Taxes

Five Things Your Estate Plan Allows You to Be Thankful For 

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Estate planning is hard.  Discussing topics like incapacity, death and taxes are unpleasant.  It’s the reason why an estimated two-thirds of Americans do not have an estate plan.  But like many hard things, after it is done there is a sense of accomplishment and relief, and in many cases gratitude.  Estate planning may be something you have been putting off for years, if not decades.  Getting it done is a great feeling, and something that benefits not just you but your loved ones.  Estate planning is an essential aspect of financial well-being and ensuring that your assets and loved ones are protected.  Here are five things to be thankful for when your estate plan is done.

1. Peace of Mind

One of the most significant benefits of estate planning is the peace of mind it provides. Knowing that your affairs are in order and that your loved ones will be taken care of in the event of your passing can be a great source of comfort. For families with minor children, estate planning means you have put in place a plan for your children to be taken care of by someone you choose if you pass away while they are still young.  It also means that you have created a trust so inherited assets can be managed for young children until they are mature enough to take control of those assets themselves.  Estate planning minimizes the potential for family disputes over assets, designates decision-makers of your choice, and makes the difficult process of grieving much more manageable for your heirs.

2. Control Over Your Legacy

Estate planning allows you to have control over your legacy. You get to decide how your assets will be distributed, who will receive them, and under what conditions, and who will oversee that process.  Holding assets in trust for minor children or a beneficiary with special needs is important.  It may also be important for older children for whom asset protection is a concern due to an unstable marriage, a pattern of mismanagement of assets, profligate spending, creditor issues, gambling issues or substance abuse.  This control ensures that your assets are used in a way that aligns with your values and priorities. Whether you want to support your family, friends, favorite charities, or any other cause close to your heart, estate planning allows you to make that happen.

3. Tax Efficiency

Effective estate planning, especially in a state such as Massachusetts with a separate state estate tax, can reduce the tax burden on your estate, leaving more of your assets to your loved ones. By using strategies like trusts, gifts, and other tax-efficient mechanisms, you can maximize the wealth you pass on to the next generation.  If you have a large IRA or other tax-deferred retirement plan, the estate planning process will help you understand how the income tax on these assets will impact you and your heirs.  You will be thankful for the opportunity to minimize the impact of these taxes on your estate and your heirs to ensure that your beneficiaries inherit as much as possible.

4. Smooth Transition of Assets

The estate planning process starts with compiling information about the assets you own, how they are owned, and how beneficiaries are designated.  Creating such an inventory and keeping it up to date will go a long way toward helping the people who are implementing your estate plan carry out their duties efficiently.  Ensuring your assets are owned properly and beneficiaries are designated appropriately and consistent with your plan is an important part of estate planning and will ensure your plan works as intended.  In Massachusetts, where the probate process can take a year or more to complete, the use of Trusts in an estate plan can avoid the probate process and allow for immediate access to assets at death.  This means that your beneficiaries will receive their inheritance more quickly and with far less delay and frustration. The ability to provide a seamless transfer of wealth will give you peace of mind and will be a source of gratitude for your heirs after your death.

5. Your Team

It takes a village, as they say, and estate settlement and trust administration is no exception.  If planning is done properly, an important part of the legacy you leave will be a team of advisors – your estate planning attorney, your accountant and your financial advisor – who will guide and advise your family after your lifetime while ensuring your estate plan is carried out according to your instructions.  Introducing your family to these team members while you are alive can ensure an even more seamless transition.  You will be thankful for the guidance your team provides you during your lifetime and will have peace of mind knowing they will be there to guide your family after your death.

Estate planning offers peace of mind, control over your legacy, tax efficiency, a smooth transition of assets, and a team that will guide you and your loved ones through whatever the future brings.  If you have not already created your estate plan, start the process.  If you have an estate plan in place, make sure it is up to date.  And while you are planning, be thankful for the opportunity estate planning provides to secure your family’s future, provide for charitable causes, and make your passing more manageable for those you leave behind. Your heirs will certainly thank you after you’re gone.

Maria C. Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and the former President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.

November 2023

© 2023 Samuel, Sayward & Baler LLC

 

What’s New at Samuel, Sayward & Baler LLC – Don’t Miss Our January 2023 Newsletter

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Don’t Miss Our January 2023 Newsletter

Attorney Abigail Poole discusses our current newsletter, for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.

