I see clients every day who sheepishly tell me they have been meaning to update their Wills and Trusts for years, but just haven’t found the time to do so. First things first – let the guilt go. Procrastinating about estate planning is nothing new and is understandable in many ways. Talking about illness, death and taxes is not most people’s idea of a good time (except for us estate planning attorneys). That being said, there are times in life when it’s time to move updating your estate plan off the “to do” list and on to the “done” list. Here are those times:
- You have Young Children
If you have young children, your estate plan needs to do two important things: address the care and custody of your minor children (under age 18 in Massachusetts) should you pass away, and address the management and distribution of the assets you will leave them. Your Will is the document in which you name a guardian for your minor children. The guardian is the person who will decide where your children live and attend school, what type of health care your children receive, and make other day-to-day decisions regarding your children’s care and upbringing. If you do not have a Will naming a guardian, family members or others may petition the Court to appoint someone as your children’s guardian. The Court will have the difficult job of choosing among those who ask to be appointed without the benefit of your input. Don’t lose the opportunity to put your children in the right hands by neglecting to speak with a lawyer who has experience drafting Wills and Trusts for families with young children!
After you have made sure that the right people will be raising your children, you need to make sure that the inheritance you leave them is preserved and protected for them. Creating a Trust that sets out when and for what purpose your children will receive the inheritance you leave them, and names a responsible person (a Trustee) to manage those assets is the best way to do this. Estate planning and Trusts are not just for those with millions of dollars. Think about the assets your children would receive if you passed away – consider your home, your life insurance, your retirement accounts, your savings and investments. Then think about how you feel about your children receiving those assets at age 18. If this makes you uncomfortable, a Trust should be a part of your estate plan. An experienced estate planning attorney can help you set up a Trust for your minor children. While funds are held in trust for your children’s benefit, the Trustee may use them for a child’s education, living expenses, health care, or other purposes you specify.
- The Value of your Estate is more than $1 million
If you are a Massachusetts resident and the value of your “estate” (your home, retirement accounts, life insurance, bank and investment accounts) is more than $1 million, your estate will pay an estate tax to the Commonwealth of Massachusetts at your death unless your assets are left to your spouse or to charity. The estate tax is a graduated tax. With tax rates ranging from 6.4% (for estates just over $1 million) to 16% for estates in excess of $10 million, the tax bill can be significant. Estate taxes and estate planning are closely connected. Whether you are married or single, there are planning strategies that can be employed to reduce the estate tax payable at your death. If you are married, this planning must be done while both spouses are alive.
For example, Jim and Sue have assets of approximately $1.5 million. If all assets are owned jointly or left to the surviving spouse at the first spouse’s death, the surviving spouse will have $1.5 million of assets at her death and will pay Massachusetts estate tax of approximately $70,000. If instead the first spouse to die leaves $700,000 of assets in trust for the benefit of the surviving spouse, the surviving spouse will have a taxable estate of only $800,000 ($1.5 million minus $700,000), and no estate tax will be payable at the surviving spouse’s death. In this example, creating and funding the right type of trust will save Jim and Sue’s family $70,000 in Massachusetts estate tax, while at the same time ensuring all of the assets are available for Sue’s use during her lifetime.
- You Created your Estate Plan Documents before 2012
In 2012, after decades of probate and trust laws that estate planners had come to know and love, the Massachusetts legislature made big changes to the laws that govern Wills, probate and Trusts in our state. These changes in the law were favorable in many respects. Although these changes did not make Wills and Trusts created prior to 2012 obsolete, the law did change terminology (Executors are now called Personal Representatives) and also gave us the opportunity to streamline and customize in many respects the way Wills and Trusts are administered after death. If you have estate plan documents that were created before 2012, it is a good idea to have those documents reviewed, and consider updating them to include some of the new administrative provisions that will make things easier for your fiduciaries and your heirs after your death. While you are at it, you can also include digital estate planning provisions that give your fiduciaries necessary authority to deal with your digital assets (email accounts, photo storage accounts, social media, online banking, etc.) if you become incapacitated or pass away. This will protect your fiduciaries from running afoul of federal “hacking” laws that do not look kindly on unauthorized access to online accounts, even if the person has your username and password.
- You have Significant Wealth in Retirement Plans
An important estate planning concept to understand is that your Will and Trust do not necessarily control all of the assets you own at your death. First, assets that have beneficiary designations – such as life insurance policies, annuities, and retirement accounts (IRA, 401k) – will be paid to the beneficiary you have designated at your death, regardless of the provisions of your Will or Trust. For this reason, a crucial part of a comprehensive estate plan is to carefully review how beneficiaries are designated on these types of assets, and be thoughtful about making any necessary changes. Second, retirement accounts are subject to their own, complicated set of rules regarding how and when distributions from those accounts will be made to the beneficiaries you have designated. These rules are about to change when Congress passes the SECURE Act, which is expected to happen when Congress returns to session in September. If you have significant assets in a retirement account, you should understand how these new rules will impact the distribution of these funds to your beneficiaries, and if necessary, make appropriate plans to manage those accounts for those who may not be capable of managing that wealth on their own, with an eye towards minimizing the income tax that will be payable on those distributions. Finally, keep in mind that these assets are still considered part of your estate for estate tax purposes. The estate tax provisions of your Will and Trust will need to specify whether the recipient(s) of those assets, if different (or in different proportions) from the beneficiaries of the assets controlled by your Will and Trust, will pay their share of the estate tax in proportion to what they receive.
- You are Concerned about the Cost of Long-Term Care
Estate and tax planning can be inconsistent with long-term care planning. The estate plan you created 15 or 20 years ago when your family was young is most likely no longer adequate for the issues your estate plan should address as you age. It is important to get educated about issues relating to long-term care while you are still healthy and able to take whatever long-term care planning steps may be necessary. An experienced estate planning and elder law attorney can help you think through questions like – What is your plan if you or your spouse need care? Do you intend to stay in your home? If so, how should it be owned? Do you intend to move to a different state to be near children, or to a CCRC? Do you have or should you look into purchasing long-term care insurance? Will you be or do you wish to be eligible for public benefits to pay for long-term care? Are there planning steps you should take now to position yourself to be eligible in the future? What will public benefits pay for and what won’t they pay for, and is eligibility for those benefits the best planning strategy? Depending on your answers to these questions, your estate plan can be updated to plan appropriate for your future. In addition to these issues, the importance of a good Power of Attorney (for financial decision-making) and updated health care documents (such as a Health Care Proxy) cannot be overstated.
Take the time to consider whether your estate plan is due for a review and update. If you have never created an estate plan, now’s the time! Put your mind at ease, cross this important item off the “to do” list, and contact an experienced estate planning attorney today to get the process started! You will be glad you did.
Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and currently serves on the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
© 2019 Samuel, Sayward & Baler LLC