For many clients, signing their estate plan documents (Wills, Trusts, Powers of Attorney, etc.) brings a sense of relief and satisfaction -in  accomplishing an important life task.  However, signing the documents is often not the last task in the creation and implementation of an estate plan. Read on to learn about five steps that must be taken following the execution of the documents to ensure the success of your plan.

1. Distribute copies of your health care documents.  Documents expressing wishes regarding end-of-life-care and instructions regarding medical treatment are a vital part of every estate plan.  In Massachusetts, these often consist of a Health Care Proxy and a Living Will.  A Health Care Proxy is the legal document used to appoint the people who will make health care decisions for you if you are not able to so.  The appointed individuals are called your Health Care Agents.  A Living Will is not a statutory document in Massachusetts but is often used as a way to express a person’s wish that extraordinary medical measures not be used to prolong life in circumstances where death is imminent. Once signed, copies of these documents should be provided to your Health Care Agents and a copy of your Health Care Proxy should be given to your primary care physician’s office as well as to any other doctors who regularly treat you.

2. Update beneficiary designations.  While Wills and Trusts are the core of an estate plan, you will be remiss in your planning if you don’t review the beneficiary designations on your life insurance, retirement accounts (IRAs, 401ks, 403bs, etc.), annuities and the like to ensure they are in accordance with the rest of your plan, and are updated when necessary.   Assets that have named beneficiaries do not pass in accordance with the terms of the owner’s Will, but instead will be distributed by the life insurance company or financial institution to the people who are named as beneficiaries on the particular policy or account when the owner dies.  In my experience, it is not uncommon for clients to discover that the beneficiaries named on these assets include a former spouse or the client’s parents or siblings, when the intent is that these assets pass to their current spouse, their children, or to their Trust.  Also, because there can be tax implications in connection with designating beneficiaries of qualified retirement accounts (IRAs, 401ks, etc.) and annuities, it is important to follow the recommendations of an experienced estate planning attorney when making these designations.

3. Fund your Trust! If you take the time and trouble to create a Revocable Living Trust as part of your estate plan, then follow through and retitle your assets as directed by your estate planning attorney.  Two of the main reasons for creating Trusts include probate avoidance and estate tax savings.  However, your Trust will not achieve these goals if you do not change the ownership of your assets during your lifetime from your individual (or joint) names to the name of your Trust.  There is no question that this can be a time-consuming task since it may involve meeting with a customer service representative at the bank, calling financial institutions to determine the process for making the change, completing the paperwork, and then following up with the companies to confirm that the changes have been properly instituted.  However, these steps are essential to the success of your plan.  If you are not able to accomplish the trust funding tasks, contact your estate planning attorney to obtain assistance.  Many estate planning law firms offer trust funding services.

4. Real Estate issues. You may be familiar with the phrase, “all real estate is local” used by real estate brokers to remind folks that the market conditions in one town are not necessarily the same as those in the next town.  The same holds true from state to state with respect to the legal aspect of transferring real estate.  This is because local “quirks” such as deed preparation, how the transfer may impact the availability of property tax exemptions, homeowner’s insurance coverage, or title insurance coverage must be considered whenever real estate is transferred.  As such, a lawyer who is licensed to practice in the state where your non-Massachusetts property is located should be engaged to prepare and record the deed and other documentation necessary for conveyance of that property into a Trust or otherwise as required by your plan.  This will sometimes cause clients to suggest that they will leave that property out of their Trust, especially if the property is not a high value asset, such as a timeshare interest or an unimproved lot of land.  This is absolutely the wrong approach.  Not only will that mean that the out-of-state property will need to be probated, it will need to be probated in the other state.  I have had situations where the cost of probating non-Massachusetts property exceeded the value of the property.  Retitling out-of-state property into the name of the Trust will avoid the need for an out-of-state probate, and is worth the additional expense of hiring a local attorney to accomplish the conveyance.

5. Update your plan as needed. Your estate plan is a work-in-progress because change is a fact of life.  Family members may marry, divorce, have children, become disabled, or die.  You may come into wealth, or suffer a reversal of fortune.  The tax laws will change, for better or for worse.   Your estate plan should be reviewed and updated on a regular basis to ensure that it continues to represent your wishes for yourself and your family.

I want to give a shout-out to my Dedham pals Mike and Paula whose perseverance in overcoming the trust funding challenges they encountered inspired this article – great job guys!

