Attorney Suzanne Sayward discusses Estate Planning for Out of State Real Estate, 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.
Trusts
Smart Counsel Series – The Do’s and Don’ts of Serving as a Trustee – A Study in Contrasts
Please watch our pre-recorded webinar in our Smart Counsel Series which aired on Thursday, May 18, 2023 virtually via Zoom. Attorneys Suzanne R. Sayward and Megan L. Bartholomew presented the Do’s and Don’ts of serving as a Trustee.
If you have been named to serve as Trustee for a family member or friend, or if you have created a Trust in which you have named someone to serve in that role should you become incapacitated or when you pass away, you may be wondering what is involved in taking on such a commitment. The answer is – A LOT!
The presenters discussed the specific tasks a Trustee must undertake along with the general duties and responsibilities of a Trustee. Examples of the right way – and the wrong way – of carrying out the duties of serving as a Trustee can help you understand what is involved in serving in this important role.
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Five Things to Know about Testamentary Trusts
By Attorney Maria C. Baler
Testamentary Trusts are less popular than their well-known cousin the Living Trust, but in the right situation can be the perfect solution to a vexing problem – protecting assets for a surviving spouse when he or she may need nursing home care. Testamentary Trusts may be the one solution where it may be possible to have your cake and eat it too in the world of long-term care planning.
Here are five things to know about Testamentary Trusts
1. What is a Testamentary Trust?
The word “testamentary” means “relating to or bequeathed or appointed through a Will.” The “testament” in the phrase “Last Will and Testament” comes from this definition. A Testamentary Trust is, as the definition implies, a trust that is created by the terms of a Will. Because the Will does not take effect until death, the Testamentary Trust created by the Will does not come into existence until after the creator (or “testator”) of the Will has died.
This is very different than the more popular Living Trust, which is a trust created by the maker of the trust (the “grantor”) during the grantor’s lifetime. Living Trusts can own assets during the grantor’s lifetime; Testamentary Trusts cannot. Assets owned by a Living Trust at the grantor’s death avoid probate which is one of the primary reasons for creating a Living Trust. You may recall that probate is the court proceeding necessary to transfer title to assets owned by a person in his or her name alone (with no beneficiary named) at death.
Because Testamentary Trusts do not come into existence until after death, they cannot own assets during their creator’s lifetime. The assets that will be held in the Testamentary Trust after the creator’s death will pass through the probate estate of the testator, and into the Testamentary Trust as provided under the terms of the creator’s Will, to be held in trust for the benefit of the trust beneficiary.
2. Why Create a Testamentary Trust?
If a Testamentary Trust does not allow you to avoid probate with the trust assets, and does not come into existence until after death, why would you create one?
The answer is in the regulations that determine whether assets held in a trust created by a husband or wife are “countable” when determining whether or not either will be eligible for Medicaid benefits to pay for nursing home care.
If a husband creates a Living Trust and transfers $500,000 into that Trust during his lifetime, and names his wife as the beneficiary of that trust after his death, the Trust assets will be fully “countable” if either husband or wife tries to qualify for Medicaid benefits to pay for nursing home care during their lifetimes. If the husband passes away, and if his Living Trust allows the Trustee to use the trust assets for his wife’s benefit during her lifetime, the Trust assets, and any other assets the wife may own, will be “countable” and must be spent on the wife’s care before she will be eligible to receive Medicaid benefits to pay for her care.
However, Medicaid regulations provide that if a Testamentary Trust is funded by Will at the death of one spouse, and the assets are held in that Testamentary Trust for the benefit of the surviving spouse, the assets in that Testamentary Trust will not be countable in determining the surviving spouse’s Medicaid eligibility. This is an important distinction and one that can allow a spouse to set aside assets in trust for the benefit of his or her surviving spouse.
A Testamentary Trust works especially well in situations where one spouse is ill and is being cared for by the other spouse. In such a situation, if the caregiver spouse were to die, the ill spouse would almost certainly need a nursing home level of care as they could not live alone or care for themselves. In this case, if the caregiver spouse (the husband) creates a Testamentary Trust through his Will for the benefit of his wife, and if the caregiver spouse dies before his wife, any assets owned by the caregiver spouse in his name alone would pass through probate and fund the Testamentary Trust created by his Will for the benefit of his wife. The Trust assets could be used for his wife’s benefit during her lifetime, to pay for anything his wife needs that is not covered by Medicaid – things like flowers, books, hearing aids, haircuts, a new television, new clothes, companions or additional caregivers, or any number of other things outside of the cost of skilled nursing care. When the wife passes away, any assets remaining in the testamentary trust will be distributed according to the Will’s provisions – for example, to the couple’s children, or other individuals or charities.
