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Five Proposed Changes to the Estate and Gift Tax Laws

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After the spending spree necessitated by the Coronavirus (think CARES Act, stimulus payments, vaccine development support, etc.), coupled with President’s Biden infrastructure building plans, it is not surprising that Congress has turned its focus toward revenue raising as we emerge from the pandemic.  Revenue raising proposals usually mean finding a way to collect more tax dollars.  At the end of March, Senators Bernie Sanders and Sheldon Whitehouse introduced a bill they call, “For the 99.5 Percent Act” which proposes sweeping changes to existing estate and gift tax laws.  Read on for five of the most significant proposed changes.  

  1. Reduce the current $11.7 million federal ESTATE tax exemption to $3.5 million.  For the vast majority of Americans, the federal estate tax (the ‘death tax’) has been a non-issue since 2010 when the exemption was raised to $5 million and indexed for inflation.   The exemption is the amount that each person is permitted to pass on free of any federal estate tax at death.  Because $5 million was not high enough for some people, the exemption was increased to $11 million under President Trump, albeit with a sunset provision that reduced the exemption back to $5 million at the end of 2025.  The Sanders/Whitehouse proposal calls for rolling that exemption back to $3.5 million and indexing it for inflation.  While this rollback (if it happens) will mean that more estates will be subject to federal estate tax, the vast majority of estates will not be impacted because most Americans do not have an estate worth more than $3.5 million ($7 million for a married couple).  Those folks whose estate is more than the proposed reduced exemption amount should keep an eye on this legislation and explore their options for undertaking some planning before the end of 2021.
  2. Increase the rate of taxation on federally taxable estates.  Under the current federal estate tax law, taxable estates which exceed the exemption are subject to tax at the flat rate of 40%.  That means that on a $20 million estate there will be federal estate tax payable of $3,320,000 ($20 million – $11.7 million x .40).  Under the Sanders/Whitehouse proposal, the estate tax rate would be increase to 45% for taxable estates valued between $3.5 million and $10 million, 50% for estates over $10 million but less than $50 million, 55% for estates between $50 million and $1 billion, and 65% for estates over $1 billion.  While these rates are super high, the number of estates subject to them will be very small.
  3. Limit total annual exclusion gifts to two-times the amount of the annual exclusion.  The annual exclusion amount is the amount that each person may gift to any number of people in any calendar year without having to file a gift tax return and without reducing that person’s lifetime gift tax exemption.  In 2021 that amount is $15,000 (a base amount of $10,000 indexed for inflation).   For example, under the current law, I can give up to $15,000 to each of my two children, to my seven nieces and nephews, to my two siblings, and to my mailman, if I am so inclined, without any impact on my lifetime gift tax exclusion.  There is no limit on the number of people to whom I can gift up to $15,000 in any calendar year.  To the extent I give more than $15,000 to any one person in any one calendar year, I will ‘chip-away at’ my lifetime gift tax exemption.  For example, if I gave my child $115,000 during the year, I will have made an excess gift of $100,000.  This will reduce my lifetime exemption from its current $11.7 million to $11.6 million ($11,700,000 – $100,000 = $11,600,000).Under the proposed law, annual exclusion gifts would be limited to two-times the amount of the annual exclusion.  That means that if the annual exclusion amount is $15,000, I could give each of my two children $15,000 in one year but could not give any other gifts in that year without reducing my lifetime gift tax exemption.
  4. Reduce the current $11.7 million lifetime GIFT tax exemption to $1 million.   Under the current federal gift tax law, each person has an $11.7 million lifetime gift tax exemption, which is the amount they can give away during their lifetime before any gift tax must be paid.  The proposed law would reduce the gift tax exemption to $1 million, meaning that cumulative excess gifts of more than $1 million during someone’s lifetime will incur gift tax.  The reduction of the gift tax annual exclusion amount coupled with the proposal to reduce the federal gift tax exemption from its current $11.7 million to $1 million is likely to significantly curtail estate tax planning in the future if these provisions are enacted, since tax planning done to reduce the size of your taxable estate often involves gifting assets.  People who have large estates and who want to undertake planning to reduce their federal estate tax should do so before the end of 2021 in order to take advantage of the current $11.7 million gift tax exemption amount, which will be reduced to $1 million under the new law.
  5. Limit generation-skipping transfer trusts to a term of 50 years.  The generation skipping transfer tax (GSTT) is a tax imposed on transfers to ‘skip’ beneficiaries (think grandchildren).  The GSTT is in addition to the federal estate tax and is assessed at the same high rate.   In order to mitigate the harshness of the tax, there is an exemption from the GSTT which is currently equal to the amount of the federal estate tax exemption.  That means that under the current law a person with an $11.7 million estate could leave his entire estate to his grandchildren and there would not be any GSTT payable.  Typical GSTT planning involves creating trusts for multiple generations to shelter family wealth from diminution from the estate tax.  In this way, the inheritance from grandpa may escape estate taxation for 100+ years, preserving family wealth for future generations.  The Sanders proposal would limit the term of such trusts to 50 years, requiring the payment of estate tax every 50 years.

