Estate Planning

When should I update my estate plan?

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Clients often ask how often they should review and update their estate plan.  Here’s a quick reference guide of when you should call us to schedule a time to review your estate plan:

  • It has been more than five years since you last reviewed your plan
  • Your health has changed
  • The health of one of your beneficiaries has changed
  • One of your named fiduciaries (i.e. Personal Representative, Trustee, Attorney-in-fact, Health Care Agent) has died or is no longer the right choice
  • Your marital status has changed
  • You received an inheritance
  • You have a new baby
  • Your child(ren) reach the age of majority – click here for Attorney Poole’s blog about the three documents that are vital for your 18 year old child
  • The value of your assets has changed significantly

The above list is not meant to be exhaustive as everyone’s situation is unique.  If you are wondering if it’s time to come in for an update, it probably is.  Call Jennifer Poles at our office to schedule an appointment with one of our attorneys to see if any updates are necessary.

July, 2018

© 2018 Samuel, Sayward & Baler LLC

Congratulations to Your High School Graduate!

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Summer is now in full swing after the end-of-the-school-year excitement and celebrations for recent high school grads!  Many parents will soon begin the process of preparing their young adult for college, including spending lots of time (and money!) at Bed, Bath & Beyond purchasing items for the dorm room, classes, and extracurricular activities.   In the frenzy of preparations don’t overlook the three legal documents that are vital estate planning for these young adults.  The basic estate plan for young adults should include a Durable Power of Attorney, a Health Care Proxy and a HIPAA Authorization.  These will ensure that parents have the legal authority to make financial and health care decisions for a child who is ill, injured, traveling, or residing outside of the country.

At Samuel, Sayward & Baler LLC we want to make it easy for our clients and their families to put these estate planning documents in place. After discussing this with your child, please contact Jennifer Poles at 781-461-1020 or poles@ssbllc.com to schedule a telephone call between your young adult and me. During the call, I will collect information, describe the documents, and guide your child through the necessary decisions. I will meet with your young adult to review and sign the documents. Mention that you read this article when you contact Jennifer and you will be entered into a raffle for a $100.00 gift card to help with some of those pre-college purchases.

Completing an estate plan before going to college is a tradition in my family – my grandfather had my mother complete an estate plan and my mother had me do the same when I was 18 years old.  I would be happy to assist you and your young adult with starting (or continuing) that tradition!

July, 2018

© 2018 Samuel, Sayward & Baler LLC

Five Questions to Ask Before Creating an Irrevocable Trust

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Some of the most frequent questions I hear from clients in my estate planning law practice have to do with whether they should create an irrevocable trust.  Here are five questions to ask when deciding whether or not an irrevocable trust would be a good addition to your estate planning strategy.

  1. What is your reason for creating an irrevocable trust?  Before jumping in to create an irrevocable trust, talk to your estate planning attorney about your goals.  The two most common reasons for creating an irrevocable trust are 1) to save taxes; and, 2) to preserve assets from the reach of creditors, including long-term care costs.  Some typical tax savings trusts include irrevocable trusts that hold life insurance, trusts that pass assets to charity, or that are used to gift assets to family members.  Irrevocable trusts that are created for long-term care planning purposes typically provide for an income stream to the trust maker but forbid any access to the principal of the trust.
  2. Do you have the ‘right’ assets to fund an irrevocable trust?  If your goal is to preserve your assets against long-term care costs but your assets consist mostly of IRAs or other qualified retirement funds, transferring those accounts to an irrevocable trust is not a good plan.  The transfer of an IRA out of the name of the IRA owner is a taxable event.  For example, if you have a $500,000 IRA and you move it into the name of your irrevocable trust you will be deemed to have $500,000 of taxable income. This will mean an income tax bill in the neighborhood of $150,000 or so – not a good result.
  3. Will you need to have access to the principal?  A hallmark of most irrevocable trust planning is that once you transfer an asset to the irrevocable trust, you cannot get it back.  Understandably, many people are reluctant to transfer their money or investments to an irrevocable trust.  Transferring your home to an irrevocable trust can be a good way to protect property from medicaid and preserve the value of the home from having to be spent down on long-term care costs without really impacting your day to day life.  You may continue to live the home and even pay all the bills.  If the property is rental real estate, you can continue to receive the net rental income.  However, if the property in the irrevocable trust is sold, you would not have access to the sale proceeds, which would continue to be held in the irrevocable trust.
  4. What are the consequences of transferring your assets to an irrevocable trust?   Before transferring assets to an irrevocable trust, you should understand the consequences of the transfer on your estate plan and your inheritance planning. (See number 2 above.)  For example, even though the transfer of a home to an irrevocable trust will not result in an immediate tax consequence, there could be later tax consequences. Such a transfer may mean that the inheritors of the house will not be entitled to a stepped-up basis in the property when the trust maker passes away.  This may result in a significant capital gain tax upon the sale of the property that would have otherwise been avoided if the property had not been transferred or if the trust included certain provisions.  Similarly, if the home is sold while the person who transferred it to the irrevocable trust is still living, there may be capital gain tax payable on the sale that would have been avoided if the property had not been transferred to the irrevocable trust.  There can be non-tax consequences as well.  Transferring a home to an irrevocable trust usually makes it difficult to obtain a mortgage or home equity loan on the property.  This could impact the ability to make repairs or improvements to the property.
  5. Is there another way to accomplish your goal?  Since creating and funding an irrevocable trust can be complex (and expensive), explore whether there are other options for achieving your desired result.  For example, gifting the home, vacation home, or rental property directly to children subject to the parent’s right to live in the property (typically called a life estate deed) rather than to an irrevocable trust, might be a better way to preserve that property from spend down for long-term care in your situation.  If your goal is to benefit charity, maybe a donor-advised fund through one of the larger brokerages may be a simpler, easier option than creating an irrevocable charitable trust.