3. Who Can be the Trustee of a Testamentary Trust?
The Trustee of the Testamentary Trust is responsible to manage the Trust assets for the benefit of the Trust beneficiary – the wife in the previous example. Anyone other than the wife can be the Trustee of the Testamentary Trust for the wife’s benefit. For example, when the husband creates his Will with a Testamentary Trust for his wife’s benefit, he names his son Jack as the Trustee. Jack will have the authority to manage and invest the assets in the Testamentary Trust after his father’s death, and the discretion to use the assets in the Testamentary Trust for his mother’s benefit during her lifetime.
There may be a conflict of interest if Jack is also a beneficiary of the Testamentary Trust after his mother’s death, in that the fewer assets he uses for his mother’s benefit while she is living, the more that will be left for Jack and the other beneficiaries of the Trust after her death. This is something that should be considered when choosing the Trustee for the Testamentary Trust. It may be appropriate to choose someone who is not an ultimate beneficiary of the Trust after the primary beneficiary passes away.
4. Ownership of Assets is Key
In order for a Testamentary Trust to work properly, the creator of the Will that includes the Testamentary Trust – the husband in our example – must own assets in his name alone. Assets that are owned jointly will typically pass automatically to the surviving joint owner and will not pass through probate and into the Testamentary Trust at the husband’s death. Similarly, assets that name a beneficiary will pass automatically to the named beneficiary and not through probate and into the Testamentary Trust.
For this reason, if a Testamentary Trust is created, a change in the way assets is owned is often required. In our example, the home that is jointly owned by husband and wife should be transferred into the husband’s name alone, so that when he dies the home will pass via the husband’s Will into the Testamentary Trust for his wife’s benefit. Similarly, a joint bank account should be transferred into the husband’s name. Perhaps beneficiaries should be removed from CD accounts, etc. How assets should be restructured is specific to each person’s situation, and should be done only with the advice of an attorney. However, if assets are structured properly to fund a testamentary trust, those assets will be available to provide for the surviving member of the married couple even if they are receiving Medicaid benefits.
5. What are the Disadvantages of Using a Testamentary Trust?
One of the main disadvantages of using a Testamentary Trust is that the assets must pass through probate before they are protected under the Testamentary Trust. Probate is an expensive and time-consuming process, made even more time consuming by the impact COVID-19 has had on our probate courts in Massachusetts. For this reason, it may be best to make sure the intended Trust beneficiary has some assets in her name that can be used for living or care expenses until the Testamentary Trust is established when the probate process is complete.
If the husband in our example creates a Testamentary Trust, holding assets in his individual name in order to fund his Testamentary Trust at death will subject those assets to a Medicaid claim at the husband’s death if he receives Medicaid benefits during his lifetime. For this reason, Testamentary Trusts are typically created by individuals who have not and do not expect to receive Medicaid benefits during their lifetime, although their spouse likely will receive those benefits.
Finally, if the ownership of assets is not structured properly and thoughtfully, the Trust may not work at all, or may not work to its fullest advantage. For this reason, this type of planning should not be undertaken without advice from an experienced elder law and estate planning attorney.
Testamentary Trusts can be a very effective planning tool in a very specific situation – when one spouse wants to protect assets for the surviving spouse in the event the surviving spouse is expected to require a nursing home level of care and wishes to qualify for Medicaid benefits to pay for that care after the first spouse passes away. If this is your situation, seek out the advice of an experienced elder law and estate planning attorney who can assess your situation and discuss whether a Testamentary Trust is the right planning strategy for you.
Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and the current President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
April, 2021
© 2021 Samuel, Sayward & Baler LLC
The Importance of Letters of Intent
One of the purposes of a Trust is to provide a structure for the distribution of assets after the lifetime of the creator of the Trust (the Grantor of the Trust) to the beneficiaries of the Trust who are designated to receive the Trust assets after the Grantor passes away.