The above changes are only proposals and we don’t know what the final law will be.  The revenue raising plan submitted by President Biden does not contain these provisions so perhaps none of them will be enacted.  However, if you have an estate that you anticipate would be subject to federal estate tax if these proposals are enacted, and if you are interested in exploring options for reducing the tax in the event one or more of th`ese proposals become law, you should take action soon.  

Attorney Suzanne R. Sayward is a partner with the Dedham law 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 our website at www.ssbllc.com or call 781/461-1020.

May, 2021

© 2021 Samuel, Sayward & Baler LLC

Obtaining or Refinancing a Mortgage on Property that is Titled in Trust

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Conveying real estate into a Revocable Trust or a so-called Nominee or Realty Trust is a common aspect of the estate planning process for people who own real property.  Property owned in trust avoids probate which reduces time, cost and aggravation for surviving family members.  In addition to probate avoidance, titling real estate in trust is often a vital part of estate tax savings planning undertaken by married couples.   

However, if you decide to obtain a mortgage or Home Equity Line of Credit (HELOC) on property titled in the name of your Trust, or refinance an existing mortgage, be aware that many banks and mortgage lenders require that the property be removed from the Trust for the loan closing.  The property may be conveyed back into the Trust following the completion of the loan transaction.  There is a federal law (the Garn-St. Germain Depository Institutions Act) that prohibits a lender from exercising the due on sale clause under a mortgage for certain types of transfers, specifically including the transfer of property to a trust of which the borrower is a beneficiary.  

When your property is titled in a Revocable Trust (or in a Nominee or Realty Trust which names you or your Revocable Trusts as the beneficiary) there is no impact on your estate plan to remove and then re-convey the property to the Trust. Note that this is NOT the case for property held in an IRREVOCABLE Trust. 

We are happy to prepare the deed and related documentation to remove property from your Trust and re-convey it to the Trust once the mortgage transaction is complete.  Our typical legal fee for this service is $550 per property.  In addition, there will be recording charges to the Registry of Deeds.  

Please contact our office if you are obtaining a mortgage or HELOC, or refinancing an existing mortgage and your lender requires that your property be removed from your Trust in order to complete the loan transaction.

Delays Continue at the Probate Courts

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They say that patience is a virtue, and when it comes to Massachusetts’ probate courts, they are right. Capacity limits imposed as a safety precaution to mitigate the spread of COVID-19 mean that court personnel across the Commonwealth are operating on a rotating schedule such that only a limited number are physically in the various courthouses at any one time. Naturally, this severely limits the courts’ capacity to process mail and issue important documents like Letters of Authority and Decrees and Orders of Complete Settlement, which require official stamps and seals. Our contacts at one courthouse have told us that they are as much as three months behind on processing their incoming mail as a result of the capacity limits.  The limited staffing issues, coupled with the significant increase in the number of estates needing to be probated as a result of the 17,000+ deaths attributed to the pandemic over the past year, have placed a severe burden on the probate courts. 

Beyond the issues created by COVID-19, there are county-specific issues that are exacerbating these delays. In Norfolk County, for example, the long-serving Register of Probate was elected Sheriff this past November and the new Register is, understandably, still learning the ropes. Meanwhile, Middlesex County not only split its Probate Court into two divisions last spring, its southern division moved from its longtime home in Cambridge to Woburn last fall and it unexpectedly lost one of its most experienced staff members around the same time.

As you can imagine, all of these factors combined have led to extreme backlogs at several courthouses such that even the processing of routine, uncontested cases can take weeks, if not months. While you can rest assured that we are diligently pursuing every avenue possible to ensure that our probate cases are processed in as expeditious a manner as possible, ultimately it will take time for the courts to work through these backlogs. 

Five Things To Do Soon After A Loved One Passes Away

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Thankfully here in Massachusetts we continue to see a decline in COVID-19 cases.  Hopefully, this trend will continue. Nevertheless, there are sadly still individuals who are becoming infected with COVID-19 and dying from complications due to the virus, reluctance to seek treatment for other health issues, or for a myriad of other reasons.  What should I do when a loved one passes away may be a question that you unfortunately have to ask yourself. Whether a loved one’s passing is expected or unexpected, managing his or her affairs can be difficult to think about while dealing with the grief and loss of a loved one. Here are five steps to provide some guidance on what to do soon after a loved one’s death, in no particular order:

  • Arrange Burial and Memorial Services According to the Loved One’s Wishes

If the deceased was forward-thinking enough to pre-arrange and/or pre-pay his or her funeral when also preparing his or her estate plan, then contact the funeral home with which these arrangements were made.  If no plan was put in place before death, contact a reputable funeral home to guide you through the burial and memorial service process.