As with all estate planning, whether or not a particular type of trust or other planning is right for you depends entirely on your unique situation.  Speak with an experienced estate planning attorney, a lawyer for wills and trusts, about your situation and your goals and don’t forget to ask the above five questions.

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

July, 2018

© 2018 Samuel, Sayward & Baler LLC

An Estate Planning Lesson from Roseanne Barr?

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Regardless of whether you agree or disagree with the decision to cancel the Roseanne show following Roseann Barr’s racist tweet of last month, I think everyone can agree that her failure to be thoughtful about her actions led to her downfall and the downfall of her very successful show.  While there may be debate about the appropriateness of the punishment Roseanne received (too harsh? too light?), most people feel badly for Roseanne’s co-workers who will pay the price for her bad behavior by losing their jobs.  They are no doubt angry and feel betrayed by her. The same is true when it comes to estate planning strategies; we betray the ones we care about when fail to follow estate planning basics. Failure to act thoughtfully with respect to your estate plan can leave the people you love feeling angry and betrayed too.

In many ways, creating an estate plan is not something you do for yourself; it is something you do for the people you love. Setting up wills, trusts and estate plans are crucial for your legacy. If you become incapacitated because of an accident, a stroke or an illness and you have not created a Durable Power of Attorney and a Health Care Proxy, your family is going to have a difficult time helping you.  Without these basic estate planning documents no one, not even your spouse, has the legal authority to gain access to your assets or to make decisions about your care.  One or more family members may need to go to court to be appointed as your conservator and/or guardian so that bills can be paid, investments can be managed and proper care can be arranged.  This will cause your family members stress and take hours of their valuable time to do things that could have been avoided with some advance planning.

Likewise, if you die without a Will, it will be more difficult and expensive for your family to settle your estate.  Even worse, your estate may not be distributed in the way you thought it would or how you wanted.  These unintended consequences can leave bad feelings among survivors that can last for years.  Proper estate planning could also be considered good inheritance planning. It is not uncommon for clients to tell me how their parents failed to do any planning and as a result the house was lost to long-term care costs, or a second spouse ended up with the treasured family cottage, or there were tens of thousands of estate taxes payable that could have been avoided with a little bit of advance estate planning.

In my experience, no one wants to leave their family with a mess of complex estate planning issues.  Yet failing to act thoughtfully by creating an estate plan and keeping it updated often means a mess is what is left.  Roseanne’s action hurt many people – people she had no intention of hurting. Don’t let failing to plan leave your loved ones with the bad feelings that unintended consequences so often produce –and of course, think before you tweet!

June, 2018

© 2018 Samuel, Sayward & Baler LLC

Five Estate Planning Tips for Newlyweds or Engaged Couples

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I thoroughly enjoyed watching the Royal Wedding of Prince Harry and Meghan Markle while nibbling on scones and sipping tea in the early hours of last Saturday morning.  In both the back-story and the visuals, it was a fairy tale come to life, which is not something you see every day.  All of that wedded bliss got me thinking, as many things do, about estate planning and marriage.  Here are five important estate planning tips the happy couple should have thought about before tying the knot or should be thinking about now that all that wedding planning is behind them.

  1. Basic Estate Planning is for Everyone. If Prince Harry wants to make sure Meghan inherits all of his assets, he’d better create a Will that will ensure that happens.  Your Will does not control assets on which you have beneficiaries designated (see Tip #3 below), but controls assets you own in your individual name – real estate, bank accounts, investment accounts, your car, etc.  If you die without a Will, state intestate law will determine who receives your probate assets.  For example, under Massachusetts law, if you have a spouse but no children, and one or both of your parents are living, your probate assets may be divided between your spouse and your parents, depending on their value.  Creating Powers of Attorney and Health Care Documents are also important to make sure your fiancée or new spouse can participate in financial and health care decisions on your behalf if you become incapacitated (see Tip #4 below).