April 2015

Attorney Suzanne R. Sayward is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts.  She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020. 

Long-Term Care Planning—A Reality Check

For clients in their 60’s and 70’s, looking ahead to the potential need for long-term care is an important topic you should be discussing with your financial advisor and estate planning attorney.  Like any other planning topic, education is the first step.  Take the time to learn about the different ways people can receive care, and the different options available to pay for needed care. Then, make sure you do not reach conclusions based on what you hear on the radio or what your neighbor or your mother’s best friend did – look at your own family, financial and health situation, your own family history, and determine what type of plan is right for you.  We have all seen and heard the ads encouraging people to plan before it’s too late and before they “lose everything” to the nursing home.  Sometimes planning to protect assets is necessary and appropriate, but a threshold question is “Who are you protecting assets for?”  Although it may feel selfish, when it comes to long-term care planning, you need to think of yourself first.  Keeping control of your assets may the best way for you to ensure you will receive the care you need, where you want to receive it.  For some people, long-term care insurance is an appropriate part of their long-term care plan.  As with long-term care in general, education is the key before you reject long-term care insurance out of hand because it is “too expensive.”  To get you started, read this article where our own Steve Samuel and local long-term-care insurance expert Tobe Gerard are quoted.

Senior Wellness Event—4/16/15 at Cardi’s Furniture Community Room in South Attleboro

What matters most to seniors in the US? Don’t miss a FREE and informative event with key industry experts in estate and long-term care planning, home care and assisted living facilities, rehab and skilled nursing facilities, durable medical equipment and much more!  SSB’s Senior Associate, Pamela B. Greenfield, will present on critical estate planning documents for seniors.  For more information click here.

Published April 2015

As an estate planner, I have the opportunity to observe all varieties of family dynamics.  No matter how much parents want their children to get along, this is not always the case.  Sometimes, unpleasant family dynamics are the result of longstanding issues between siblings, or between parents and children.  Other times they are the result of a recent specific incident or situation; for example, one child is resentful that she is providing assistance to an aging parent while another child who resides out of state provides little assistance but does not hesitate to criticize what her sister does for their parent.  Sometimes these disputes simmer below the surface and sometimes they boil up into full blown hostilities.  In all cases, these issues can stand in the way of family members working together cooperatively to make necessary decisions regarding family matters such as how to divide up the contents of a parent’s home or where an elderly parent should receive care.

Most people know that mediation is a method to help people resolve disputes, and that it is often used as an alternative to litigation in business disputes or divorce.  A less well known but growing area in the mediation world is Adult Family and Elder Mediation, which helps families reach consensus on family issues.  Here are five things you should know about family and elder mediation:

1. How Does Mediation Work?

Mediation is a problem-solving process that is facilitated by a trained professional mediator who is neutral and impartial.   Family members voluntarily agree to come together and work with a mediator to resolve a particular issue or discuss a difficult situation.  The mediator speaks separately with each family member and then facilitates one or more joint family discussions.  During the mediation process, the mediator will help the family identify topics and issues important to each of them and assist the family to discuss them in a productive way.  Mediation considers each participant’s needs, concerns, goals, and priorities, and each participant has an opportunity to share her ideas and to be heard.  The mediator will also help the family identify the information the family needs to make an informed decision about the topic in question (including guidance from elder law and estate planning attorneys, accountants, financial planners, geriatric care managers, or other substantive experts).  Participants in mediation make all substantive decisions together, by consensus.

2. What Types of Issues Can Be Mediated?

Mediation can help families resolve all types of issues that arise in a family setting.  For example, topics for discussion and resolution may include:

• family members’ caregiving roles, responsibilities, and/or compensation
• financial oversight and management
• selection of residential living options
• estate planning
• estate disputes
• selection of who will serve as power of attorney, health care proxy and/or trustee
• family vacation homes
• inheritance of valuable or treasured family collections, photos, heirlooms, jewelry or other items
• whether an elderly parent should continue to drive
• choices regarding end-of-life care
• how the family communicates and shares information.

3. Why Should My Family Consider Mediation?

Unresolved family issues can result in long-lasting family rifts.  Mediation helps families preserve their relationships and diffuse difficult family dynamics.  The process allows families who have difficulty resolving family issues to reach a consensus and move forward.  The mediator keeps the conversation on track and provides a neutral and safe forum for each family member to share thoughts and concerns on a particular issue and to listen to fellow family members do the same.  Mediation helps to avoid crisis-driven decision-making and gives families tools for resolving future issues that arise.  Mediation is also less costly, less time consuming and less stressful than litigation or other adversarial processes.

