below for how well the Roth rewards that sacrifice. Scenario 1:

• Assuming a 6% annual growth rate, the $50,000 Roth account balance grows tax-free (without required distributions) to approximately $127,021 at the time of Bob’s death at age 80.

• Compare the Roth total of $127,021 with what would happen without the Roth conversion. The traditional IRA requires distributions starting in the year Bob turns 70.5 and would grow to only approximately $79,500 at the time of Bob’s death at age 80.

• Jane inherits the $127,021 Roth account at age 45. Jane now enjoys tax-free growth and is only required to take out small annual required distributions based on her longer life expectancy.

• Jane sees the inherited assets as additional retirement savings and lets the balance grow. At age 65, the Roth account grows to approximately $200,909, compared to only $125,746 if Jane had inherited a traditional IRA.

Scenario 2:

• Assuming a 6% annual growth rate, the Roth account balance grows tax-free (without required distributions) to approximately $94,917 at the time of Bob’s death at age 75. The similar traditional IRA requires distributions starting in the year that Bob turns 70.5 and grows to approximately $75,392 at the time of Bob’s death at age 75.

• Jack inherits the $94,917 Roth account at age 10. Jack now enjoys tax-free growth and is only required to take out small annual required distributions based on his longer life expectancy.

• Jack sees two possible uses for the inherited assets: college expenses and the purchase of a home:

• At age 18 and assuming a 6% annual growth rate, the Roth account grows to approximately $129,373, compared to only $102,763 for the similar inherited traditional IRA

• At age 40 and assuming a 6% annual growth rate, the Roth account grows to approximately $312,907, compared to only $248,541 for the similar inherited traditional IRA

Notes: The above estimates assume 6% annual growth, 25% total taxation on all withdrawals, 15% total taxation on investments, and that RMDs are taken at the end of each year. These are hypothetical examples and are for illustrative purposes only.  Actual performance and results will vary. As the figures show, using Roth assets as a wealth transfer tool can be a very effective way to increase the value of a gift over time to a younger beneficiary. Since the inherited account does not have restrictions on withdrawals, the increased value can be a useful source of funds for various important goals in a beneficiary’s life. As always, consult a trusted financial advisor before implementing investment strategies. Samuel Financial LLC is located at 858 Washington Street, Dedham, MA 02026 and can be reached at 781.461.6886.  Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. Fixed Insurance products and services offered through CES Insurance Agency.

There’s a popular saying attributed to Benjamin Franklin that goes, “Failing to plan is planning to fail”.  The truth of this adage is well illustrated by two recent Massachusetts cases that highlight some of the unfortunate consequences of poor Estate Planning. In the first case, a man (Raymond) who married for the second time late in life failed to properly take the trust and estate planning steps to ensure that his wishes for the disposition of his property between his second wife (Susan) and his four children from a prior marriage were achieved.  The result of Raymond’s failure to plan was contentious (and no doubt expensive) ligation between Susan and the four children after his death.  The issue in the case of  Ciani v. McGrath arose out of a Massachusetts law that effectively prevents someone from disinheriting his or her spouse if that spouse does not want to be disinherited.  Because Raymond failed to properly plan, this law gave Susan the ability to force a sale of Raymond’s real estate when he passed away and to take one-third of the sale proceeds for herself.  It did not matter that Raymond had owned the property for many years before his marriage to Susan (he bought it with his first, late wife) or that Susan and Raymond had only been married for two years when Raymond passed away. This result could have been avoided if Raymond and Susan had entered into a prenuptial agreement before their marriage in which they had agreed upon the disposition of their assets at death.  Even without a prenuptial agreement, Raymond could have avoided this result by, for example, leaving assets in trust for Susan during her lifetime.  A properly planned Trust can avoid these type of issues. The Trust could have provided that upon Susan’s death, the Trust assets would be distributed to Raymond’s children.  Instead, Raymond’s intentions for the distribution of his estate were not carried out (if you assume his Will represented his wishes) and his family was left with an acrimonious lawsuit.  One-third of the property that Raymond intended pass to his children will instead be distributed to Susan, and to her beneficiaries at her death. The second situation is even sadder.  When Richlene married Noel Aimes she already had a daughter, Marcelle.  In 1980, Richlene and Noel bought a house together in Somerville for $23,000 where they lived with Marcelle and other of Richlene’s family members until Richlene, then Noel died. Noel never had children of his own.  When Richlene died, Noel became the sole owner of the home since they took title to the property as husband and wife, tenants by the entirety.  When Noel died two years later without a Will, the Somerville property, now worth $1 million, passed to his heirs-at-law as determined under the Massachusetts intestate statute which does not recognize step-children as heirs. As such, Marcelle, who has lived in the property for almost 30 years, has no legal right to ownership or occupancy. Instead title to the house passes to Noel’s nieces and nephews with whom he apparently had no relationship.  Had Noel made a Will or added Marcelle’s name to the title of the property, the property would have passed in accordance with what everyone believes would have been Noels’ wishes – to Marcelle. Here’s another pearl of wisdom from our pal Ben, “Well done is better than well said.”   Plan now to speak with an attorney for wills and trusts to make sure your family isn’t sorry later.