As part of an estate plan, the deceased may have prepared a Directive as to Remains.  A Directive as to Remains is a document that instructs the deceased’s Personal Representative (Executor) to arrange the deceased’s burial or cremation and funeral/memorial services as directed in that document. Your loved one alternatively may have written down similar wishes in a letter of instruction. Carefully review your loved one’s estate planning documents to learn if the deceased left such instructions so that his or her wishes are carried out.

  • Find and Organize Important Documents

Hopefully your loved one showed you where he or she keeps important documents like his or her Will, income tax returns, financial account statements and bills that are regularly paid. This information will be necessary for the proper services and administration of the deceased’s estate.  Locate a safe but easily accessible place where you can store this information as you will refer to and use it often.  Do not throw away any financial records or legal documents until you know you will not need them for tax filings, asset valuation, or other purposes.

  • Secure Property of the Estate

Your loved one may have several different types of assets in his or her estate at death. In every case, the Personal Representative (or Trustee if there is a Trust) is responsible for ensuring the deceased’s property is secure and protected for the beneficiaries of the estate.  For example, it is important to safely store valuable jewelry and artwork.  Similarly, any real estate should be securely locked (perhaps even change the locks) and regularly visited. In fact, it is an obligation of the Personal Representative to do so, and he or she may be liable if such measures are not taken and damage occurs to the property. The Personal Representative should also maintain or obtain insurance in connection with the deceased’s assets, as necessary, and may need to have some or all of them appraised for estate administration and/or estate tax purposes.

  • Contact an Estate Planning and Administration Attorney

The settlement of an estate can be incredibly complex depending on the assets and beneficiaries involved, and the provisions of the deceased’s estate plan. The Personal Representative should contact an attorney to guide and assist him or her through the process of completing and filing the required documents to be appointed as Personal Representative by the probate court, gathering assets, paying appropriate expenses, and making distributions, to avoid failing to fulfill his or her obligations. This is especially important if the estate assets are valued at over $1 million and a Massachusetts estate tax will be payable, or if it is anticipated that MassHealth (Medicaid) may file a claim against the estate to be reimbursed for any MassHealth benefits (for home care or nursing home care) received by the deceased during his or her lifetime.

Keep in mind that the administration of an estate typically takes at least one year so you may want to take the tortoise’s point of view – slow and steady wins the race.

  • Communicate and Work Together

On top of the issues mentioned above, estate administration can be made more difficult if there are strained relationships between the beneficiaries, which often also includes the person who is serving as Personal Representative. Perhaps there is a history of family disharmony. Perhaps multiple beneficiaries are sentimentally attached to mom’s diamond engagement ring and they must decide who gets to keep it.  The only person who wins when there are disagreements between beneficiaries that cannot be resolved is the attorney who gets paid to resolve them via negotiation or court action.  Instead, consider embracing the three C’s as much as possible when working with each other: Communication, Cooperation and Compromise. 

Estate administration can be a juggling act where the Personal Representative is managing several different responsibilities all at once, including fulfilling the wishes of the deceased and the Personal Representative’s obligations to the beneficiaries. An estate planning attorney knowledgeable in the process of estate administration can guide you through that process in a correct and efficient manner, so that you have peace of mind when all is complete, hopefully with family relationships intact, which is most likely what your loved one would have wanted when setting up his or her estate plan.

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 and Vice President 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. 

© 2021 Samuel, Sayward & Baler LLC

 

 

 

ASK SSB

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Q:       Can I disinherit my child?

A:     Parents often joke about disinheriting their children, but this is a question we get more frequently than you would think (and not because COVID quarantining in close quarters with their children has driven the parent to it).  Disinheriting a child arises in cases where a parent and child have become estranged – sometimes because of a specific event, sometimes not.  In more fortunate circumstances, sometimes the parent and child are on good terms, but the child has sufficient wealth that the parent wants to leave their assets to their other children.

Regardless of the circumstances, the answer is yes, a parent can disinherit their child.  Put another way, the law does not require a parent to leave their assets to their children at their death.  The only person the law protects in this regard is your spouse.  If you disinherit your spouse, your spouse has the right to claim a certain share of the assets in your estate or in your revocable trust if they wish to do so.  But if you have no spouse and you wish to leave all of your assets to the New England Wild Flower Society rather than your kids, there is nothing to stop you from doing so.

If you intend to specifically disinherit a child your Will should clearly state that you intend to disinherit the child in question, and that their omission from the Will is intentional.  There is no need to leave the child One Dollar, or some other nominal amount of money.  There is also no need to specify the reason(s) why the child is being disinherited, and in fact it is not a good idea to do so, as it leaves the door open for the child to argue that the reasons stated were invalid.  For children who are perceived troublemakers, who the parent fears will sue the Estate and tie things up in Court for years trying to fight the disinheritance, even if they have no grounds to do so, the parent can try the carrot and the stick approach.  This involves leaving the child some amount of money that is meaningful to the child, and stating in the Will that if the child contests the Will they will forfeit any amount left to them.  If this is done thoughtfully, it often serves as a deterrent to the child causing further trouble, saving the estate and the other beneficiaries time and money in the process.