4. What Can We Hope to Achieve?

With the help of a trained mediator, the mediation process can help family members hear one another more easily and more fully understand one another’s perspectives, even if they do not always agree.  Over the long term, families can reduce stress and tension, improve communication with each other, and learn to work together productively to address issues as they arise. A mediator can help a family to develop strategies for working together productively. Not only does this help preserve family harmony, but it allows families to make decisions that are in the best interest of their aging parent, without judgment being clouded by individual agendas and issues not relevant to the problem at hand.

5. How Do We Take the First Step?

If you are interested in exploring mediation for an issue or situation that is affecting your family, contact an experienced family mediator.  A good place to start is the website of the Massachusetts Council on Family Mediation (www.mcfm.org), which allows you to search for a family mediator in your area.  From there, you can consult with the mediator to determine if they specialize in the area in which you require assistance.  A local firm that specializes in issues common to elders and their families is the Centre for Mediation & Dispute Resolution in Wellesley, which can be found at www.cmdronline.com.

March 2015

Attorney Maria C. Baler is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information, visit www.ssbllc.com or call (781) 461-1020. 

Many times when clients come to see me, they have in their minds that they need to create an irrevocable trust or give away their assets in order to protect those assets from having to be spent down on their future long-term care costs.  Most of the time, they don’t want to give up control and access to their assets, but they have been inundated by radio advertising and well-meaning friends and family members who tell them they must do this or “they will lose everything to the nursing home.”

The good news is that for married couples who are primarily concerned about being able to take care of themselves and each other (as opposed to being primarily concerned about leaving assets for children or other beneficiaries), Massachusetts law provides some pretty good protections even in cases where no advance planning has been done.

For example, many people believe that if one spouse needs nursing home care, the home must be sold to pay the nursing home.  This is not true.  The community spouse may continue to live in the home; the home does not need to be sold to pay the nursing home bills.

In addition to the home, the community spouse may retain additional assets without affecting the nursing home spouse’s eligibility for long-term care Medicaid benefits.  This is called the Community Spouse Resource Allowance (CSRA) and the amount is adjusted each year.  For 2015, the amount of the CSRA is $119,220.

If the couple’s assets exceed the amount of the CSRA, there is additional planning permissible under the regulations which can allow the spouse in the community to retain assets in excess of the CSRA limit.

There are also protections for the community spouse’s income needs in the event one spouse is in the nursing home.  In general, when a person is receiving Medicaid benefits to pay for long-term care in a nursing home, almost all of the individual’s monthly income must be paid to the nursing home.  For a couple where the wife stayed at home and took care of the children and the husband was the breadwinner for the family, this can pose a real problem if the husband needs nursing home care.   The wife’s Social Security benefit will be quite low and she will be unable to pay her expenses if she does not have her husband’s income.  The Medicaid rules address this situation by allowing the wife to keep the husband’s income up to a certain amount.

While these are valuable protections, it is vitally important that married couples who are concerned about paying for long-term care obtain advice about their particular situation and how the rules will impact them if one of them needs long-term care.  Long-term care planning is unique to every situation.

If protecting assets for children or other beneficiaries is a priority, there is planning that can be taken to protect assets against future long-term care costs.  That planning often means removing assets from the ownership or control of the parents, or severely limiting the parents’ access to those assets.  Further, it is vital to understand that transferring assets to children or to an irrevocable trust will result in a disqualification period during which the parents will not be eligible for Medicaid benefits for which they would have been eligible if they had not made the transfers.  Consequently, the planning necessary to protect assets for children is often not in the best interests of the parents.  As always, it is important to obtain the advice of an experienced elder law attorney who has your best interests in mind before making any decisions about long-term care planning.  Call us to set up a time to learn about your long-term care planning options.

Published March 2015

Estate planners see the world through a different lens.  When the news broke of the tragic death of a young and gifted Boston cardiac surgeon last week, my first reaction was sadness and sympathy for his family. My next thought was: “I hope he has a good estate plan.”  What I meant was – Did he have a Will that nominated his wife as legal guardian and conservator of their minor children?  Did he have life insurance that will provide his family with funds to continue to live the life they are accustomed to and to ensure his children can be educated?  His wife, also a physician, may earn a good income, but will she be able to continue to work while raising four small children?  Was planning done to shelter funds from estate tax?  Were trusts put in place to manage assets for his children in the event their surviving parent dies unexpectedly?