Five Taxes your Heirs May Pay (or not) After your Death

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Most people understand that estate planning and inheritance planning involves making sure that people you trust can make decisions for you if you become incapacitated during your lifetime, and making sure your assets go where you want them to go when you die.  It should also involve identifying and planning to minimize the five different types of taxes that may be payable by your heirs after your death.

  1. Federal Estate Tax – When a United States citizen or resident passes away, the estate of the deceased person may be required to file a federal estate tax return and may have to pay a federal estate tax. The estate tax is a one-time tax that is payable after death on the value of your “estate”, which is essentially any assets you own or control at the time of your death.  A federal estate tax return is due on the nine-month anniversary of the deceased’s date of death, and any estate tax due must be paid by that time to avoid interest and penalties from accruing.

The good news for most people is that the federal estate tax exemption is $11.58 million as of January 1, 2020 ($11.4 million in 2019).  This means that if the value of the assets you own at the time of your death (your so-called “taxable estate”) is less than the exemption amount, you do not have to file a return or pay a federal estate tax.  Estate tax is also not payable on the value of assets left to your surviving spouse or to charity.  The federal estate tax exemption is adjusted annually for inflation.  On December 31, 2025, the federal tax law that gave us such a large federal exemption amount will “sunset” unless Congress takes action.  Upon sunset, the federal estate tax exemption amount will revert to the prior level, adjusted for inflation, most likely a little more than $5 million.

If your “estate” is greater than the federal estate tax exemption, speak to your estate tax planning attorney and tax advisors about planning steps you can take to reduce or eliminate any federal estate tax your estate may have to pay.  Don’t forget about trusts when it comes to estate tax –  certain type of trusts, as well as gifting strategies, including charitable giving, can be effectively reduce the estate tax payable at death.

Keep in mind that even if you do not owe federal estate tax at death, it may still be advisable for the Personal Representative of your estate (formerly known as your Executor) to file a federal estate tax return so that your surviving spouse’s estate can take advantage of your unused federal estate tax exemption.

  1. State estate tax – If you live in Massachusetts, you live in one of 18 states plus the District of Columbia that has a separate state estate or inheritance tax. If you die a Massachusetts resident, your estate must file a Massachusetts estate tax return if the value of your estate is $1 million or more.  This is a relatively low threshold.  For many residents of Massachusetts who own a home, have a retirement account of significant value, and own life insurance, this is a tax they should be aware of and plan for.

There are several bills pending in the state legislature that would raise the Massachusetts estate tax exemption amount, however none of them has succeeded to date.   Until the exemption amount is increased, as with the federal estate tax, the Massachusetts estate tax can be reduced if not eliminated with thoughtful estate tax planning with the advice of your attorney.  As with the federal estate tax, a Massachusetts estate tax return must be filed and any tax paid within nine months after death.

  1. Personal Income Tax – No matter what time of year you pass away, final state and federal income tax returns will have to be filed to report the income you earned or received during the year of your death from January 1 through the date of your death. It is important to keep good records of your income and deductions, and to keep your tax records organized, so that your heirs or others who are settling your estate will be able to provide your tax preparer with the information necessary to prepare your final personal income tax returns, and so that those returns can be filed timely to avoid penalties and interest that may accrue and be payable by your estate.

It is also important to keep your personal income tax filings up to date while you are alive.  Collecting information necessary to file the deceased’s final personal income tax returns is hard enough.  Trying to reconstruct past years’ records in order to file returns that are past due is difficult, time consuming, and can be very expensive when interest and penalties for unpaid taxes start to add up.  Keep in mind that the Personal Representative of your estate can be personally liable for any unpaid tax liabilities. This is not a legacy anyone should leave.

  1. Fiduciary Income Tax – The fiduciary income tax is a little-known income tax payable by estates and trusts on income earned during the year. For example, if you die owning 1000 shares of Exxon stock and a three-family rental property, those assets are part of your “estate” at your death. The dividend income received on the Exxon stock and the rental income paid by the tenants residing in your rental property after your death is “income” earned by your estate.  This income must be reported on a fiduciary income tax return each year your estate remains open.  If these assets are owned by a trust, income earned on trust assets is also reported on a fiduciary income tax return.

Fiduciary income tax can be very steep, considering that the tax brackets are such that estates and trusts reach the highest federal income tax bracket of 37% at only $12,750 of income.  To avoid paying unnecessary fiduciary income tax, it is best to plan with your attorney to ensure your estate will be administered efficiently, and that any trust you create is structured properly with tax savings in mind, even if assets will stay in trust for the benefit of your heirs.