In some cases, Trust assets are distributed outright to beneficiaries, meaning the Trustee has no discretion over when or if the beneficiaries receive the Trust assets. As soon as debts and taxes are paid, and the Trust assets are distributed from the Trust to the beneficiaries and the Trust terminates.
However, in many cases, Trusts are created for the purpose of providing oversight and management of the Trust assets for beneficiaries following the Grantor’s death. This may be done because the beneficiaries are minor children. In such cases, the Trustee will use the money for the children to ensure their living expenses are covered, their education is paid for, and the beneficiaries have a chance to mature before they are given control of inherited assets. Or it may be that a beneficiary is not good at managing money, is in a difficult marriage, has spendthrift tendencies or a gambling habit. In such cases, the Trust is created to protect the inherited assets. Control of the Trust assets will remain with the Trustee who will apply the Trust resources for the beneficiary as the Trustee determines to be prudent. Or it may be that the beneficiary has special needs or is disabled in some way, and the Trust assets are there to provide for the beneficiary’s needs in ways that will not disqualify the beneficiary from receiving or being eligible to receive needs-based public benefits.
In all of these circumstances, it is the job of the attorney drafting the Trust to communicate the Grantor’s intent while at the same time making sure that the Trust instructions are flexible enough to allow the Trustee to respond to changed circumstances or unanticipated events that arise following the Grantor’s death. Because of the need for flexibility, mandating specific directions in the Trust document can be unwise, both because they may tie the Trustee’s hands, and also because they may become inappropriate as the beneficiary ages or circumstances change.
On the other hand, the intent of the Grantor of a Trust is extremely important, as it is that intent that should inform the Trustee’s decision-making from how the Trust assets are managed to how the Trustee exercises discretion for the benefit of the Trust beneficiaries.
Enter the letter of intent – an excellent tool that a Grantor can use to spell out his intent and provide guidance to the Trustee without memorializing these intentions in the Trust document. Think of a letter of intent as the Grantor’s private instructions to the Trustee. A letter of intent should be written by the Grantor in the Grantor’s own words. In it, the Grantor should state the reasons for creating the Trust, tell the Trustee about the beneficiaries, and express the Grantor’s wishes for the way the Trustee should use the Trust resources to help the beneficiary.
For example, the Grantor of a Trust that is intended to manage assets for the Grantor’s minor children may express his wish that his children attend private secondary school and that tuition be paid for by the Trustee, that his children be allowed to travel to visit relatives abroad, or be encouraged to study abroad in college, or that his daughter’s love of horseback riding or his son’s passion for the saxophone be fostered and encouraged.
If the Trust is for the benefit of a beneficiary with special needs, the Grantor may want to express wishes regarding the child’s need for specific therapies or enjoyment of certain experiences – for example a yearly trip to Disney World. A letter of intent can also set out a parent’s vision for their child’s future – for example, wanting the child to be able to live independently with a companion, or in a group home setting.
The beauty of a letter of intent is that it can be changed as often as necessary, to keep pace with the Grantor’s changing desires for the beneficiaries without the need to update the Trust document. This can be especially useful where the intended beneficiaries of the Trust are young, and their needs and interests, and the Grantor’s goals for them may change from year to year – for example, if a child’s passion for the saxophone this year turns into a passion for the trumpet, or soccer, or chess next year.
The letter of intent need not be perfect or all encompassing, and as time passes, may no longer be relevant. For example, if the Grantor dies while beneficiaries are young, the Grantor’s intent as expressed in that letter will be frozen in time. However, a Trustee will be able to take some useful guidance from the letter that can be applied as the beneficiaries age.
As a Grantor, writing a letter of intent is not an easy exercise, or one that should be done in haste. However, done thoughtfully and mindful of the fact that it is to be used as a roadmap of your intentions for the people you intend to benefit with the assets you leave behind, it can be a very fulfilling exercise. If the letter is modified as time goes on and circumstances change, you have an opportunity to leave the best possible evidence of your intentions for those you have entrusted with carrying out those intentions after your lifetime.
If you have questions about creating your own letter of intent, please contact our office. We will be happy to assist you.
5 Types of Trusts – How to know which Trust is Right for You
We include a column in our law firm’s quarterly newsletter called ‘Ask SSB’ in which we answer questions posed by readers. Recently, a reader asked about the different types of trusts and which one was right for her. As with most estate planning questions, the answer to, ‘what’s best for me?’ is, ‘it depends.’