Whatever the reason, if you choose to disinherit a family member when creating your estate plan, be sure to work with an experienced estate planning attorney who will ensure that the planning is handled properly and the documents are written in such a way that your wishes are carried out.

Five Things to Know about Testamentary Trusts

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By Attorney Maria C. Baler

Testamentary Trusts are less popular than their well-known cousin the Living Trust, but in the right situation can be the perfect solution to a vexing problem – protecting assets for a surviving spouse when he or she may need nursing home care. Testamentary Trusts may be the one solution where it may be possible to have your cake and eat it too in the world of long-term care planning.

Here are five things to know about Testamentary Trusts

1. What is a Testamentary Trust?

The word “testamentary” means “relating to or bequeathed or appointed through a Will.” The “testament” in the phrase “Last Will and Testament” comes from this definition. A Testamentary Trust is, as the definition implies, a trust that is created by the terms of a Will. Because the Will does not take effect until death, the Testamentary Trust created by the Will does not come into existence until after the creator (or “testator”) of the Will has died.

This is very different than the more popular Living Trust, which is a trust created by the maker of the trust (the “grantor”) during the grantor’s lifetime. Living Trusts can own assets during the grantor’s lifetime; Testamentary Trusts cannot. Assets owned by a Living Trust at the grantor’s death avoid probate which is one of the primary reasons for creating a Living Trust. You may recall that probate is the court proceeding necessary to transfer title to assets owned by a person in his or her name alone (with no beneficiary named) at death.

Because Testamentary Trusts do not come into existence until after death, they cannot own assets during their creator’s lifetime. The assets that will be held in the Testamentary Trust after the creator’s death will pass through the probate estate of the testator, and into the Testamentary Trust as provided under the terms of the creator’s Will, to be held in trust for the benefit of the trust beneficiary.

2. Why Create a Testamentary Trust?

If a Testamentary Trust does not allow you to avoid probate with the trust assets, and does not come into existence until after death, why would you create one?

The answer is in the regulations that determine whether assets held in a trust created by a husband or wife are “countable” when determining whether or not either will be eligible for Medicaid benefits to pay for nursing home care.

If a husband creates a Living Trust and transfers $500,000 into that Trust during his lifetime, and names his wife as the beneficiary of that trust after his death, the Trust assets will be fully “countable” if either husband or wife tries to qualify for Medicaid benefits to pay for nursing home care during their lifetimes. If the husband passes away, and if his Living Trust allows the Trustee to use the trust assets for his wife’s benefit during her lifetime, the Trust assets, and any other assets the wife may own, will be “countable” and must be spent on the wife’s care before she will be eligible to receive Medicaid benefits to pay for her care.

However, Medicaid regulations provide that if a Testamentary Trust is funded by Will at the death of one spouse, and the assets are held in that Testamentary Trust for the benefit of the surviving spouse, the assets in that Testamentary Trust will not be countable in determining the surviving spouse’s Medicaid eligibility. This is an important distinction and one that can allow a spouse to set aside assets in trust for the benefit of his or her surviving spouse.

A Testamentary Trust works especially well in situations where one spouse is ill and is being cared for by the other spouse. In such a situation, if the caregiver spouse were to die, the ill spouse would almost certainly need a nursing home level of care as they could not live alone or care for themselves. In this case, if the caregiver spouse (the husband) creates a Testamentary Trust through his Will for the benefit of his wife, and if the caregiver spouse dies before his wife, any assets owned by the caregiver spouse in his name alone would pass through probate and fund the Testamentary Trust created by his Will for the benefit of his wife. The Trust assets could be used for his wife’s benefit during her lifetime, to pay for anything his wife needs that is not covered by Medicaid – things like flowers, books, hearing aids, haircuts, a new television, new clothes, companions or additional caregivers, or any number of other things outside of the cost of skilled nursing care. When the wife passes away, any assets remaining in the testamentary trust will be distributed according to the Will’s provisions – for example, to the couple’s children, or other individuals or charities.

3. Who Can be the Trustee of a Testamentary Trust?

The Trustee of the Testamentary Trust is responsible to manage the Trust assets for the benefit of the Trust beneficiary – the wife in the previous example. Anyone other than the wife can be the Trustee of the Testamentary Trust for the wife’s benefit. For example, when the husband creates his Will with a Testamentary Trust for his wife’s benefit, he names his son Jack as the Trustee. Jack will have the authority to manage and invest the assets in the Testamentary Trust after his father’s death, and the discretion to use the assets in the Testamentary Trust for his mother’s benefit during her lifetime.

There may be a conflict of interest if Jack is also a beneficiary of the Testamentary Trust after his mother’s death, in that the fewer assets he uses for his mother’s benefit while she is living, the more that will be left for Jack and the other beneficiaries of the Trust after her death. This is something that should be considered when choosing the Trustee for the Testamentary Trust. It may be appropriate to choose someone who is not an ultimate beneficiary of the Trust after the primary beneficiary passes away.