 

  1. Marriage Impacts the Interpretation of Existing Wills. Hopefully, Prince Harry already had a Will that left the considerable fortune he inherited from his mother to those he wanted to receive those funds at his death – perhaps his brother (although he probably doesn’t need the money), or his adorable niece and nephews, or maybe to the charities he supports.  It is important to remember that although, in Massachusetts at least, your marriage will not automatically revoke an existing Will, it will impact how the Will is interpreted unless the Will was expressly made in contemplation of marriage.  In general, if you create a Will and later marry, your surviving spouse will receive a portion of your probate estate (the assets controlled by your Will) equal to what he or she is entitled to receive under the intestate laws (see Tip #1 above), regardless of what your Will says. The intestate laws are complex and distribution of assets depends upon many factors.  If you have a Will that was created before you were married and are planning to be or have recently been married, sit down with an estate planning attorney to review how your marriage impacts the distribution of your assets under your current Will, and whether any changes should be made.

 

  1. Don’t Forget to Change Your Beneficiary Designations Your Will only controls assets that you own in your individual name. Wills do not control jointly owned assets, or assets for which a beneficiary is designated, such as life insurance policies or retirement accounts unless your estate is named as the beneficiary. For many people, life insurance policies and retirement accounts are a significant portion of their assets. When reviewing your estate plan in light of a new marriage, remember to review the beneficiaries you have designated to receive these assets in the event of your death, and change them if necessary to properly reflect your wishes. Federal law protects a spouse’s right to be named as beneficiary of certain retirement plans, which is important because your marriage may revoke an existing beneficiary designation. Also, if you wish to name someone other than your spouse (for example, a child from your prior marriage) as beneficiary of that type of account, your spouse may need to consent.

 

  1. For Richer, For Poorer, In Sickness and In Health…Powers of Attorney and Health Care Proxies are important estate plan documents that appoint an individual to make financial or health care decisions in the event you are incapacitated or otherwise unable to make those decisions for yourself. If you are newly married, consider creating a Power of Attorney and Health Care Proxy to give your spouse this authority in the event of incapacity. These documents will in most cases avoid a protracted and expensive guardianship or conservatorship proceeding which is necessary when these legal documents are not in place. In addition to decision-making documents, a HIPAA Authorization gives your physician and other health care professionals permission to speak with your spouse or fiancée and is essential if you want that person to have access to information about your medical condition or prognosis in the event of an unexpected medical event. The importance of these documents in avoiding the added stress and delay associated with a court proceeding under what are often difficult circumstances for family members cannot be overstated.

 

  1. Consider a Pre-Nuptial or Post-Nuptial Agreement to Protect Assets. A pre-nuptial agreement is an agreement between two people intending to be married as to how their assets (or certain assets) will be divided between them in the event of a divorce.  It may also address the rights of the surviving spouse in those assets at the death of one spouse.  Although the United Kingdom does not legally recognize pre-nuptial agreements (Prince Harry (and reportedly his brother Prince William before him) have refused to sign pre-nuptial agreements prior to their marriages), courts in that country are beginning to take them into account in dividing assets.  Massachusetts recognizes pre-nuptial agreements as long as they are created within certain parameters.  Massachusetts also recognizes the validity of post-nuptial agreements between spouses, entered into after Pre- or Post-nuptial agreements can be particularly effective in a limited way to ensure that if either spouse receives gifts or an inheritance from a parent prior to or during the marriage, that those inherited assets will remain the property of the spouse who inherited those assets and will not be subject to division in the event of a divorce. Full disclosure of assets (including any prospective inheritance) and separate attorneys for each party are among their requirements for a valid pre- or post-nuptial agreement in Massachusetts. However, if protecting assets a party brought into the marriage or expects to inherit during the marriage is a priority, a pre- or post-nuptial agreement is an important planning option.

Death, divorce, incapacity and estate planning are issues that young couples do not spend a lot of time thinking about.  However, taking the time to craft an estate plan now can go a long way toward ensuring that the happy couple will be prepared for the bumps in the road that will inevitably arise.  Here’s wishing that Harry and Meghan and all of the newlyweds who will marry this summer live Happily Ever After.

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). 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.

June, 2018

© 2018 Samuel, Sayward & Baler LLC

Five Ways to Get Yourself in Trouble when Serving as a Fiduciary of a Will or Trust

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A fiduciary is a person who stands in a position of trust to one or more other people typically with respect to the safeguarding or management of assets. For example, the person you name to carry out your wishes in your Will (Personal Representative) or under your Trust (Trustee) is a fiduciary. This is important to know because fiduciaries are held to a higher standard of care under the law and if they fail to live up to this standard they can find themselves in big trouble. When someone agrees to serve as a fiduciary, the primary goal should be to properly carry out the duties of the position. A good secondary goal is not to get sued while doing it.