These are admittedly unusual things to think about when hearing of a stranger’s death, but that’s where the estate planner’s mind goes.  Over the years that I have been planning for families, I have seen the benefits of planning when the death of a young parent occurs.  Because this is thankfully not a common occurrence, planning for the death of parents with young children may feel like a theoretical exercise.  However, the impact of the failure to plan if death does occur at a young age, especially if young children are left behind, can be significant and long-lasting.

From a legal perspective, the two most important things an estate plan can do for a young family are:

1. Establish Wills that name a guardian who will care for and make decisions for children until they turn 18, when they become adults in the eyes of the law. Creating a Will gives a parent the opportunity to choose a child’s guardian.  Without a Will, family members, friends, or others who believe they should fill that role will apply for the position, and a judge will decide who the child’s guardian will be.
2. Establish a Trust that will allow inherited assets to be managed and disbursed to children at appropriate ages. This ensures that a child will not have full control of an inheritance at age 18, and that funds will be available and can be used for college, the purchase of a first home, a wedding, graduate school, and other important purposes, rather than being spent in less appropriate ways. A trust can also protect assets from creditors, divorcing spouses and other liabilities common to young adults who may not be mature enough to handle money appropriately.

Read more about how an estate plan can benefit a young family in Five Planning Steps You Should Take for Your Children.

Hand in hand with legal planning is the financial planning that young families should do.  An important component is making sure a parent has sufficient life insurance to replace the parent’s income so that the family’s lifestyle and ability to provide for their children’s future will not be compromised.

Things change quickly in a young family’s life.  Estate planning can seem like a daunting task.  I advise young families to plan for the present, and update their plan as their lives change and their children grow older.  It is most important to create a plan that will protect your family now, should the unexpected happen.

Published February 2015

In my practice, most clients leave their estates to their children in equal shares.  When clients tell me they intend to give a larger share of the estate to one child, or leave one child’s share in trust while the shares for the other children will be distributed outright to them, I always take the time to thoroughly investigate the reasons for that decision.  In my experience, treating children differently not only significantly increases the likelihood of a Will contest, it often causes a serious, and sometimes irreparable, breach in the relationships among the siblings after the parents have passed away.

There are valid reasons for parents to treat children differently in their estate plan, including planning for a child who has special needs, or protecting an inheritance for a child who is in the midst of a contentious divorce or bankruptcy.  However, there are also less compelling reasons that parents give for treating children differently in their estate plan.  Here are five of those reasons that just might deserve further thought.

1. You don’t like the way your child spends money. It is not unusual for parents to tell me that they don’t approve of how a child spends money.  They may express disapproval about the size of the child’s home (too big!), the type of car she drives (too expensive!), or the number of vacation trips she and her family go on (too many!).  However, if your child is not asking you or other family members for money to pay her debts, is not filing for bankruptcy, and her house is not in foreclosure, you may want to reconsider whether treating her differently than her more thrifty siblings is worth the trouble and upset it is likely to cause when you’re gone.

2. You don’t like a child’s spouse. In my experience, most parents are quite fond of their children.  However, they are often less fond of their children’s spouses.  That antipathy can cause clients to think about omitting the child as a beneficiary or leaving that child’s inheritance in trust with restrictions to the funds to reduce the possibility of  the disliked spouse benefitting from the inherited assets.  Before including such a provision in your Will or Trust, consider discussing these plans with the child in question.  If your child discloses that his marriage is troubled and may in fact be heading toward a divorce, he may be in agreement with a plan that leaves his share in trust.  If your child has a happy marriage and broaching the subject with your child makes him angry and upset, you may want to reconsider.

3. You had a falling out with a child. During the course of a long life, it is natural that your relationships with your children will have their ups and downs.  In particular, when one parent dies, the relationship between the surviving parent and children can change.   In general, be cautious about changing your Will to omit a child in response to a falling out with a child or a recent estrangement. Things could change in the future.  The legacy of an estate plan should be based on a lifetime of relationships, not the last six months.