4. Ownership of Assets is Key

In order for a Testamentary Trust to work properly, the creator of the Will that includes the Testamentary Trust – the husband in our example – must own assets in his name alone. Assets that are owned jointly will typically pass automatically to the surviving joint owner and will not pass through probate and into the Testamentary Trust at the husband’s death. Similarly, assets that name a beneficiary will pass automatically to the named beneficiary and not through probate and into the Testamentary Trust.

For this reason, if a Testamentary Trust is created, a change in the way assets is owned is often required. In our example, the home that is jointly owned by husband and wife should be transferred into the husband’s name alone, so that when he dies the home will pass via the husband’s Will into the Testamentary Trust for his wife’s benefit. Similarly, a joint bank account should be transferred into the husband’s name. Perhaps beneficiaries should be removed from CD accounts, etc. How assets should be restructured is specific to each person’s situation, and should be done only with the advice of an attorney. However, if assets are structured properly to fund a testamentary trust, those assets will be available to provide for the surviving member of the married couple even if they are receiving Medicaid benefits.

5. What are the Disadvantages of Using a Testamentary Trust?

One of the main disadvantages of using a Testamentary Trust is that the assets must pass through probate before they are protected under the Testamentary Trust. Probate is an expensive and time-consuming process, made even more time consuming by the impact COVID-19 has had on our probate courts in Massachusetts. For this reason, it may be best to make sure the intended Trust beneficiary has some assets in her name that can be used for living or care expenses until the Testamentary Trust is established when the probate process is complete.

If the husband in our example creates a Testamentary Trust, holding assets in his individual name in order to fund his Testamentary Trust at death will subject those assets to a Medicaid claim at the husband’s death if he receives Medicaid benefits during his lifetime. For this reason, Testamentary Trusts are typically created by individuals who have not and do not expect to receive Medicaid benefits during their lifetime, although their spouse likely will receive those benefits.

Finally, if the ownership of assets is not structured properly and thoughtfully, the Trust may not work at all, or may not work to its fullest advantage. For this reason, this type of planning should not be undertaken without advice from an experienced elder law and estate planning attorney.

Testamentary Trusts can be a very effective planning tool in a very specific situation – when one spouse wants to protect assets for the surviving spouse in the event the surviving spouse is expected to require a nursing home level of care and wishes to qualify for Medicaid benefits to pay for that care after the first spouse passes away. If this is your situation, seek out the advice of an experienced elder law and estate planning attorney who can assess your situation and discuss whether a Testamentary Trust is the right planning strategy for you.

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 the current President of 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.

April, 2021

© 2021 Samuel, Sayward & Baler LLC

Directives as to Remains

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A Directive as to Remains sets out a person’s wishes for disposition of their remains at their death.  This may include instructions for the type of service to be held, which funeral home to use, the location of a pre-purchased burial plot, or directions for scattering a person’s cremains.   Not every person chooses to leave a Directive as to Remains but if your wishes regarding cremation, your funeral, or other disposition instructions are important to you, writing those wishes down and sharing them with your family and the Personal Representative of your Will is the best way to make sure those wishes are followed.

A few things to know about a Directive as to Remains:

  • A Directive as to Remains is a stand-alone document – these instructions should not be included in a Will.  Wills are often not read until after the funeral at which point it may be too late to carry out your wishes.  
  •  If you are part of a blended family or if you anticipate conflict among family members regarding your final disposition, creating a Directive as to Remains can go a long way toward easing family tensions.  
  • Leaving a Directive as to Remains can alleviate stress for surviving family members as it relieves them of the burden of having to make decisions about unfamiliar matters at a difficult time. 
  • The Massachusetts Uniform Probate Code (MUPC) specifically authorizes the person named as the Personal Representative (executor) in the Will to carry out the written instructions of the deceased relating to the disposition of the body, funeral and burial arrangements prior to the official court appointment of the Personal Representative. This is critical since it can take quite a long time (especially these days) to obtain the official court appointment of a Personal Representative.

If you do create a Directive as to Remains, make sure you share a copy of it with the Personal Representative named in your Will and with family members who will be involved in making those final arrangements.  A Directive as to Remains is not something everyone chooses to create, but if you have particular wishes regarding the final disposition of your remains, the type of funeral or memorial service you want, or if you have a special place that you want your cremains to be scattered, creating a Directive as to Remains is a good way to ensure your wishes are granted.

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 and Trust administration, elder law and probate 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.

5 Ways to Avoid Probate Court

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A goal of many clients is to get their estate plan in order because they had to go through the time-consuming and expensive process of probate to deal with their deceased parent’s estate and they don’t want that burden to fall on their families.  Probate is the process by which a Personal Representative (also known as Executor) is appointed by the Court to access, manage and distribute the deceased’s estate assets. The court that oversees probates is the Probate and Family Court in Massachusetts. There is a separate Probate Court for each county in Massachusetts.  A large volume of probate matters are filed each year in Massachusetts.  In addition to estate settlement matters, the Probate Courts also have jurisdiction over divorce, child custody, adoption, and guardianship and conservatorship cases.  Most people would prefer to avoid the need for probate to make it easier on their family in the event of their incapacity or death. Here are five ways through careful estate planning that you can take action now to avoid the Probate and Family Court system (for which your family will be very grateful).