  1. Income Tax on Retirement Accounts– The government kindly allows us to save money in our retirement accounts – IRAs, 401ks, 403bs – without paying federal or state income tax on the funds contributed to those accounts. The end result is that many people have large “qualified” retirement accounts on which income tax has never been paid.

The tax laws require money to be withdrawn from retirement accounts, and state and federal income tax paid, when we reach a certain age, or within a certain period of time after the account owner dies.  The SECURE Act, signed into law by President Trump just before Christmas as part of the budget bill, makes significant changes to these rules.

If you have large retirement accounts, it is important to understand the changes made to these tax rules by the SECURE Act, how much your beneficiaries will have to withdraw from these accounts and when, and to plan to minimize the income taxes payable on those distributions if possible. This is not as easy as it used to be now that the SECURE Act is law; however, there are still planning options to consider that can have a big impact on how much of those accounts may be lost to income taxes after your death.

Death and taxes (and estate tax and income tax planning!) are not most people’s favorite topic (present company excluded), however you can save your heirs a lot of money, and maximize the inheritance they receive, if you take the time to understand the taxes that are potentially payable at death and take steps to plan to minimize or eliminate these taxes before they become due.

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.

January, 2020

© 2020 Samuel, Sayward & Baler LLC

In Estate Planning, Preparation Is Key

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It is everyone’s hope that they will die after they have managed to get everything in order so that their family will have an easy time of it and not be left picking up the pieces.  Here are some things to put on your Estate Planning To Do list, to make it easier on your family if you depart this world before tying up all the loose ends:

  1. Identify a place in your house where you keep important information and documents and let trusted family members (or personal representatives) know where that is. I suggest a well-organized filing cabinet with clearly labeled folders containing important information and copies of your legal documents such as wills, trusts, powers of attorney and health care proxies.
  2. Create a list of your assets that includes the institution where each account is located, the account number, your contact person at that institution (if any) and their contact information. Include on this list bank accounts, investment accounts, annuities, life insurance, retirement accounts, etc.    Keep this list updated, and in the place where you keep other important papers so that it can be found.
  3. If you have original stock certificates, savings bonds, cash or other valuables in your house, make a note of where those items are kept so that they are not overlooked or inadvertently thrown out.
  4. Don’t forget digital estate planning. Create a list of usernames and passwords for any important online accounts – financial, photo storage, email, social media, document storage accounts. Keep this list updated and in the place where you keep other important papers so that it can be found.
  5. If you have young children or a child with special needs, consider a letter of instruction that provides important information about your child – the name and contact information for their physician, allergies, other important medical information and other things you think someone should know if they had to care for your children unexpectedly.
  6. Review and update beneficiary designations on life insurance and retirement accounts in consultation with your estate planning attorney to ensure the designations do not disrupt the other provisions of your estate plan.
  7. Do your best to keep your income tax filings up-to-date so that your family will not have to try to piece together that information in order to file income tax returns after your death. This is a painful and expensive process that can lead to lingering liability for family members.
  8. If you have a safe deposit box, make sure at least one other trusted family member’s name is on the box so that they will have access after your death This is especially important if your original Will or other estate plan documents are in the box.
  9. And finally, make sure your estate plan documents are up-to-date, and that you have left instructions for your family regarding where to find them, and the contact information for your estate planning attorney.

Tackle one of these tasks every month, and within a year you will be leaving your family well-prepared if something unexpected occurs.

November, 2019

© 2019 Samuel, Sayward & Baler LLC

Estate Planning and Taxes – Five Things to Know About Taxes After Death

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After an individual’s death, his or her assets will be gathered, affairs settled, debts paid, tax returns filed and assets distributed as directed by the deceased’s Will and/or Trust or if those documents do not exist as provided by Massachusetts intestate law. Don’t neglect the importance of taxes and filing tax returns after death. The Personal Representative (formerly Executor) of the deceased’s estate may be responsible for filing a number of tax returns. Here are five things to keep in mind with respect to taxes after a death.

See the chart for more information on tax deadlines.

 

  1. A Personal Representative must file the deceased’s final income tax return for the year of death and prior year returns that have not been filed. The deceased’s final income tax return will reflect income earned or received by the deceased from January 1 of the year of death through the date of death.