There are far more than 5 types of trusts and each type of trust is intended to accomplish different goals. Read on to learn about 5 types of commonly used trusts.
- Revocable Living Trust. A Revocable Living Trust is one of the most common estate planning tools. Reasons for using a Revocable Living Trust include probate avoidance and providing management of assets for beneficiaries (such as young children) who are not yet mature enough to manage assets for themselves or for whom an inheritance should be protected from ‘creditors or predators.’ The basic “players” in any trust are the Grantor (sometimes called the Settlor or Donor), the Trustee and the beneficiary. The Grantor is the person (or persons in the case of a married couple) who creates the Trust. The Trustee is the person (or persons) who is in charge of managing the trust assets, and the beneficiary is the person (or persons) who is entitled to receive distributions from the trust. In a Revocable Living Trust, these three roles are often the same person while the Grantor is alive. For example, if I create a Revocable Living Trust, I am the Grantor. I will name myself as the Trustee of the trust and I will also be entitled to receive distributions from the trust. After the Grantor’s death, a successor Trustee will take over management of the trust assets for the benefit of the successor beneficiaries named by the Grantor to benefit from the Trust assets after the Grantor’s death.
- Testamentary Trust. A Testamentary Trust is a trust created under a Will. A testamentary trust comes into existence only when the testator (person who created the Will), dies and the Will is probated. A Testamentary Trust cannot be used to avoid probate. In fact, a Testamentary Trust requires that any assets allocated to it to be subject to the ongoing jurisdiction of the Probate Court. The primary reason for incorporating a Testamentary Trust into a Will is for long-term care planning purposes. There is a federal regulation that provides that assets funded into a trust via a Will are not deemed to be countable assets in determining whether the surviving spouse of the testator is eligible for Medicaid (MassHealth) benefits to pay for long-term care. Testamentary trust planning is often used for married couples where one person is at heightened risk of needing long-term care.
- Supplemental Needs Trust. A Supplemental Needs Trust is commonly used to preserve needs-based governmental benefits for a person with disabilities. Many benefit programs have an asset limit of $2,000 for eligibility. If someone who receives Supplemental Security Income (SSI), for example, were to receive an inheritance of more than $2,000, they would lose the SSI benefit until the amount in excess of $2,000 is spent down in an allowable manner. Giving the assets away is not an allowable spend down. Transferring excess assets to a first-party Supplemental Needs Trust is an allowable spend down. The downside to this type of Supplemental Needs Trust is that it must provide that Medicaid benefits received by the beneficiary during his lifetime be ‘paid back’ to the state at the beneficiary’s death. With respect to a future inheritance this problem is easily avoided by the creation of a third-party Supplemental Needs Trust. This is a trust created by someone other than the beneficiary. For example, parents of a child with disabilities, can create a third-party trust for the benefit of their child into which the child’s inheritance would be paid at the parents’ deaths. A third-party Supplemental Needs Trust does not need to include a payback provision, and assets in the Trust will not cause the beneficiary to lose needs-based governmental benefits. Assets remaining in the trust at the death of the disabled beneficiary may be distributed to other family members.
- Irrevocable Income Only Trust. An Irrevocable Income Only Trust is often used to preserve assets from having to be spent on future long-term care costs. Given the very high cost of long-term care, many people worry that if they have the misfortune to end up in a nursing home all of their assets will be spent on the cost of their care and they will not be able to preserve any assets for their children. The way this type of trust works is that the Grantor of the trust transfers assets (a house or an investment account, for example) to the trust. The terms of the trust permit only income to be distributed out of the trust to the Grantor during his or her lifetime. The trust must prohibit the distribution of any principal to the Grantor. That means, the grantor cannot receive the transferred assets back. There is a 5-year ineligibility period for long-term care Medicaid benefits following the transfer of assets to this type of trust. After the 5-year period, the assets in the trust are not deemed to be ‘countable’ for purposes of determining the Grantor’s eligibility for Medicaid benefits to pay for nursing home care costs. Be aware that this is easier said than done, as MassHealth, the agency that administers the Medicaid program in Massachusetts, does not view such trusts favorably and looks hard to find ways to invalidate them.