1. Avoid Guardianship by Completing a Health Care Proxy

A Guardian is a person appointed by the probate court to make decisions for someone who has been deemed incapacitated (a ‘protected person’).  A Guardian is responsible for the well-being of the protected person and is authorized to take comprehensive or specific actions on behalf of the protected person depending on the situation. For example, a Guardian may consent to typical medical care and treatment but needs specific authority from the Court for other types of treatments, such as the administration of anti-psychotic medications.  The Guardian must regularly update and report to the Court regarding the care of the protected person.  Often it is a family member of the incapacitated person who must petition the Probate and Family Court to be appointed as Guardian. 

Guardianships requiring Court supervision can usually be avoided by completing a Health Care Proxy. A Health Care Proxy is a document that appoints a health care agent to make health care decisions on your behalf if you are incapacitated and is a very important part of an Estate Plan.

2. Avoid Conservatorship by Completing a Power of Attorney

A Conservator is appointed by the probate court to manage the financial affairs of an individual who is adjudicated by the court to be unable to do so.  The Conservator takes over the bank and other financial accounts of the incapacitated person, pays bills, makes decisions about how funds will be spent, which financial advisor to work with and how to invest your assets, for example.  Similar to a Guardian, the Conservator must regularly update and report to the Court about the management of the incapacitated person’s finances, income and expenses. As with a guardianship, a family member is often the one to petition the Court to be appointed as Conservator.

The time and expense of a Conservatorship may almost always be avoided by completing a Power of Attorney.  A Power of Attorney is another important Estate Planning document that appoints an attorney-in-fact to make financial decisions on your behalf.  Some Powers of Attorney only “spring-to-life” when activated by confirmation of incapacity by a physician.  Other Powers are effective immediately upon signing, which can be convenient in the event you need or want the attorney-in-fact to take care of your finances even though you are competent.

3. Sign a Parental Appointment of Temporary Agent (PATA)

Guardianships and Conservatorships also come into play if someone passes away leaving minor children. A Last Will and Testament is the document used to name someone to serve as the Guardian and Conservator of minor children.  When someone passes away, it may take a while for the Probate court to appoint a Guardian and Conservator for the minor children.  In the meantime, those minor children still need care. To bridge this gap, parents may appoint a temporary agent to care for minor children for a period of 60 days. The Parental Appointment of Temporary Agent (PATA) form designates a person who may make medical, residential and educational decisions for minor children prior to the official appointment of a guardian and conservator by the court. While completing this form does not avoid a visit to the Court, it reduces the apprehension of who will look after your children while legal custody is determined.

4. Create a Trust

Keep in mind that probate is necessary after death for assets that are individually owned and for which there is no named beneficiary.  One way to change the ownership but retain full access, use and control of an asset is by having an attorney for trusts create a Revocable Living Trust for you and fund it during your lifetime. If you are the owner of your savings account as “Jane Doe, Trustee of the Jane Doe Revocable Living Trust,” your account is no longer in your individual name and thereby avoids probate.  Some, but not all, other types of trusts also avoid probate.

5. Designate Beneficiaries of Certain Assets

Another way to avoid probate is to designate one or more beneficiaries of certain assets.  Assets that have designated beneficiaries pass outside of probate.  You may be familiar with designating your spouse as the primary beneficiary on your IRAs, 401(k)s and life insurance policies. After you pass away, your spouse will complete a form provided by the financial institution to receive the asset.  However, designating beneficiaries can be a trap for the unwary.  If the designated beneficiary is also deceased and there is no contingent (back-up) beneficiary designated, the asset must be probated. For this reason, it is important to periodically review your designated beneficiaries with your legacy planning and estate planning attorney and confirm them with the financial institution.

At Samuel, Sayward and Baler LLC, we will advise you about the best estate plan to avoid a trip to the Probate and Family Court and which is tailored to your needs and goals. Once your estate plan is in place, you may rest easy knowing that you have made it simpler and faster for your family to manage your estate if you become incapacitated or pass away.

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 and Vice President 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. 

March, 2021

© 2021 Samuel, Sayward & Baler LLC

The Importance of Letters of Intent

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One of the purposes of a Trust is to provide a structure for the distribution of assets after the lifetime of the creator of the Trust (the Grantor of the Trust) to the beneficiaries of the Trust who are designated to receive the Trust assets after the Grantor passes away.

In some cases, Trust assets are distributed outright to beneficiaries, meaning the Trustee has no discretion over when or if the beneficiaries receive the Trust assets. As soon as debts and taxes are paid, and the Trust assets are distributed from the Trust to the beneficiaries and the Trust terminates.