Life insurance companies are giving away free Apple Watches to people who share fitness data with them and meet their fitness goals.  New York state is allowing life insurance companies to scroll through your pictures on Instagram to determine your premiums.  The digital age has makes it possible to decrease premiums by installing fitness apps and posting pictures of yourself running. When thinking about life insurance as your family grows or your term life insurance expires, you will want to keep the following five things in mind as you consider the implications of life insurance on your estate plan.

1. What is life insurance? Life insurance provides a payout after your death (called a death benefit) to the people you designate as beneficiaries. It is an important safety net if anyone depends on you financially. Life insurance benefits can pay debts such as mortgages, replace your income and provide funds to pay college tuition. Life insurance can provide for dependents such as children or a younger spouse.  It can help a business owner buy out the interest of a deceased business partner.

2. Is group life insurance enough? Free life insurance at work is a great benefit. You sign up, and your employer pays.  More Americans are covered by work-based life insurance than by policies they purchase outside work. Most people rarely revisit their life insurance needs. Free coverage is typically one to two times your annual salary. However, you may want to replace more than two years of income upon your death.  Our firm does not advise clients as to the amount of insurance to obtain, but we work with financial advisors to make sure that ownership and beneficiary designations for insurance policies are in line with your estate plan.  If you have questions about your life insurance, speak with a financial advisor as to whether work coverage is sufficient depending on your goals to align with your estate planning needs.

3. Are your life insurance policies taxable? This is an important question to ask when preparing an estate plan. Beneficiaries do not have to pay income tax on death benefits they receive. However, proceeds of insurance policies are subject to estate tax upon your death if you control the policy – that is, if you can cancel, surrender, or assign the policy or change the policy’s beneficiary.  When life insurance proceeds are payable to your spouse, a marital deduction will apply.  However, if the proceeds are payable to children or others, an estate tax may be due.  As an example, if my sister designates me as beneficiary of a policy with a $50,000 death benefit, I will not pay income tax on the proceeds, but the $50,000 proceeds will be included in my sister’s estate for purposes of calculating the estate tax payable by her estate at her death. It is important to consider.

4. What can you do to avoid estate tax on life insurance? Life insurance proceeds can escape estate tax if you transfer the policy to an irrevocable life insurance trust.  Once the trust owns the policy, you cannot get it back or make changes to the provisions of the trust that will specify how the death benefit will be distributed at your death.  Also, you cannot be the Trustee of an Irrevocable Trust that owns a policy insuring your life. If you transfer an irrevocable policy to a trust but die within three years of the transfer, you lose the estate tax break, but if you create an irrevocable trust and the trust buys a new policy, the three-year rule does not apply.

5. What is the catch? The irrevocable trust as the policy owner must pay premiums. You cannot pay premiums directly but may make gifts to the trust.  The Trustee must give the beneficiaries notice of their right to withdraw amounts contributed to the trust so they qualify as present gifts.  These notices, called Crummey notices, are named after a court case that fleshed out these requirements and allow the contributions to qualify for the annual gift tax exclusion, relieving you of the need to file gift tax returns.

If you have purchased a life insurance policy or are contemplating purchasing a policy and would like to structure ownership to decrease the estate tax owed at your death, contact an estate planning attorney with experience in drafting and administering irrevocable life insurance trusts.

Natalene Ong, Esq. is an estate planning attorney at Samuel, Sayward & Baler LLC, a law firm that is based in Dedham.  The firm focuses on advising clients in the areas of estate planning, administration of estates and trusts and elder law.  For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.