- Irrevocable Life Insurance Trust. In addition to long term care planning, irrevocable trusts are created to reduce estate taxes. There are many types of irrevocable trusts used for estate tax planning: Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trust (QPRTs), Gift Trusts, and Charitable Trusts, to name a few. An Irrevocable Life Insurance Trust (ILIT) is used to remove life insurance from the insured’s taxable estate. Although life insurance is not income taxable, it is a taxable asset for estate tax purposes. While this is less of an issue than it used to be under our former federal estate tax laws (our current federal estate tax law means that only the very wealthiest estates are subject to federal estate tax), estate tax is still an issue for people who live in states like Massachusetts which has its own estate tax system. In Massachusetts, estates in excess of $1 million are subject to estate tax. If someone has assets such as a house, a 401K plan, bank accounts and investments totaling less than $1 million when they pass away, there will not be any Massachusetts estate tax. However, if that person also has a $1 million life insurance policy, then their taxable estate is $2 million and there will be estate tax due to the Commonwealth of $100,000. If the life insurance policy was owned by an Irrevocable Life Insurance Trust, then it would not be included in the taxable estate and the estate tax liability would be eliminated.
The best way to determine the Trust that is best for you and your situation is to consult with an experienced estate planning attorney. If we can help you with that planning, please contact us.
Attorney Suzanne R. Sayward is a partner with the Dedham law firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit our website at www.ssbllc.com or call 781/461-1020.
January, 2021
© 2021 Samuel, Sayward & Baler LLC
Five COVID-Inspired Estate Planning Resolutions
Looking ahead to this year’s resolutions, here are five estate planning resolutions that the COVID-19 pandemic has shown us to be more important than ever.
- Resolve to Have an Estate Plan
Most of the clients I meet who do not have a Will, Power of Attorney or other estate plan documents know they should have them, they have just put off this task – sometimes for much longer than they should, especially when faced with a global pandemic. I met many people in 2020 who had put off estate planning and were suddenly in a panic to get it done given what was happening all around them. If you are similarly situated, make it one of your goals for 2021 to get an estate plan in place. A simple plan (Will, Power of Attorney, Health Care documents) is better than nothing at all. If you have young children or assets in excess of $1 million, a Trust may be advisable to meet your planning goals. An experienced attorney who prepares Wills and Trusts as the primary focus of their practice will give you options and let you decide which plan is best for you at the moment.
If you already have an estate plan in place (good job!) resolve to review it this year to make sure the provisions of your plan still reflect your wishes. If it has been more than five years since the documents were signed or you have had changes in your personal or financial situation, meet with an estate planning attorney (virtually of course!) to identify any changes that should be made.
- Resolve to Get it Done Right
The advice of an experienced attorney is not cheap and estate planning attorneys are no exception. However, making sure decisions can be made for you if you are ill, making sure your assets go where you want them to go at your death, managing inherited assets properly for young beneficiaries, protecting assets for your family, avoiding probate and saving your beneficiaries as much income and estate tax as possible are important goals. The way your estate plan is carried out will have a significant financial and emotional impact – positive or negative – on you and your family. When something is this important, make sure it’s done right. The temptation to draft your own Will or other legal documents is there and is frankly a poor planning option. In my 33 years of practice, I have yet to see a Will drafted by a client that will accomplish what the client thinks it will. In fact, most self-drafted Wills create more problems than they solve. Proper estate planning is not something that can be done cost-effectively on your own. Seek the advice of an experienced estate planning attorney, not a general practitioner who prepares Wills along with divorce and personal injury law. Get it done right, and you will have the peace of mind that crossing this task off your list will bring.
- Resolve to make sure your Beneficiary Designations are Up-to-Date
Many of your most significant assets – life insurance, retirement accounts, annuities – will be paid to a designated beneficiary at your death. Properly designating those beneficiaries is more complicated than it may appear, and understanding the implications of certain beneficiary designations is crucial. Designating a trust as beneficiary for the benefit of a young or disabled beneficiary can be instrumental in avoiding a lengthy and costly court proceeding to appoint a guardian, or avoiding the loss of public benefits a disabled beneficiary may be receiving. Understanding how distributions from retirement accounts work after the death of the account owner, and how different beneficiary designations will impact the income tax payable on those distributions is critical to making appropriate designations, and is something that changed significantly when the SECURE Act became law on January 1, 2020. Ensuring your beneficiary designations are consistent with your overall estate plan is vital to accomplishing your estate planning goals.