4. Disparity in your children’s wealth. It is a rare family in which all of the adult children have the same financial circumstances.  Whether through hard work, advanced education, an advantageous marriage, or just plain good luck, some children are financially well-off.  Conversely, whether because of poor choices, a nasty divorce, medical issues, or just plain bad luck, there are children who are financially strapped.  Clients will sometimes tell me that they are thinking about omitting the well-off child because  “he doesn’t need it and the others do.”  When I hear this, I am quick to caution clients about this for several reasons.  First, how do they know the “rich” child doesn’t need the money? Would the child agree?  Second, circumstances change.  The child who is well off today may experience a reversal of fortune if his business fails, he becomes disabled, or the stock market crashes.  Third, it’s not always about the money.  I recommend that clients who are considering omitting a child whom they believe to be financially well-off consider discussing the idea with that child to gauge his reaction before going ahead with this distribution plan.

5. A child provides care to an ailing parent. Sometimes there is one child in the family who becomes the primary caregiver for an ailing parent. In those cases, the parent may want to reward that child by leaving her a greater share of the estate.  This is one of those situations where it may in fact be appropriate to handle that child’s inheritance  differently from her siblings.  This may be especially so in cases where a child has sacrificed her own career or family plans to care for the parent.  However, before deciding to favor the caregiver child over the other children, the parent should consider a family meeting to let the other children know her decision and the reason for it.  Learning about the terms of the estate plan from the parents directly means that it will not be a surprise to the children at the parents’ deaths when they are already emotionally vulnerable.

One of the reasons for creating an estate plan is to make it as smooth and easy as possible for your family to carry out your wishes at your death.  Leaving assets unequally among children often throws a monkey wrench into to situation.  If you are intent on leaving more, or less, to one of your children, or making the manner in which a child receives his inheritance different from his siblings, consider opening the lines of communication sooner rather than later and discussing the plan with your child or children during your lifetime.  Doing so can greatly reduce the likelihood of a Will contest, or an irreparable breach in your children’s relationship following the parents’ deaths.  If this is a topic you do not want to talk about with your children, leave a letter for them explaining your reasons for the disparate treatment.  Such a personal missive can go a long way toward healing hurt feelings and reducing the anger and confusion that often arise in these situations.

February 2015

Attorney Suzanne R. Sayward is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts.  She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020. 

 

January is often a time for making resolutions for the New Year or looking back on the notable events of the prior year.  In the world of estate planning, elder law, and planning for persons with disabilities, 2014 brought several notable changes.

In June, the Supreme Court of the United States issued its opinion in Clark v. Rameker, deciding that an inherited IRA is not entitled to the same creditor protections that other retirement accounts receive under the bankruptcy laws.  This is important in the estate planning arena as many parents are concerned about protecting their children’s inheritance from creditors such as a divorcing spouse, a lawsuit, a bad business investment, or bankruptcy.  Prior to the Rameker decision there was uncertainty about whether or not inherited retirement accounts are creditor-protected assets.  Although the Court did not decide the case in the way we had hoped, knowing that inherited retirement accounts are not automatically protected means that individuals who have large retirement assets to pass on at death can take steps during their lifetime to protect those assets from their beneficiaries’ creditors by creating a trust specifically designed to provide asset protection for qualified retirement assets.   Check out my article in the Samuel, Sayward & Baler LLC July newsletter to read more about this.

In August, Governor Patrick signed the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (UAGPPJA)  into law.  The Act, which is now the law in 40 states, means that Massachusetts state courts may recognize the authority of an individual who was appointed as guardian (the person who makes medical or residential decisions) or conservator (the person who is in charge of financial matters) in another state.  Prior to the enactment of this law, if a New York resident had a conservator appointed for her by a New York court and that conservator needed to sell the individual’s Massachusetts real estate, Massachusetts law required that someone be appointed as conservator by the Massachusetts probate court in order to have the authority to sell the property.  The Act also includes provisions addressing issues that can arise when family members try to use the courts to improperly gain control over an elderly relative.  Visit MassNAELA to learn more about UAGPPJA. Of course, the better option in all cases is to prepare for the possibility of future incapacity by creating and maintaining a comprehensive, up-to-date Durable Power of Attorney and Health Care documents which are effective in states in which you own property or anticipate that you may live in the future.