April 2019

© 2019 Samuel, Sayward & Baler LLC

In the year and a half since I last wrote about planning for digital assets not much has changed in Massachusetts.  Our state is still one of a handful of states that has not enacted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), although there is a bill pending in the Massachusetts legislature that would do so.  This bill would clarify the authority your appointed fiduciaries (such as your agent under your Power of Attorney, or the Personal Representative of your estate) would have to access your digital assets if you become incapacitated or pass away.

What has changed in the past year and a half is that we all continue to be more dependent upon technology, and our digital footprint increases with each passing day.  We continue to use social media, online photo and document storage, and email on a daily basis, increasing the digital “assets” we have stored in these accounts.  The importance of the assets stored online has also increased – perhaps this is the only place you now store vacation photos (rather than putting them in your photo album), or perhaps you only receive your bank or investment account statements online rather than in the mail. This online footprint will only continue to grow, as will the need for your estate plan to address your digital assets.

The more digital assets become mainstream, the more important it is to plan for access to these assets by others if you are not able to do so. To the extent these accounts contain information that you would like someone to be able to access after your death or incapacity, it is necessary to provide the appropriate authority for such access as well as instructions about what you want done with these “assets.”  For some types of these assets, digital estate planning strategies are is crucial to prevent financial loss (i.e. the loss of a domain name used for business purposes, bill payment, access to investment account information), to protect sensitive personal information (on-line dating websites), to avoid identity theft, and to allow access to valuable assets (think bitcoin or an author’s manuscript).

Here are some tips to manage your digital assets until Massachusetts law catches up with the rest of the country and we have a clear roadmap for access for Massachusetts fiduciaries:

• Review the terms of service agreements for the online accounts you use. Understand what those agreements provide about access, and if and how others can be given permission to access your account. Have a qualified estate planning attorney review these on your behalf if you have questions.
• If an online entity offers a way for you to give permission or access to your digital assets stored with that company, pay attention and follow the directions. For example, Facebook allows you to designate a Legacy Contact who can manage your account after you die, or you can choose to have your account deleted if you pass away. Google allows you to control what happens to your account through their Inactive Account Manager feature. Here you can designate when your account will be considered inactive, what should happen to your Google account in that event, and designate one or more people who will have access to whatever portions of your Google account you choose.
• Update your estate plan documents, specifically your Power of Attorney, Will and Trust, to ensure those documents grant express permission for the fiduciaries named in those documents to access your digital assets, and express direction regarding what should be done with specific digital assets at death. In our office, we include express permission for access in these documents.
• Keep a current list of your usernames and passwords in an online password manager or recorded in another way where a trusted person can access this information if needed, and let that person know where this information is located. As a start, we provide our clients with a Digital Assets Memorandum that can be used to record access information and instructions about digital assets.

Keep in mind that if you have not used an online entity’s prescribed method of giving someone permission to access your account, and do not have express permission and direction in your estate plan documents, the company’s Terms of Service Agreement will govern. In such a case, you and your digital assets are at the mercy of the online provider, which may not allow access following your death or incapacity. Don’t fail your loved ones with poor digital legacy planning.

March 2019

© 2019 Samuel, Sayward & Baler LLC

You may be asking yourself “What is a Continuing Care Retirement Community?” A Continuing Care Retirement Community (CCRC) is a community that consists of graduated levels of residential and health care options to accommodate elders who are looking to downsize but remain independent and ensure that their health care needs are met as they “age in place” in a familiar setting. Generally, a couple or single person’s financial and health eligibility are rigorously reviewed by the CCRC and a signed agreement outlining the terms of residency, services, fees, transfers between types of residency units, and other matters (Agreement), along with a large Entrance Fee deposit (similar to a security deposit from renters), are required to join a CCRC. Here are five things to consider if you are contemplating moving to a CCRC.

1. How are CCRCs Regulated?

There are currently about 30 CCRCs throughout the Commonwealth of Massachusetts. Under Massachusetts’ consumer protection law (G.L.c. 93, §76), CCRCs are required to disclose specific information regarding the terms of residency and services prior to or at the time the Agreement is signed or a deposit is paid, and to provide the same to the Executive Office of Elder Affairs (EOEA), which had made several CCRCs’  Agreements and other information available here. If a CCRC knowingly and willfully fails to disclose this information, the resident may recover damages, costs and attorneys’ fees, and in certain cases, a refund of the Entrance Fee, sometimes less certain costs outlined in the Agreement. However, in Massachusetts there is no state agency that has authority to oversee and enforce the CCRCs’ adherence to the statute.