- Resolve to have Health Care Documents in Place
Much of the estate planning you do is for the benefit of your family or other heirs and will never impact you. Creating health care documents that reflect your wishes is one area of estate planning that will directly and significantly impact you if you experience a period of illness prior to death. This has never been more apparent than this past year, when so many people became incapacitated, and so quickly, by the COVID-19 virus. Designating Health Care Agents to make health care decisions for you if you are unable to do so, making sure the people you want to be able to get information from your physicians can do so and will not be obstructed by privacy laws, and determining your care preferences and communicating them to your Health Care Agents and physicians are all crucial to making sure your health care wishes are carried out. In Massachusetts, the legal document that we use to make sure these things happen are Health Care Proxies, HIPAA Authorizations and Living Wills. The person you name to make health care decisions for you is called your Health Care Agent. These documents are all part of a complete estate plan, and arguably the most important part from your perspective.
- Resolve to Make Sure People You Care About Have a Plan Too.
Estate Planning is important for anyone over the age of 18. College-age children and elderly parents should have Durable Powers of Attorney and health care documents that will allow someone to make financial and health care decisions for them, and have access to information if they are ill or incapacitated. This year underscored this need, as some college students fell ill far from home, and elderly parents were too sick to make decisions regarding their own care. Parents of young children should name guardians for their children and create a trust to manage assets for young beneficiaries to avoid a child receiving control of an inheritance at age 18. Parents who will leave a significant inheritance to their children should consider asset protection planning to protect inherited assets from a child’s creditors, divorcing spouse, etc. Older couples or others with large estates can save their heirs significant estate taxes in Massachusetts with proper planning. Elderly parents may want to plan to protect assets from long-term care liability.
Now that 2020 is behind us and a COVID vaccine is here, we look back on 2020 grateful that we were able to continue to do our work, happy to be able to provide some peace of mind to our clients in these uncertain times, and hopeful that there are better days ahead. For those of you who are fortunate enough to be alive and well in these challenging times, we recommend you take these resolutions to heart, and create or update your estate plan today. If a friend or family member needs some inspiration to make estate planning a 2021 resolution, share this article with them. Wishing you a Happy and Healthy New Year!
Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and the current President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
January, 2021
© 2021 Samuel, Sayward & Baler LLC
Thirteen Estate Planning Terms You Need to Know
We recently celebrated National Estate Planning Awareness Week during the week of October 19-25, 2020. Although it is nice to have an entire week each year devoted to raising awareness of the importance of estate planning, I would argue that 2020 has been National Estate Planning Awareness Year, as the COVID-19 pandemic has brought the importance of estate planning to the forefront of everyone’s mind. Here at SSB we have had a busy year making sure our clients’ plans are up-to-date, and helping new clients put a plan in place so that they, too, can have the peace of mind an estate plan brings in these uncertain times.
As Estate Planning Attorneys, we know Estate planning is incredibly important and not just for the wealthy. Estate planning is something every adult should do. Estate planning can help you accomplish any number of goals, including appointing guardians for minor children, choosing a health care agent to make decisions for you should you become ill, appointing an agent to handle your financial and legal matters if you become incapacitated, minimizing taxes so you can pass more wealth on to your family members, and stating how and to whom you would like to receive your assets when you pass away.
While it should be at the top of everyone’s to-do list, estate planning can often feel overwhelming, and estate plan documents can sometimes seem to be written in their own language. Here are some important estate planning terms you should know as you think about your own estate plan.
Assets
Generally, anything a person owns, including a home and other real estate, bank accounts, life insurance, investments, retirement accounts (IRAs, 401ks), annuities, furniture, jewelry, art, clothing, and collectibles.
Beneficiary
A person or entity (such as a charity) that is designated to receive assets from an estate, trust, account, or insurance policy.
Distribution
A payment in cash or assets to a beneficiary who is entitled to receive it.
Estate
All assets and debts left by an individual at death.
Fiduciary
A person with a legal obligation (duty) to act primarily for another person’s benefit, e.g., a trustee or agent under a power of attorney. “Fiduciary” implies great confidence and trust, and a high degree of good faith.
