Special offer: placeholder estate plans
· The firm offers an abbreviated placeholder plan of four documents (will, health care proxy, HIPAA authorization and durable power of attorney).
· For first responders, all estate planning fees are discounted by 50%.
Notary in the age of physical distancing
·We offer notary services in our large conference room.
· A will does not have to be notarized to be valid, but there may be delays and problems in settling the estate if the will is not executed with the usual formalities including notarization.
Trusts: revocable, irrevocable, insurance, realty, etc.
The trustees invest and account for the principal and income of the trust, make distributions in accordance with the terms of the trust and file the necessary tax returns. The trustees are given broad powers to administer the trust efficiently and economically without first obtaining the order or approval of the probate court.
Durable Power of Attorney: authorizing someone to act for you even if you are competent.
Health Care Proxy - authorizing someone to make health care decisions for you if you're unable to make them yourself.
Living Will - indicating your preferences for end of life care.
Directive as to Remains - to set out what you want for organ donation, funeral, burial or cremation, and similar matters.
Don’t assume that your spouse will inherit everything automatically if you do not have a will!
Wills do a few very important things:
· They say who gets what from your estate (your beneficiaries).
· They put someone in charge of your estate (the personal representative in Massachusetts; the executor in other states). The personal representative collects and preserves the estate’s property, pays creditors’ claims, prepares and files state and federal tax returns, collects information about the estate, and distributes estate property as directed in your will.
· They give the personal representative the authority to do more than the bare minimum that the intestacy laws provide.
A will can do much more, such as name guardians for your minor children if you and your spouse are both gone.
Every state has a series of laws that determine what happens if you die without a will.
· In Massachusetts, the intestacy laws are rigid and inflexible. They take a snapshot of your family as of the nanosecond of your death, and determine who gets what based on your blood relationships and your marriage.
· The legislature did its best to enact laws that suit most people in most situations. These laws are not tailored to you or your situation, let alone your preferences and goals.
Examples of when your spouse does not inherit the entire estate:
· If you leave a spouse but no children, and if your parents survive you, your spouse gets only $200,000 and 75% of the balance. Your parents get the other 25%.
· If you leave a spouse, children and stepchildren, your spouse gets the first $100,000 and half of the balance; your surviving descendants get the other half of the balance.
· If your spouse does not survive you (which may seem obvious), or if your spouse is not established to have survived an event, including the death of another individual.
Even if you leave your estate to the same people who would receive it if you did not have a will, you can make your will so that the property gets in their hands more quickly and with far less expense.
· For example, you can authorize your personal representative to sell real estate the power of sale). When someone dies without a will, a separate court proceeding is required to get authority from the Probate Court to sell real estate (the license to sell). No buyer will accept a deed from an estate without either a properly probated will with a power of sale or cannot be sold.
Estates with wills usually require less Probate Court time and effort. These days, Probate Courts in Massachusetts are limited to emergency matters. Having a will can expedite the administration of your will. A will that is paired with a trust can allow your survivors to manage assets even before the Probate Court acts.
What to do after you decide what to put in your will?
It’s not enough just to sign a will in Massachusetts.
· You need witnesses, and a notary.
· You need to make certain specific declarations to the witnesses in the presence of the notary. Massachusetts now permits remote notarization by video conference, but it is not well-suited to wills and estate plans.
· A well-drafted will includes a self-proving affidavit and other clauses to facilitate the administration of your estate.
Keep your will in a safe place so it may be found promptly. You may want to put a copy of your will (not the original) in a safe deposit box, or send it to a friend or close relative who does not live with you.
Your Health Care Proxy authorizes someone to make medical decisions for you if you are unable to make or communicate such decisions for yourself.
· You can amend or revoke a health care proxy at any time.
· Your agent can act for you whenever you can’t make or communicate your health care decisions.
· Your agent's authority stops as soon as you make or communicate your health care decisions.
Your HIPAA Authorization authorizes someone to have access to your medical records. You can amend or revoke a HIPAA Authorization at any time.
Your Will governs the disposition of your property after your death. It has no force until you are gone and the Probate Court officially appoints someone to handle your estate.
Your will does not manage property during your lifetime smoothly. F or that, please consider a trust described below),
Your Trust is a separate legal entity that you create, giving property to trustees to manage for beneficiaries according to your instructions.
There are many types of trusts
· Revocable trusts (sometimes called living trusts)
· Marital trusts (to reduce estate taxes)
· Irrevocable life insurance trusts (for estate planning and funding)
· Charitable trusts
· Special needs trusts
· Real estate trusts
· Testamentary trusts
The type of trust that best suits you depends on your situation and how much you value flexibility, certainty, reducing the tax bite, etc. Our firm is here to walk you through your choices.
In your Durable Power of Attorney, you authorize your chosen agent to act for you in various matters.
The person you name is called your attorney-in-fact. This person need not be an attorney at law.