If a fiduciary is looking for trouble, here are five actions he or she can take to find it (or conversely, five things you shouldn’t do if you want to stay out of trouble when dealing with Estates and Trusts).

1. Co-mingle the estate or trust assets with your personal assets. One of the best ways to incur personal liability for your service as a fiduciary is to deposit the estate or trust funds into your personal account and then treat those funds as your own. Co-mingling estate or trust funds with the fiduciary’s personal funds is absolutely prohibited. The correct way to title an estate or trust account is with the name of fiduciary clearly identified as Personal Representative or Trustee. For example, “Mary Smith, Personal Representative of the Estate of Lola Jones.”

2. Ignore the beneficiaries of a Trust or Estate. In my experience, one of the surest ways for a fiduciary to increase the likelihood that the beneficiaries will file a claim against him for breach of duty is to fail to communicate regularly with the beneficiaries. When that happens, the beneficiaries tend to leap to the conclusion that the fiduciary is doing something bad. It is often a lack of communication that brings disgruntled beneficiaries to my door seeking redress against the Personal Representative or Trustee. Failure to communicate with the beneficiaries is not only a violation under the Massachusetts Uniform Trust Code (MUTC) which specifically requires a Trustee to keep the beneficiaries informed about the administration of the trust and to promptly respond to a beneficiary’s request for information, it is also just not in the fiduciary’s best interest.

3. Disregard the instructions in the Will or Trust. The Personal Representative of an estate and the Trustee of a Trust usually have broad authority to deal with the estate or trust assets. However, they do not have the option to disregard the terms of the Will or Trust, even if they believe they are doing so for a good reason. For example, I have had fiduciary clients who told me that they made a distribution to someone who is not named in the Will because, ‘I know my mother would have wanted that.’ Or who decide they are going to rent out the house even though the Trust directs that is be sold. Big problem.

4. Don’t ask the beneficiaries for their input. As noted in number 3, a fiduciary has broad power to administer the estate or trust. Unless the Will or Trust instrument directs otherwise, this person decides when and at what price to sell real estate, which financial institutions and advisors to work with, how to invest the funds, and if and when to make an early distribution to the beneficiaries. However, just because the fiduciary has the authority to make all of these decisions without the input of the beneficiaries, does not mean that he or she should do so. If a goal of the fiduciary is not to be sued by the beneficiaries, then soliciting the input of the beneficiaries as to big decisions such as the sale of real estate, or at least notifying them promptly when a decision is made (see number 2 above) will go a long way toward achieving that goal. Some fiduciaries may even ask the beneficiaries to ‘sign off’ on a decision such as the listing price of mom’s house in order to avoid a later allegation that the Trustee was not acting in the best interest of the beneficiaries.

5. Keep sloppy (or no) records. If you want to make sure that you are liable to the beneficiaries for breach of your fiduciary duty, don’t keep a record of anything you do. One of the first responsibilities of a Personal Representative or Trustee is to determine the assets of the estate or trust and then notify the beneficiaries as to his or her findings. This is called the Inventory. The Inventory should identify each asset of the estate or trust and its respective value. Failing to timely provide the beneficiaries with an Inventory is a de facto breach of duty. In addition, a fiduciary is required to account to the beneficiaries for all financial transactions. This includes an itemization of the funds received by the estate or trust such as interest, dividends, tax refunds, etc. as well as a detailed record of disbursements such as payment of the decedent’s medical bills, expenses incurred to maintain real estate, attorney’s fees, and the fee paid to the fiduciary.

6. Go it alone. Here is bonus tip for fiduciaries who want to increase the likelihood they will be sued for breach of duty – don’t seek the advice of any professionals. Serving as a fiduciary is an enormous responsibility and carries with it many duties that will be unfamiliar to most people who are named to serve as Personal Representative or Trustee. Expenses such as legal fees, accounting fees, appraisal costs, etc. are paid from the estate, not from the fiduciary’s own monies. If you are in this position, do yourself and the beneficiaries of the estate or trust a favor and engage experienced professionals to represent and advise you.

Most people feel that being named as the Personal Representative or Trustee is a great honor. It means that person had the faith and confidence that you could perform the duties and responsibilities required by the job.

If you have been named as the Personal Representative of a Will or as the Trustee of a Trust contact the Dedham law firm of Samuel, Sayward & Baler LLC and let us guide you through the process so that you avoid the pitfalls that many first-time fiduciaries fall into.