However, in many cases, Trusts are created for the purpose of providing oversight and management of the Trust assets for beneficiaries following the Grantor’s death. This may be done because the beneficiaries are minor children. In such cases, the Trustee will use the money for the children to ensure their living expenses are covered, their education is paid for, and the beneficiaries have a chance to mature before they are given control of inherited assets. Or it may be that a beneficiary is not good at managing money, is in a difficult marriage, has spendthrift tendencies or a gambling habit. In such cases, the Trust is created to protect the inherited assets. Control of the Trust assets will remain with the Trustee who will apply the Trust resources for the beneficiary as the Trustee determines to be prudent. Or it may be that the beneficiary has special needs or is disabled in some way, and the Trust assets are there to provide for the beneficiary’s needs in ways that will not disqualify the beneficiary from receiving or being eligible to receive needs-based public benefits.

In all of these circumstances, it is the job of the attorney drafting the Trust to communicate the Grantor’s intent while at the same time making sure that the Trust instructions are flexible enough to allow the Trustee to respond to changed circumstances or unanticipated events that arise following the Grantor’s death. Because of the need for flexibility, mandating specific directions in the Trust document can be unwise, both because they may tie the Trustee’s hands, and also because they may become inappropriate as the beneficiary ages or circumstances change.

On the other hand, the intent of the Grantor of a Trust is extremely important, as it is that intent that should inform the Trustee’s decision-making from how the Trust assets are managed to how the Trustee exercises discretion for the benefit of the Trust beneficiaries.

Enter the letter of intent – an excellent tool that a Grantor can use to spell out his intent and provide guidance to the Trustee without memorializing these intentions in the Trust document. Think of a letter of intent as the Grantor’s private instructions to the Trustee. A letter of intent should be written by the Grantor in the Grantor’s own words. In it, the Grantor should state the reasons for creating the Trust, tell the Trustee about the beneficiaries, and express the Grantor’s wishes for the way the Trustee should use the Trust resources to help the beneficiary.

For example, the Grantor of a Trust that is intended to manage assets for the Grantor’s minor children may express his wish that his children attend private secondary school and that tuition be paid for by the Trustee, that his children be allowed to travel to visit relatives abroad, or be encouraged to study abroad in college, or that his daughter’s love of horseback riding or his son’s passion for the saxophone be fostered and encouraged.

If the Trust is for the benefit of a beneficiary with special needs, the Grantor may want to express wishes regarding the child’s need for specific therapies or enjoyment of certain experiences – for example a yearly trip to Disney World. A letter of intent can also set out a parent’s vision for their child’s future – for example, wanting the child to be able to live independently with a companion, or in a group home setting.

The beauty of a letter of intent is that it can be changed as often as necessary, to keep pace with the Grantor’s changing desires for the beneficiaries without the need to update the Trust document. This can be especially useful where the intended beneficiaries of the Trust are young, and their needs and interests, and the Grantor’s goals for them may change from year to year – for example, if a child’s passion for the saxophone this year turns into a passion for the trumpet, or soccer, or chess next year.

The letter of intent need not be perfect or all encompassing, and as time passes, may no longer be relevant. For example, if the Grantor dies while beneficiaries are young, the Grantor’s intent as expressed in that letter will be frozen in time. However, a Trustee will be able to take some useful guidance from the letter that can be applied as the beneficiaries age.

As a Grantor, writing a letter of intent is not an easy exercise, or one that should be done in haste. However, done thoughtfully and mindful of the fact that it is to be used as a roadmap of your intentions for the people you intend to benefit with the assets you leave behind, it can be a very fulfilling exercise. If the letter is modified as time goes on and circumstances change, you have an opportunity to leave the best possible evidence of your intentions for those you have entrusted with carrying out those intentions after your lifetime.

If you have questions about creating your own letter of intent, please contact our office. We will be happy to assist you.

5 Types of Trusts – How to know which Trust is Right for You

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We include a column in our law firm’s quarterly newsletter called ‘Ask SSB’ in which we answer questions posed by readers. Recently, a reader asked about the different types of trusts and which one was right for her.  As with most estate planning questions, the answer to, ‘what’s best for me?’ is, ‘it depends.’   

There are far more than 5 types of trusts and each type of trust is intended to accomplish different goals.  Read on to learn about 5 types of commonly used trusts. 

  1. Revocable Living Trust.  A Revocable Living Trust is one of the most common estate planning tools.  Reasons for using a Revocable Living Trust include probate avoidance and providing management of assets for beneficiaries (such as young children) who are not yet mature enough to manage assets for themselves or for whom an inheritance should be protected from ‘creditors or predators.’  The basic “players” in any trust are the Grantor (sometimes called the Settlor or Donor), the Trustee and the beneficiary.  The Grantor is the person (or persons in the case of a married couple) who creates the Trust.  The Trustee is the person (or persons) who is in charge of managing the trust assets, and the beneficiary is the person (or persons) who is entitled to receive distributions from the trust.  In a Revocable Living Trust, these three roles are often the same person while the Grantor is alive.  For example, if I create a Revocable Living Trust, I am the Grantor.  I will name myself as the Trustee of the trust and I will also be entitled to receive distributions from the trust.  After the Grantor’s death, a successor Trustee will take over management of the trust assets for the benefit of the successor beneficiaries named by the Grantor to benefit from the Trust assets after the Grantor’s death.