Lastly, President Obama signed the ABLE Act into law just last month (December, 2014). The ABLE Act has also been enacted in Massachusetts.  ABLE, which stands for Achieving a Better Life Experience, allows for tax-free savings accounts to be established and funded for individuals with disabilities.   Many governmental benefit programs which provide services to people with disabilities, including medical coverage, require that the applicant have very limited resources.  Not only does this limit a person with disabilities from saving for his or her future, it means that making a gift, or leaving an inheritance, to a person with a disability can cause the recipient to lose important benefits.  At the same, individuals with disabilities and their families often struggle financially.  The ABLE Act is intended to mitigate the harshness of the eligibility rules.   Although signed into law in 2014, the details of the federal law still need to be hammered out and this is expected to occur in 2015.

Happy New Year and best wishes for a happy, healthy 2015!

Published January 2015

In addition to the usual gifts given during the holiday season, the end of the year is a time when many people make monetary gifts to family members and to charity.  Gift giving makes the giver and the recipient feel good.  From an estate planning and tax planning perspective, gifts are generally a good idea as well.  Here are five things you should know about gift giving:

1. Gift Tax Rules on Gifts. When making gifts, you must keep the federal gift tax rules in mind (there is no Massachusetts gift tax).   An important concept is the “annual exclusion,” which is the amount a person may gift to another person in a calendar year without gift or other tax consequences.  In 2014, the annual exclusion amount was $14,000 and this will not change in 2015, although the annual exclusion is indexed for inflation and periodically changes in January when appropriate.

Gifts of more than the annual exclusion amount in a calendar year result in no income tax implications to the gift recipient.  However, such a gift is considered a “taxable gift” by the gift giver, who must file a federal gift tax return reporting the gift made.  Under current gift and estate tax rules, a gift giver may give up to $5.43 million (in 2015) of taxable gifts during her lifetime without paying a gift tax; however gift tax returns must be filed to allow the IRS to keep track of the taxable gifts made over the gift giver’s lifetime.  At the gift giver’s death, taxable gifts made during her lifetime must be reflected on the federal estate tax return filed by her estate, if one is required to be filed.  The value of each taxable gift at the time the gift was made is part of the federal estate tax computation done to determine the amount of federal estate tax payable at the gift giver’s death.  For Massachusetts estate tax purposes, taxable gifts are taken into account when determining if an estate tax return must be filed, but no estate tax is paid on the gifted assets.

Keep in mind that if the gift giver gives a gift of a capital asset, such as real estate or stock, the gift recipient’s basis in the gifted asset for capital gain tax purposes is equal to the gift giver’s basis.  If the gift recipient sells the gifted asset after receiving the gift, he will pay capital gain tax on the difference between his basis and the sale price.  Therefore, before making a gift of highly appreciated property, consider and analyze the gift, estate, and capital gain tax implications.

2. Medicaid Rules on Gifts. If a gift giver is at an age, or has health issues, that could potentially require nursing home care in the next five years, any consideration of gift giving must take into account the Medicaid transfer of asset rules.  Although these rules are often confused with the gift tax rules discussed above, they have nothing to do with each other.  Gifts of any size given within five years of applying for Medicaid benefits to pay for nursing home care will disqualify the gift giver from receiving those benefits for a period of time.  Under the Medicaid regulations, gifts given for a purpose other than to qualify for Medicaid benefits should not disqualify the giver.  In practice, it can be difficult to prove to Medicaid’s satisfaction that the gift was not made with the intent of qualifying for Medicaid benefits.  For this reason, gifts of any size made by a person who is likely to require Medicaid benefits within the five-year period after making a gift should be given with caution.  The average cost of nursing home care in Massachusetts is about $132,000 per year, or $11,000 per month.  Unless a gift giver has sufficient means to pay for the cost of her care from her income or assets, or has long-term care insurance to pay for or supplement other sources of payment for her care, consideration must be given to qualification for Medicaid benefits if gifts are to be made.

3. Tax and Estate Planning Reasons to Make Gifts. Besides giving the gift giver a warm feeling and making the recipient happy, there are other reasons to make gifts.  From an income tax perspective, transferring income-producing property, like stock, reduces the gift giver’s taxable income (i.e. dividends on the gifted stock) and shifts that income to the gift recipient.  If the recipient is in a lower tax bracket than the giver, the income tax payable on that income is reduced.  Making gifts also reduces the value of the gift giver’s overall estate for estate tax purposes.  If the gift giver’s estate is “taxable” (i.e. over $1 million for Massachusetts estate tax purposes, or over $5.43 million for federal estate tax purposes), giving gifts during her lifetime will reduce the estate tax payable by her estate at her death.  For Massachusetts estate tax purposes, the assets on which estate tax is calculated at your death are reduced by making gifts, thereby saving estate taxes for your heirs.  For federal and Massachusetts estate tax purposes, if the gifted asset appreciates in value after the gift is made, that appreciation in value will escape estate tax at the gift giver’s death.