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

May, 2018

© 2018 Samuel, Sayward & Baler LLC

5 Things That Can Derail Your Estate Plan

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As we often tell our clients, although you would like your estate plan to last forever, it probably won’t.  Things change, laws change, family circumstances change, and your estate plan needs to change with it if you want it to continue to accomplish your planning goals.  For most people these goals include making sure the right people are making decisions on your behalf and making sure your assets get where you want them to go with a minimum of delays, estate settlement costs and estate taxes to pay.

Here are five things that can derail even the best estate plan.

  1. Change in Marital Status. In Massachusetts, if you create an estate plan when you are married and then get divorced, the divorce will automatically revoke any provision in your estate plan documents that benefits your former spouse or any of his or her relatives (other than children you may have in common), and any beneficiary designations in life insurance or retirement plans that name a former spouse as long as you had the power to change those designations prior to the divorce. A divorce also revokes any nomination of your former spouse or his or her relatives to serve as your Personal Representative, Trustee, health care agent, etc.   This may seem like exactly what you want to happen, and convenient that it happens automatically. However, you need to consider whether your documents address who will serve in these capacities if your spouse is disqualified, or who will receive your assets if provisions in favor of your spouse are automatically revoked.  Also, although the law makes provisions regarding the automatic revocation of beneficiary designations, it is not wise to rely on these provisions, for example, as to life insurance issued by an out-of-state financial institution or a retirement account subject to federal ERISA law.  Reviewing your documents and beneficiary designations and changing them as necessary is always the best approach.  If you create an estate plan while you are single and then get married, your marriage will no longer revoke your Will (as was the case under prior law) but be aware that Massachusetts law gives your spouse a right to receive a certain portion of your estate whether your Will provides that or not.  Make sure you understand what the law provides and create documents that consistent with your intentions if necessary.

 

  1. Death or Incapacity in the Family. Estate plan documents typically name certain individuals – your spouse, children, siblings, friends – to handle certain duties during your lifetime (as attorney-in-fact or health care agent) or after your death (as Personal Representative or Trustee), and also as beneficiaries of your estate.    If someone named in your estate plan documents passes away before you or becomes incapacitated and unable to perform the duties they were nominated to perform, this can be an issue if successors have not been named in the document.  Further, if the person is still alive but is not able to perform those duties appropriately, they may still insist they are able to do so when you (and others) may know they are not a good choice anymore.  A little off topic, but also not uncommon, is the situation where a family member or friend is named as the guardian of minor children in a parent’s Will, but that person is no longer a good choice.  To avoid probate court involvement in designating successor fiduciaries, and to avoid people serving who are no longer appropriate, make sure you revisit the people you have named in your documents from time to time and make changes as needed.  If a beneficiary named in your estate plan is no longer living, make sure you understand how the documents (or beneficiary designations) will operate and where the assets designated for the deceased person will go instead, and make changes if necessary.

 

  1. Beneficiaries with Issues. There are few perfect families, and sometimes a person who is named as a beneficiary of your estate plan will hit a rough patch.  Maybe your child is in a bad marriage and headed for divorce and you are concerned that your daughter’s inheritance may be shared with her estranged husband.  Maybe your favorite nephew has developed an affinity for sports betting and you are concerned about how he will manage an inheritance he may receive from you.  Maybe a family member is an unfortunate victim of the opioid crisis that has hit Massachusetts hard.  Maybe a beneficiary has recently become disabled and you are concerned that an inheritance may disrupt receipt of public benefits.  If any of these situations arise in your family, take another look at your estate plan and update your plan as needed.  It may be that you want to disinherit a troubled individual altogether or retain their inheritance in trust in a way that it will be protected from their troubles but still be available to help them through the rough patches.  An estate plan can do all of this and more, but proper planning is required.

 

  1. Lack of Trust funding and Improper Beneficiary Designations. Even the best estate plan can be derailed if attention is not paid to how assets are owned and how beneficiaries are designated.  It is important to follow your attorney’s instructions regarding these matters to be sure the way in which your assets are owned and beneficiaries are designated is consistent with your estate plan.  In our office, we provide our clients with written trust funding and beneficiary designation instructions.  It is important to make sure the instructions are followed as to existing accounts or assets, and as to any new accounts that may be opened or new beneficiary designations that may be made after your plan is in place.  It is always a good idea to sit down with your estate planning attorney at least every 5 years or so to review asset ownership and beneficiary designations, and make sure they are as they should be.

 

  1. Change of Domicile. Many of my clients (especially after this past winter) think about moving to warmer locations when they retire, even if they want to spend some time in Massachusetts during the year.  It is important that your estate plan documents reflect where you consider yourself to be domiciled – where you intend to make your permanent home.  Although estate plan documents created in Massachusetts will be valid in Florida (or any other state), it is generally a good idea to have your estate plan documents updated when you move to another state. In addition to making sure your documents operate cost effectively and efficiently under the laws of that state, your documents should be written in the state in which you are domiciled.  This is especially important if you are moving from a state (like Massachusetts) that has a separate state estate tax, to a state (like Florida) which has no state estate tax, when your documents will serve as evidence of your intention to be domiciled in your new state.  Further, documents like powers of attorney and health care proxies are often state-specific, and you will want those documents to be used easily in your new state without any question or delay.