Funding
The process of transferring (re-titling) assets to a living trust (a trust created during the creator’s lifetime). A living trust will only avoid probate at the trust creator’s death with assets that are funded into the trust during the trust creator’s lifetime, or that will be automatically payable to the trust (i.e. by beneficiary designation) at the trust creator’s death.
Incapacitated/Incompetent
Unable to manage one’s own affairs, either temporarily or permanently; often involves a lack of mental capacity.
Inheritance
The assets received from someone who has died.
Guardianship / Conservatorship
The court-supervised process of appointing a guardian / conservator to make decisions on behalf of an incapacitated or incompetent person, including health care and financial decisions.
Marital deduction
A deduction that may be taken on the federal and Massachusetts estate tax returns, it lets the first spouse to die leave an unlimited amount of assets to the surviving spouse free of estate taxes. However, if no other tax planning is used and the surviving spouse’s estate is more than the amount of the federal and/or state estate tax exemption in effect at the time of the surviving spouse’s death, estate taxes will be due at that time.
Settle an estate
The process of winding down the affairs of a deceased person, and includes identifying and valuing of assets, paying debts and taxes, and distributing assets to beneficiaries.
Trust
A fiduciary relationship in which one party, known as the trust creator, settlor or grantor, gives another party, known as the trustee, the responsibility to hold property or assets for the benefit of another party, the beneficiary. The trust should be memorialized by a written trust agreement which specifies the trustee’s duties and powers, the trustee’s obligation to the beneficiary, and the beneficiary’s rights to income or principal from the trust.
Will
A written document with instructions for disposing of probate assets after death. A Will can only be enforced through a probate court. A Will may also include the nomination of guardian for minor children.
If you have any additional questions about estate planning, or would like to consult with an experienced estate planning attorney about your own estate plan, please contact our office. We will be happy to assist you in creating a comprehensive plan that is tailored to your unique needs and goals, so that next year when National Estate Planning Week rolls around, you will have something to celebrate!
November, 2020
© 2020 Samuel, Sayward & Baler LLC
“I Just Need a Will”
Potential clients sometimes call our estate planning and elder law firm to make an appointment to see an attorney stating that they “just need a Will.” Ironically, a Will is often the least needed estate planning document. For many people, their estate will pass to their intended beneficiaries without a Will exactly as it would if they had a Will. That’s because the Massachusetts intestate law that determines the people to whom an estate will be distributed in the absence of a Will, is in keeping with the distribution and inheritance planning wishes of many people.
Massachusetts law regarding wills and inheritance provides that if a member of a married couple dies without a Will and all of the couple’s children are children of the marriage, then the estate of the deceased spouse will pass entirely to the surviving spouse. If the surviving spouse later dies without a Will without having remarried, her estate will pass to their children in equal shares. Further, many married couples own all of their assets jointly (their home, bank accounts, investment accounts) or have beneficiaries designated to receive their assets (IRAs, 401Ks, life insurance, etc.). In that case, no assets pass under the terms of the Will and instead pass by operation of law (joint ownership) or via the ‘contract’ made with the financial company or life insurance company when that beneficiary designation form was completed.
Of course, for people who do not have a situation that fits neatly under the intestate statute, a Will, and often a Trust, is vital. This includes blended families, people who have beneficiaries with disabilities or special needs or beneficiaries who struggle with addiction or beneficiaries who are spendthrifts. It also includes those with minor children and those who want to reduce estate tax or provide creditor protection for the inheritance they leave their beneficiaries.
Frankly, the essential estate plan documents that everyone over the age of 18 should have in place include a durable Power of Attorney and a Health Care Proxy. These documents appoint someone to pay bills, manage assets, deal with the insurance company and make medical decisions if the person making those documents has an accident or gets sick and cannot do those things for himself. The law does not make it easy for someone to do these things in the absence of Power of Attorney or Health Care Proxy. In the case of incapacity without those documents in place, the law requires a court proceeding to appoint a conservator to manage an incapacitated person’s finances and another court proceeding to appoint a guardian to make medical decisions. These are expensive, time-consuming, and public proceedings and best avoided.
Give us a call us at 781-461-1020 and let us help you create the right estate plan (even if you just need a Will) for your family.
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.
December, 2019
© 2019 Samuel, Sayward & Baler LLC
In Estate Planning, Preparation Is Key
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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