What should you do if the deceased failed to file tax returns in the years before his or her death? It is not uncommon for a deceased person who was ill for the last years of his or her life to have failed to file his or her income tax returns. It is important for a Personal Representative to investigate whether required returns have been filed and be certain about a decedent’s income tax liabilities.  A Personal Representative who distributes estate assets and fails to pay income taxes owed by the deceased will be personally liable to pay those taxes.

  1. A Personal Representative may be required to file a Massachusetts estate tax return if the value of the estate assets exceeds $1 million. A deceased’s estate includes all assets that he or she owned and controlled, whether held in his or her individual name, jointly with others, or in a revocable trust, and includes life insurance proceeds and retirement assets. If the estate’s assets exceed $1 million, tax is computed on the entire value of the estate.  Tax is not payable on assets passing to a spouse or to charity.  Don’t forget the deadline for estate tax returns. The filing deadline for estate tax returns is 9 months after death.  A Personal Representative who distributes assets and fails to pay estate taxes owed will be personally liable to pay those taxes.
  2. A Personal Representative may have to file a federal estate tax return if the value of the estate assets exceeds the federal estate tax exemption ($11.4 million for 2019).  Even if the value of the estate does not exceed the federal estate tax exemption amount, a federal estate tax return should be filed if the decedent is survived by a spouse so that the deceased’s unused exemption can be used by a spouse at his or her death. The filing deadline for the federal estate tax return is 9 months after death.
  3. A Personal Representative and Trustee may have to file fiduciary income tax returns for an estate or a trust, respectively. An estate is a taxpayer and must obtain a tax identification number and file a fiduciary income tax return for the estate if income is earned on estate assets or received during the administration of the estate. A revocable trust becomes irrevocable after the death of the trust creator and must obtain a tax identification number at that time and file a fiduciary income tax return for all income earned by trust assets after the death of the creator. Filing deadlines for estate or trust fiduciary income tax returns depend on whether the estate or trust elects to file its tax return on a calendar year basis (ending in December) or a fiscal year basis (rolling 12 months from death). In both instances, the fiduciary income tax return is due 4.5 months after the end of the tax year elected.
  4. Income tax planning opportunities exist for estates and trusts and beneficiaries because they may not be in the same income tax brackets. The highest income tax brackets for estates and trusts apply at low levels of income, while the highest income tax brackets for individuals apply at high levels of income. For this reason, timing distributions from an estate or trust to its beneficiaries can save money. Beneficiaries pay income tax on any estate or trust income distributed to them in any tax year at personal rather than fiduciary income tax rates.  It is important to work with an estate planning attorney to maximize your planning efforts and understand the tax implications and responsibilities of a deceased trust and estate.

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

November, 2019

© 2019 Samuel, Sayward & Baler LLC

Three Tax Advantaged Ways to Use Required Minimum Distributions (RMDs)

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For those taxpayers 70½ and older and retired, the IRS requires annual withdrawals from retirement accounts. Some fortunate taxpayers don’t need to use their entire required withdrawal amount for living expenses and wonder whether there are tax advantaged ways to put this “extra” money to use. Here are three tax advantaged ways some taxpayers can use RMD amounts.

Use RMDs to Pay Estimated Income Taxes

The IRS and most states consider income taxes due when income is received. For taxpayers who are employed, taxes are usually withheld from each paycheck and sent to the IRS. Other income, such as interest, dividends, capital gains, pensions and social security may be taxable and income tax withholding is not required. Taxes are still due, so, instead, taxpayers are required to make quarterly estimated tax payments.

Quarterly estimated tax payments are due in April, June, September and by January 15 (for the prior calendar year). Payment is considered made when payment is sent to the IRS. Making estimated payments on time can present challenges because of the extra calculations, paperwork, cash flow or just simply remembering to make payments on time. Late payments of estimated taxes may result in tax penalties.

For taxpayers who don’t need all of their RMD amount for living expenses, using some of the RMD to pay estimated taxes has a tax advantage. When RMD money is used to pay estimated taxes, the IRS has a special rule favorable to taxpayers. Instead of considering the payment made when the money is sent to the IRS, the payment may be made at the end of the year but is treated by the IRS as being paid evenly during the year at the required times. Why does the IRS allow this favorable tax treatment? Perhaps to encourage investors whose cash flow and spending doesn’t always perfectly match the quarterly payment dates.