2. I Meet the CCRC’s Financial Requirements – Does It Meet Mine?

Typically, a large Entrance Fee deposit is required to buy in to a CCRC, and each CCRC treats the manner by which the Entrance Fee may be utilized during your lifetime and the process by which it is refunded differently.  For instance, some Agreements state that the Entrance Fee may be used by the CCRC to pay your monthly expenses if your other methods of payment have been exhausted. Other Agreements state that you, or your family if you are deceased, will not receive a refund until a new resident buys in to the CCRC, unless you are willing to receive a greatly reduced refund. Yet other Agreements may link the Entrance Fee refund to your period of residency, which means the refund may be significantly less than the deposit you paid if you reside there for several years. Carefully consider the Entrance Fee refund provisions and decide if they are acceptable to you and your family when reviewing an Agreement.

Also pay attention to the financial strength of the company that supports the CCRC, especially if the Agreement makes it clear that your receipt of a refund is dependent upon the buy in of a future resident.  If the company declares bankruptcy, you may lose your entire refund.   The Commission on Accreditation of Rehabilitation Facilities (CARF) is a nonprofit accreditor of health and human services providers and provides a Guide to Understanding Financial Performance and Reporting in CCRCs on its website.

Another matter to consider is what happens if you no longer have adequate funds to pay your monthly expenses, especially if you are in the skilled nursing facility section of the CCRC. Carefully review the Agreement to determine if there are terms that explain the procedure by the CCRC to collaborate with you to pay your expenses, including applying for Medicaid benefits.  Most CCRCs do not accept Medicaid.

3. What Are the Monthly (and Other) Fees I Will Pay?

The CCRC should provide you with a detailed written description of the services included with the monthly fee you will be paying them as well as a list of fees for additional services.  For example, is transportation to local grocery stores, laundry services or light cleaning of your unit included in the monthly fee or are these additional fees? It’s a good idea to calculate the fees for the additional services you anticipate utilizing along with the monthly fees you will be paying.  Be aware that these fees generally increase annually.

4. What Happens If My Health Declines?

The major appeal of CCRCs is that you can remain within a familiar community that provides more residential and health care support if and when your health declines. Many Agreements include provisions that broadly describe the process, factors and decision-makers that influence when you may be temporarily or permanently transferred from an independent living unit to an assisted living unit or a skilled nursing facility unit or to another facility outside of the community if warranted. Some Agreements permit residents or their legal representatives to weigh in and appeal the decision to permanently transfer the resident to another unit while others do not. A move to assisted living or skilled nursing can significantly increase your monthly expenses.  Additionally, the decision to permanently move you to a potentially more expensive unit may be out of your hands.  Carefully consider the factors and individuals involved in deciding if you require transfer to another unit, and note whether the Agreement clearly explains the fees if your healthy spouse remains in your independent living unit.

5. What Else Is Important to Me?

Arbitration: Another part of a CCRC Agreement to consider is the arbitration/dispute resolution provision. Some Agreements state that any disagreement you have with the CCRC may only be resolved with arbitration and/or dispute resolution and not via the court.  This will limit your ability to pursue an outcome that may be more beneficial to you. Consider carefully if it is important to you to have all legal options available to you in the event the CCRC violates its Agreement with you.

Resident Rights: Beyond any rights described in the Agreement, residents may establish a residents’ association, submit comments to the CCRC regarding resident health and welfare, and request information about construction and the financial reserves of the CCRC under Massachusetts law. Think carefully about whether you will be comfortable with a limited ability to effect change within your community as a resident. Also keep in mind that you will be sharing common space with people that have different lifestyles from you; for instance, would you be bothered if your neighbor smokes cigarettes or has a noisy pet?

Activities: Review the activities, events and meal schedules of the CCRC and consider whether they appeal to you and fit your lifestyle.

For more information, an extensive consumer guide to questions and other topics for consideration regarding Massachusetts CCRCs can be found at the EOEA’s website.

If you are considering making a Massachusetts CCRC your future home and wish to better understand the terms and legal ramifications of the Agreement for you and your loved ones, contact an experienced elder law attorney to thoroughly review and discuss the Agreement with you.

Attorney Abigail V. Poole is an associate attorney 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 an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA).  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. 

February, 2019

© 2019 Samuel, Sayward & Baler LLC