4. Reasons Not to Make Gifts.  Before making a gift, the gift giver should carefully consider whether she can afford it.  The gift giver should not give away assets that she believes she will need in the future to support herself or provide needed care.  Once a gift is made, the gifted assets are out of the giver’s control, and the gift recipient is free to spend, transfer, or sell the gifted assets.  The gift recipient may promise to hold those assets and return them to the giver or pay for the giver’s care with those assets if necessary.  However, the gift recipient may not be able to follow through on those promises, intentionally or unintentionally, due to, for example, divorce, bankruptcy, or creditor issues. This situation can put the gift giver in a difficult situation if care is needed and the giver’s assets or other resources are not sufficient to pay for the care required.  As discussed above, a gift giver should also not make a gift if by doing so she will disqualify herself from receiving Medicaid benefits she may need in the future.  Every family dynamic is different, and some family members who may not have sufficient assets or income to support their own lifestyles perceive others as a resource that can be tapped to support themselves.  Giving assets to others without regard to the gift giver’s future needs is not wise, regardless of the pressure the giver may feel to help loved ones.

5. Charitable Gifts. Charitable gifts have added tax benefits.  Charitable gifts made during the gift giver’s lifetime, in addition to reducing the giver’s taxable estate, will also reduce the giver’s income taxes because amounts given to charity are deductible for income tax purposes.  If charitable gifts are made at death, they will reduce the estate tax payable at death.   When giving gifts to charity, confirm that the charity is legitimate, and understand how much of the gift will be used for charitable purposes rather than the charity’s administrative costs. Consult guidestar.org, www.charitynavigator.org, or www.charitywatch.org for information about charities and how funds are used.

Gifts can be smart for estate and tax planning reasons and are always welcome by the gift recipient.  Be thoughtful about the gifts you make and understand the tax and other implications before you decide to make a gift.  If you are at all uncomfortable about making a gift, take a step back and reassess the situation. If you have questions or are uncertain of the implications of a particular gift be sure to obtain advice from your accountant or estate planning attorney.

January 2015

Attorney Maria C. Baler is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information, visit www.ssbllc.com or call (781) 461-1020. 

It’s hard to believe we are now in December!  November – which passed by in a flurry of leaf raking, turkey and stuffing – was Long-Term Care Awareness Month.  Although it is no longer November, this is a topic worth writing about.

Planning for long-term care is something everyone age 50 and over should have on their radar.  It is just as important as making sure you have an updated estate plan and that your financial house is in order.  Long-term care encompasses care provided in many different settings – for example, in your home, in an assisted living facility, or in a nursing home.  It may surprise you to know that, according to the Commonwealth, a 65 year old man has a 33% chance of a nursing home stay during his lifetime.  For a 65 year old woman, this probability increases to 52%.  It is likely that these probabilities will increase in the future as we all live longer and are likely to need some type of care or assistance.  Here is a U.S. News and World Report article on the topic.

For those of you who are lucky enough not to have come face to face with the reality of long-term care in your personal lives so far, I encourage you to educate yourself about this issue.  Consult with your legal and financial advisors to learn about how you and your family would be impacted if you required long-term care and the steps you can take to plan for it.  The biggest hurdle most people face in planning for long-term care is its cost.  The Commonwealth of Massachusetts’ Division of Insurance publishes a great consumer guide on Financing Long-Term Care, which can be found here.

There are endless ads on the radio and seminars offered in your local hotel ballroom on long-term care planning, usually with an emphasis on Medicaid planning.  Medicaid planning refers to the planning that can be done to allow you to qualify for Medicaid benefits (also known as MassHealth benefits in Massachusetts) to pay for your nursing home care.  Medicaid is a state and federal program that pays the long-term care costs for individuals who meet the eligibility criteria.  You can read more about Medicaid here. There are many strategies that can be used to protect assets from having to be used to pay for long-term care costs.  However, these strategies are not appropriate for everyone, and in many cases can do more harm than good.