Use RMDs for Gifts to Charities

RMDs are taxable income and the amount can shift a taxpayer into a higher tax bracket. For taxpayers subject to RMDs, the IRS permits any part of the RMD to be satisfied without increasing taxable income if the amount is sent directly from the IRA to an IRS recognized charity. The RMD cannot exceed $100,000 for this purpose and must come from an IRA not a 401(k) or other retirement account.

Use RMDs to Pay Long Term Care Costs

Paying for long term care costs creates enormous challenges. For families able to pay for care at home or in assisted living residences, one of the challenges is deciding which accounts to use first. Using RMDs can provide important tax advantages that make family money last longer. Long term care costs are income tax deductible for taxpayers who itemize, if the costs:

  1. cover care for a person who is chronically ill, meaning the person cannot perform at least two activities of daily life without help (i.e., eating, bathing, dressing, toileting, continence, and transferring from bed or chair to daily activities);
  2. are medically necessary for services from a diagnosis, rehabilitation, therapy, cure, treatment, maintenance or personal care, often evidenced by a treatment plan prescribed by a physician;
  3. include residence and meals at an assisted living facility if part of a medically necessary treatment plan;
  4. are more than 10% of the taxpayer’s adjusted gross income (Congress is considering reducing the current 10% threshold to 7.5% as it has been in the past); or,
  5. are for long term care insurance premium but with age based limits (for 2019, over age 71 is $5,270; 61-70 is $4,200 and 51-60 is $1,580 per year), with self-employed taxpayers being able to deduct more, without itemizing.

As always, consult trusted tax and financial professionals before making important tax and financial decisions.

Samuel Financial LLC is located at 858 Washington St. Dedham, MA 02026 and can be reached at (781) 461-6886.  Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. www.samuelfinancial.com.

Fixed insurance products and services offered through CES Insurance Agency or The Hanson Group.

Tax Time is Estate Planning Check-up Time

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In February, you’ll get tax forms – use them as an estate planning checklist for reviewing beneficiary designations.

By February 15, financial institutions will have sent you all the forms needed for your tax returns.  This nifty pile can help you review your beneficiary designations to make sure they are up-to-date. Beneficiary designations determine how retirement plans and life insurance proceeds will be distributed at death. Brokerage and bank accounts may also have beneficiary designations. Out of date designations may mean that assets go to the wrong people, and that’s just bad estate planning. You designated beneficiaries when you enrolled in your retirement plan. You may have filled out POD (payable on death) or TOD (transfer on death) forms when you opened investment or bank accounts.  Things to keep in mind in reviewing beneficiary designations are:

Your Designations May Be Wrong.  Life brings change, so it is wise to review your beneficiary designations and change them as needed.  Rules for retirement plans and remarriage are complex, and when the companies managing your assets merge, beneficiary designations may not transfer.  Review your designations when your marital status changes and when the institutions in charge of your assets change. Name contingent beneficiaries to receive assets in case primary beneficiaries do not survive.  Otherwise, these assets will need to be probated.

When providing for children or grandchildren, be thoughtful about the type of assets to leave them and the manner in which the assets will be distributed.  Do not name a minor as beneficiary.  Also, be cautious about naming a young adult as a beneficiary. Instead, create a trust for their benefit and name the trust as beneficiary.  Then, you can control when the child or grandchild can access funds. Contact a lawyer for wills and trust to discuss the right strategy for your children.

If a loved one has become disabled, you will want to change your designations to assure that you do not jeopardize that person’s eligibility for Social Security Supplemental Security Income (SSI). SSI provides income and Medicaid insurance to disabled people with less than $2,000 ($3,000 for a couple) in “countable resources.”  Inherited assets will be “countable resources” and jeopardize eligibility for benefits.  Instead, create a Special Needs Trust for the benefit of your disabled loved one and designate the trust as the beneficiary.

Your Designations Can Save Taxes. Retirement assets paid to an estate must be paid out within 5 years of death rather than over a named beneficiary’s lifetime. Name beneficiaries to save taxes! Life Insurance owned by a Life Insurance Trust can remove that asset from your taxable estate.  Finally, you can rollover or distribute your required minimum distribution to a charity and save income tax during life.

Your Estate Plan Needs Annual Exams.  Even if life has not handed you major change, review your beneficiary designations and make sure your loved ones know where to find important estate planning documents. Keep copies of your 1099 tax forms and use the contact information on the forms to call your financial institutions and check your designations.  Remember where you put your important documents and create a list for your family.

February, 2019

© 2019 Samuel, Sayward & Baler LLC

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

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