Like it or not, an estate plan is not something you can create and forget about.  Family circumstances change, the laws change, and often your goals change.  For these reasons, your plan should be reviewed regularly, revised as needed, and kept up-to-date so it will be ready to do its job whenever and wherever it’s needed.

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). 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, 2018

© 2018 Samuel, Sayward & Baler LLC

Five Things to Consider Before You Make Your Child an Owner of your Home

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Clients often tell me that they want to transfer their house to their children or add a child’s name to their deed because they want to protect the property from a forced spend down or a Medicaid lien in the event they need long-term care. However this is not an action that should be taken in haste.  There are significant consequences to such a transfer and these should be examined carefully.

Here are five things to consider before putting your child’s name on the title to your house.

  1. You will be subjecting your property to the reach of your children’s creditors. If your child’s name is on your home as an owner, your home is subject to the reach of your child’s creditors such as a divorcing spouse, bankruptcy, lawsuit, judgment, unpaid debt, etc.  If your child owns an interest in your home, your child’s creditors may place a lien against the property and you would not be able to prevent that from happening.  In any event, before deciding to make your child an owner of your property, have a frank discussion about any skeletons that may be lurking in your child’s closet – Is there a possible divorce on the horizon? Did your child personally guaranty a loan for his business that is now floundering?  Is your child in trouble with the IRS?  If the answer to any of those questions is ‘yes’ or even, ‘maybe’, adding that child’s name to the deed to your house is not in your best interest.

 

  1. You may lose the right to exclude the capital gain on the sale of the property.   The current income tax laws allow a person to exclude up to $250,000 of capital gain on the sale of her primary residence provided she has owned and occupied the property for two out of the five years prior to the sale.  This is an excellent tax benefit for people who have owned their home for a long time and have seen the value increase significantly.  For example, someone who purchased their home in the 1970s for $50,000 and sells it now for $300,000 would have a capital gain on the sale equal to $250,000 ($300,00 – $50,000 = $250,000).  However, no tax would have to be paid on that gain provided the seller owned the home and occupied it as her primary residence for two out of the five years preceding the sale.  If the home is transferred to the children, then the parent seller would not be the 100% owner of the property at the time of the sale.  If she retained a life estate when she transferred it to the children, or if the children were added as co-owners with the parent, then a portion of the gain would be tax free but the portion of house deemed owned by the children would be subject to capital gains tax (unless the children were living in the home).

 

  1. Once you do this, you cannot unilaterally undo it.   If you transfer your home to your children, or add their name to your deed so that you are co-owners of the property, you cannot unilaterally change this. If you change your mind about the transfer and decide you want to be the sole owner of the property, your children must sign a deed conveying the property back to you.  Even if you have the best children in the world and you are not worried that they would refuse to do as you ask, you still need to be concerned about factors beyond your child’s control such as your child being sued, getting divorced, filing for bankruptcy, becoming disabled, etc.  Any of those events, as well as a host of other troubles, could prevent your child from being able to transfer the property back to you free and clear of the claims of your child’s creditors.

 

  1. If not done properly, your children will lose the stepped-up tax basis in the property.  One of the tax breaks that truly helps the middle class is the stepped-up tax basis that occurs when someone dies owning an appreciated asset. The tax basis of an asset is the starting point in determining the amount of gain realized on the sale of a capital asset such as stock or real estate.   To calculate the tax basis of a home, you start with the purchase price, and add the cost of the capital improvements made to the property.  For example, if mom and dad bought their home for $50,000 in the 1970’s and made $100,000 of capital improvements over the years (i.e. a new roof, new kitchen, replacement windows, etc.) the property now has a basis of $150,000.  If property with a $150,000 tax basis is sold for $350,000 there is a capital gain of $200,000 ($350,000 – $150,000 = $200,000) and that is the amount on which capital gains tax must be paid (but see number 2 above for an exemption on the sale of a primary residence).  However, if the property is still owned by the parents when they die, then the children will inherit the property with a ‘stepped-up’ basis.  This means that the children’s tax basis in the property is its fair market value when the last parent died.  In this example, it means that if the children sell the house for $350,000 then the gain on the sale will be zero ($350,000 – $350,000 = $0) and thus there would not be any capital gains tax to pay.  However, the stepped-up basis is only available if the property is owned at death.  If the parents deed their home to the children during their lifetimes, then the parents do not own it at death and therefore the basis is not stepped-up.  In that case, the children are stuck with their parents’ basis, $150,000 in this example, and will pay capital gains tax on the difference between the sale price and the parents’ basis.