Long-term care insurance is an important option which should be considered in long-term care planning.  This insurance will provide an added resource to pay for care that will slow down the rate at which you will have to use your own income and assets.  It could also give you time to do other planning if appropriate.  The cost of long-term care insurance increases with age, making it expensive to postpone the decision to purchase if you decide that insurance is an appropriate component of your long-term care plan.  The cost of long-term care insurance is also dependent on your health, adding an additional risk to postponing the decision to purchase.

The best way to approach long-term care planning is to seek the advice of an experienced elder law attorney who can assess your particular situation, present your options, and help you make the decision that’s best for you.  It is important to note that the decision that’s best for you may not be the one that’s best for your children.  Retaining control of your assets so that you can use them to pay for the care you need in a place you choose may not result in “protecting” assets for your children, but it could ensure you a better quality of life.

Published December 2014

These days, lots of people are all about DYI – from home improvement to income tax return preparation.  While self-sufficiency is an admirable trait, there are some tasks that are best left to professionals, such as oral surgery, and in my house, plumbing.  Even though there are many do-it- yourself Will-form companies out there, estate planning is a process best left to professionals. Here are five  questions to test your estate planning knowledge before you decide to take on the design and creation of your own estate plan.

QUESTIONS

1. True or False. A Durable Power of Attorney remains in effect for three months following the death of the principal.
2. True or False. Spouses have the legal right to obtain medical information about each other.
3. True or False. You can’t legally disown a child so it is a good idea to leave your child at least $1.00 in your Will.
4. True or False. A Trust is only appropriate for individuals who have more than $500,000.
5. True or False. Probate is not necessary if you have a Will.

ANSWERS

1. False. When the principal, or maker, of a Durable Power of Attorney dies, his or her Power of Attorney becomes invalid and the person designated as the attorney-in-fact no longer has any legal authority to access the principal’s bank accounts or other assets.
2. False. A spouse does not have an automatic right to obtain medical information just because of his or her status as a spouse.  In fact, there is a federal law, the Health Insurance Portability and Accountability Act (HIPAA), that prohibits a medical provider from sharing information about a patient with anyone else without the patient’s permission, and that includes a spouse.

Every competent adult in this country has the legal right to designate a person to make medical decisions if unable to do so.  In Massachusetts,  the document used to do this is called a Massachusetts Health Care Proxy. You may also grant family members, or others, authority to speak with your medical providers and obtain information about your medical situation by signing a HIPAA Authorization form listing the individuals to whom you grant that permission.

3. False (for the most part). As a general rule, a parent has no legal obligation to leave an inheritance, not even $1.00, to an adult child. Regardless of whether or not you intend to disinherit a child, it is a good idea to identify all of your children in your estate plan documents and to state your intention to disinherit a child.   The reason for that is the law will grant rights of inheritance to a child who is omitted because of mistake or inadvertence.  The classic case is where the parent believes a child is deceased but the child is found to be alive after the death of the parent.
4. False. While the value of an estate is one factor to consider when deciding whether or not to create a trust as part of an estate plan, it is not the only consideration.  For example, if you have minor children, a beneficiary who is a person with disabilities, a beneficiary who receives, or may receive, needs-based public benefits, children from a prior marriage, beneficiaries with creditor troubles or are in a shaky marriage, or have beneficiaries whose money-management skills are weak, a trust is an excellent vehicle to protect assets and provide management oversight.
5. False. Whether or not an asset needs to be probated is solely a function of how that asset is owned by the deceased.   For example, if I have a bank account in my name alone when I die, the bank will not simply give the money to my husband or my children.  The Personal Representative (formerly called Executor) of my estate is the only person who has the authority to access the funds in the account.  Further, it is not sufficient for the person who I have named as my Personal Representative in my Will to show up at the bank with my Will in hand and demand access to my account.  My Personal Representative must file for probate and obtain Letters of Authority from the court, which will prove that he has the authority to access the account.

If you have answered all of the questions correctly, does that mean I recommend that you create your own estate plan? Of course not!  Everyone’s situation is different and in my experience, each person’s situation has its own unique “twists” which are usually not adequately addressed by so-called “canned” estate plan documents.

One last question – True or False:  If you want to make sure that your wishes are carried out, that your family is cared for, and that your chosen designees are making  decisions on your behalf, you should engage the services of an experienced estate planning attorney.  True!

December 2014