  2. Testamentary Trust.   A Testamentary Trust is a trust created under a Will.  A testamentary trust comes into existence only when the testator (person who created the Will), dies and the Will is probated.  A Testamentary Trust cannot be used to avoid probate. In fact, a Testamentary Trust requires that any assets allocated to it to be subject to the ongoing jurisdiction of the Probate Court.  The primary reason for incorporating a Testamentary Trust into a Will is for long-term care planning purposes.  There is a federal regulation that provides that assets funded into a trust via a Will are not deemed to be countable assets in determining whether the surviving spouse of the testator is eligible for Medicaid (MassHealth) benefits to pay for long-term care. Testamentary trust planning is often used for married couples where one person is at heightened risk of needing long-term care.

  3. Supplemental Needs Trust.    A Supplemental Needs Trust is commonly used to preserve needs-based governmental benefits for a person with disabilities. Many benefit programs have an asset limit of $2,000 for eligibility.  If someone who receives Supplemental Security Income (SSI), for example, were to receive an inheritance of more than $2,000, they would lose the SSI benefit until the amount in excess of $2,000 is spent down in an allowable manner.  Giving the assets away is not an allowable spend down. Transferring excess assets to a first-party Supplemental Needs Trust is an allowable spend down.  The downside to this type of Supplemental Needs Trust is that it must provide that Medicaid benefits received by the beneficiary during his lifetime be ‘paid back’ to the state at the beneficiary’s death.  With respect to a future inheritance this problem is easily avoided by the creation of a third-party Supplemental Needs Trust.  This is a trust created by someone other than the beneficiary.  For example, parents of a child with disabilities, can create a third-party trust for the benefit of their child into which the child’s inheritance would be paid at the parents’ deaths.   A third-party Supplemental Needs Trust does not need to include a payback provision, and assets in the Trust will not cause the beneficiary to lose needs-based governmental benefits.  Assets remaining in the trust at the death of the disabled beneficiary may be distributed to other family members.

  4. Irrevocable Income Only Trust.  An Irrevocable Income Only Trust is often used to preserve assets from having to be spent on future long-term care costs.  Given the very high cost of long-term care, many people worry that if they have the misfortune to end up in a nursing home all of their assets will be spent on the cost of their care and they will not be able to preserve any assets for their children.  The way this type of trust works is that the Grantor of the trust transfers assets (a house or an investment account, for example) to the trust.  The terms of the trust permit only income to be distributed out of the trust to the Grantor during his or her lifetime.  The trust must prohibit the distribution of any principal to the Grantor.  That means, the grantor cannot receive the transferred assets back.  There is a 5-year ineligibility period for long-term care Medicaid benefits following the transfer of assets to this type of trust.   After the 5-year period, the assets in the trust are not deemed to be ‘countable’ for purposes of determining the Grantor’s eligibility for Medicaid benefits to pay for nursing home care costs.  Be aware that this is easier said than done, as MassHealth, the agency that administers the Medicaid program in Massachusetts, does not view such trusts favorably and looks hard to find ways to invalidate them.

  5. Irrevocable Life Insurance Trust.  In addition to long term care planning, irrevocable trusts are created to reduce estate taxes.  There are many types of irrevocable trusts used for estate tax planning: Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trust (QPRTs), Gift Trusts, and Charitable Trusts, to name a few. An Irrevocable Life Insurance Trust (ILIT) is used to remove life insurance from the insured’s taxable estate.  Although life insurance is not income taxable, it is a taxable asset for estate tax purposes.  While this is less of an issue than it used to be under our former federal estate tax laws (our current federal estate tax law means that only the very wealthiest estates are subject to federal estate tax), estate tax is still an issue for people who live in states like Massachusetts which has its own estate tax system. In Massachusetts, estates in excess of $1 million are subject to estate tax.  If someone has assets such as a house, a 401K plan, bank accounts and investments totaling less than $1 million when they pass away, there will not be any Massachusetts estate tax.  However, if that person also has a $1 million life insurance policy, then their taxable estate is $2 million and there will be estate tax due to the Commonwealth of $100,000.   If the life insurance policy was owned by an Irrevocable Life Insurance Trust, then it would not be included in the taxable estate and the estate tax liability would be eliminated.

The best way to determine the Trust that is best for you and your situation is to consult with an experienced estate planning attorney.  If we can help you with that planning, please contact us. 

Attorney Suzanne R. Sayward is a partner with the Dedham law 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 our website at www.ssbllc.com or call 781/461-1020.

January, 2021

© 2021 Samuel, Sayward & Baler LLC

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

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