 

  1. You will incur a 5-year ineligibility period for long-term Medicaid benefits.   One of the main reasons for transferring the home to children is to protect the property from having to be spent down to pay for the parents’ long-term care expenses or to avoid the imposition of a lien on the property by the state in the event a parent receives Medicaid (MassHealth) benefits.  The Medicaid eligibility rules disqualify a person from being eligible for long-term care Medicaid benefits if the applicant or the applicant’s spouse gives away assets within five years of applying for benefits. Deeding property to children or adding your children’s names to your deed is considered a disqualifying transfer.  Because of this it is very important to carefully consider the ramifications of a transfer before making it, especially for married people.  There are currently laws in place to protect the spouse of a nursing home resident from having to impoverish herself paying nursing home bills. However, a transfer of assets within five years could wipeout those protections.

While transferring the home to children can be a good way to protect the home from liens or spend down due to a parent’s long-term care needs, it is vital to consider the consequences of such a plan before rushing in.  Consult with an experienced estate planning and elder law attorney to fully understand the advantages and disadvantages of such a transfer before signing away your home.

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

March, 2018

© 2018 Samuel, Sayward & Baler LLC

Everybody Speaks a Secret Language

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A couple of weeks ago I took my car in for a service appointment because the car was all stutter-y and the ‘Service Engine Soon’ light had come on.  The service folks told me that the ‘ignition coils’ needed to be replaced and that the ‘valve cover gasket’ was leaking and also needed to be replaced.  When I picked up the car, the service light was off and the car drove fine – no more stuttering – so clearly the analysis of the problem and the solution were correct.  However, I left the service department a bit lighter in the wallet than when I went in and with no real understanding of what had happened other than my car had been broken and now it was fixed.

This started me thinking about the fact that everybody speaks a secret language.   If I knew how a car engine works, what the parts are, or how they all fit together, my experience may have made perfect sense.  But I don’t.  Terms like ‘ignition coils’ and ‘leaky valve cover gaskets’ are as foreign to me as ‘je suis confus’ (that’s French for, ‘I’m confused’).  The same holds true for other professions – think doctors, dentists and even hairdressers (what the heck is balayage?)!

Estate planning attorneys also speak a secret language that can leave clients puzzled about the advice they receive.  While you may not need feel the need to know exactly what your mechanic means when he tells you that you to replace the evaporative emissions purge control valve on your car, it is important to understand what your estate planning attorney means when she tells you that you need to name a successor attorney-in-fact in your durable Power of Attorney.

Estate planning is about the most important thing to most people – their family.  Understanding how the decisions you make in your Will, Trust, Power of Attorney, etc. (or that you fail to make if you do not have an estate plan) will affect the people you love is vital.  So the next time you are meeting with your estate planning attorney and she advises you to “convey your real estate to a nominee Realty Trust so that it can be used to fund your credit shelter trusts,” make sure she explains ‘the why’ of this to you and that you understand that explanation.  In the meantime, if your mechanic tells you that your car needs a new flux capacitor, you might want to look for a new mechanic!

February 2018

© 2018 Samuel, Sayward & Baler LLC    

Five Do-It-Yourself Estate Planning Moves

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This is the time of year when New Year’s resolutions about getting an estate plan done (finally) bring people to my office.  Others may decide to take matters into their own hands.  As an estate planning attorney, I am not a big fan of do-it-yourself estate plans.  Whether it’s a so-called Will handwritten on a napkin, or documents created using LegalZoom or any of the other on-line tools, I have never seen a Will or other estate plan document drafted by a client work as intended.  For a variety of reasons, these documents are at worst invalid and at best poorly written, creating ambiguity and inevitably leading to more time and expense in the estate settlement process, which is precisely what the drafter was, I suspect, trying to avoid.  There is no substitute for an experienced estate planning attorney if you want to create an estate plan that will be valid, cost-effective, and accomplish your goals.  However, there are certain things you can do yourself that will go a long way toward ensuring that your estate plan works as you intend.  Here are five of them:

  1. Get Organized. One of the first tasks someone will need to complete after your death is to identify your assets. Your family will thank you if it is easy for them to figure out what you own and where your assets are located. Take the time once a year to create a list of your assets – bank accounts, investment accounts, real estate, life insurance policies, annuity contracts, IRA and 401k accounts, etc.  Include the institution and the account number.  Include information about any safe deposit box you may have and where the key is located. If you have a safe or other place you store assets or important papers in your home, make sure that is on the list.  Finally, and despite all advice to the contrary, include your passwords to online financial, social media, email and other accounts.  Without that information, timely access to your digital assets may be impossible.  After you create this list, update it at least once a year.  Then, put it somewhere where it will be easily found if something happens to you.  If you have a filing cabinet where you keep your asset information, put the list in the front of the cabinet.  Another good option is to make a 3-ring binder where you keep the list along with your most recent account statements.  Organizing the paperwork related to those assets in one location is also a plus.  Any method that works for you is OK. Keep your estate plan documents and the contact information for your attorney, your financial advisor and your accountant in the same location.  Then, tell the person you have named as Personal Representative in your Will what to do when you are gone.  It’s enough to say, “If I get hit by a bus tomorrow, go to the bottom drawer of the filing cabinet in the den and you’ll find everything you need there.”  A little organization and information will make things a lot easier for your family to pick up the pieces when the time comes.
  1. Check Beneficiary Designations. Identify the assets you own that have beneficiaries designated to receive those assets when you pass away – for example, life insurance policies, annuities, IRAs, 401ks and other retirement accounts.  Check with those companies, or with your employer, to confirm who you have designated as the primary beneficiary on a particular policy or account (to receive the asset at your death).  Make sure the primary beneficiary is still the person you want to receive that asset.  If your designated beneficiary is no longer a good choice, obtain the appropriate form and change the beneficiary – now.  Also, confirm that you have designated a contingent beneficiary who will receive the asset if the primary beneficiary is not living at your death, and if you haven’t done so, designate an appropriate contingent beneficiary or beneficiaries.  If the beneficiaries you wish to designate are under the age of 18, make sure you understand how the company in question will handle things at your death.  It may be that they will require a court-appointed conservator for a minor before money can be paid to the beneficiary.  This is a time consuming and expensive process.  Generally, designating a trust for the benefit of a minor beneficiary is a better approach.  If you have large retirement accounts, make sure you understand the rules that will require minimum distributions from those accounts each year to non-spouse beneficiaries after your death, regardless of their age, and the income tax implications to your beneficiaries.
  1. Specifically Identify Special Items. Your tangible personal property – the contents of your home, your car, your jewelry, your boat – are often overlooked in considering how assets will be distributed at death.  If you have tangible property of significant monetary or sentimental value, consider being specific about who should receive these items at your death. Create a list of the items and the people you would like to receive them.  Sign and date the list, and re-sign and re-date it when you make changes.  Keep the list with your asset list (see #1 above) or with your estate plan documents.  This will go a long way to avoid disagreements following your death about who should receive Mom’s engagement ring, grandma’s rocker, or the family’s prized Revolutionary War musket that needs a caretaker that understands and will respect its significance.
  1. Leave Instructions – About your Kids. One of the hardest but most valuable things you can do is write a letter of instruction to your children’s guardian about how you would like your children to be raised if you are not around to do it yourself.  As a parent, it is very difficult to imagine what your children’s life would be like if you are no longer there.  However, all parents have hopes and dreams for their children, as well as practical information about their children that would be useful for someone to have.  So, write it down.  “Dear Guardian, If I am no longer living, these are the things I want you to know about my children…”  Start with the mundane – who their doctors are, what allergies they have, what they like and don’t like (particular food, scary movies, clowns).  Continue with what you hope they will have the opportunity to do in the future – music lessons, a particular summer camp, time each year to visit with extended family who may live far away.  This is a letter you will need to commit to updating as time goes on, since as your children get older much of this information will change.  It’s not an easy thing to do or commit to keeping updated.  However, this kind of information can be invaluable for those who are left to care for your children, and can also give you some peace of mind that if your wishes are known they will be carried out.  Keep the letter with your estate plan documents and your asset list.
  1. Name Legacy Contacts. If you use email or social media, consider naming a legacy contact to whom you can give permission to access your “digital assets” stored with that company after your death. For example, Facebook allows you to designate a Legacy Contact (Settings/General Account Settings/Manage Account) who can manage your account after your die, or you can choose to have your account deleted if you pass away. Google allows you to control what happens to your account through their Inactive Account Manager feature (My Account/Personal Info and Privacy/Control your Content), where you can designate when your account will be considered inactive and what will happen to your Google account, and designate one or more people who will have access to whatever portions of your Google account you choose.  Keep in mind that if you do not use an online entity’s prescribed method of giving someone permission to access your account, and do not provide express permission and direction in your estate plan documents, the company’s Terms of Service Agreement will govern.  In such a case, you and your digital assets are at the mercy of the online provider, which may not allow access following your death or incapacity.

Estate planning is not as easy as do-it-yourself websites may have you believe, and I would not recommend that you try it at home.  Work with an experienced estate planning attorney to create estate plan documents that are appropriate for you and that will accomplish your goals after you are gone.  In addition, consider taking the steps described above to make things easier for those you leave behind.

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). 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.

February 2018

© 2018 Samuel, Sayward & Baler LLC    

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

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