You don't have to be incapacitated for your attorney-in-fact to act for you. Say you are stranded in Iceland when the volcano Eyafjallajökull explodes. You’ll be home soon, and you’re certainly competent. In the meantime, who is going to make your mortgage payment? File your tax return? Deposit checks? Renew your car registration?
Because the unexpected occurs, a durable power of attorney is a powerful protection against uncertainty. With a well-drafted power of attorney, you can avoid guardianship and conservatorship, the public and expensive probate procedures for people who are unable to act for themselves.
We recommend that you make the durable power of attorney effective immediately, and not when you become incapacitated: if the unexpected occurs, it’s best to have someone ready to act now, instead of waiting for a formal determination of your incapacity.
Yes! And it may not cost you anything.
The estate planning landscape has changed significantly in the past five years. While traditional estate planning techniques remain critically important, it’s more important than ever to review the underlying tax planning.
If you did comprehensive estate planning years ago, now is the time to revisit your estate plan. Estate tax laws have changed, and your situation and your goals have probably changed too.
Although Massachusetts has no gift tax, its $1,000,000 estate tax exemption means that it is crucial to weigh any Massachusetts estate tax cost against the income tax savings that you may face.
For those with assets in excess of the federal exemption, these techniques can similarly be useful to minimize estate taxes and maximize the ability to get a step up in basis on assets at death.
Consider estates that are under the federal estate tax exemption (it’s $11,580,000 for 2020, and increases annually until 2025).
· It is more favorable from a tax perspective to inherit assets than to receive lifetime gifts. Inherited assets are treated as having been purchased for their fair market value as of the date of death of the donor. Usually there is no tax liability if the recipients sell the assets soon after the death. But if they receive the assets by a lifetime gift, they also get the carryover basis of the donor. There could be significant capital gain when they sell the assets.
· To determine the best techniques for taking advantage of the step up in basis, first let’s consider whether your estate is likely to be taxable. The federal estate tax exemption is $11,580,000 per person for 2020. For estates under that amount, it is far more favorable to inherit assets at death than to receive them by lifetime gift.
· Inherited assets, including assets held in a revocable trust, are treated for tax purposes as if the recipients purchased them for fair market value as of the donor’s death. Usually recipients can then sell the inherited asset without incurring income tax liability. If the donor instead had made a lifetime gift to them, the gift came with the same basis as the donor had. Carryover basis can result in a large capital gain when the recipients sell the asset. Stepped up basis can avoid capital gains.
There are a number of planning opportunities to maximize qualifying for a step up in basis on assets:
1. Unwind old gifts: When the estate tax exemptions were lower, it made good planning sense to get the assets out of the estate. With the newly increased exemption, including these assets in the estate has the benefit of a step up in basis. The savings in income tax likely outweigh the cost (if any) of estate taxes. You can unwind gifts to a trust by modifying, dissolving or decanting the trust.
2. Exchange Assets: Clients gifted assets to intentionally defective grantor trusts to remove the value of assets from their estates for estate and gift tax purposes. The assets retained the basis that they had in the hands of the donors. That carryover basis comes at a cost: the recipients face hefty capital gains tax if they sell the assets at a gain when their basis is the same as the donor’s. If the grantor trust permits exchanging assets in the trust for other assets of equal value, you can move assets with low basis from the trust back into the estate, and put assets with high basis in the trust. The low-basis assets in the trust will get a step up in basis at the death of the grantor. The high-basis assets pass through the estate. The savings for income tax purposes likely outweigh the cost (if any) of estate taxes.
3. Powers of Appointment: Not to be confused with a power of attorney, a power of appointment is a technique that permits a beneficiary to say who gets the inherited assets after the beneficiary is gone. (A power of attorney authorizes someone to act for you while you are alive.). In some cases, you can get a step up in basis for assets without transferring them. When a taxpayer grants a power of appointment over assets to another person, the exercise of the power results in a step up in basis at minimal estate tax cost if any.
4. New Role for Life Insurance Policies: Clients who used life insurance to provide liquidity to their estates to pay estate taxes now have a new option for the policies. If their estates likely will not owe federal estate tax, they can use the policies for other purposes. They can change the beneficiary, and they can even revise the policies so that they better suit the clients’ revised estate planning goals. For example, they may be able to exchange the policies for better coverage, or to reduce premiums for a lower death benefit.
Our firm provides a complimentary annual checkup for our estate planning clients.
The checkup is to encourage our clients to review their estate plans, especially after any major life change such as:
· receiving an inheritance
· birth or adoption of a child or a grandchild
· children heading off to college or completing their educations
· buying or selling real estate
· changing jobs
· getting close to retirement.
Well-drafted estate plans usually don’t have to be updated for several years, but it’s a good idea to review them periodically. The law continues to evolve, and people’s estate planning goals change.
The checkup includes a brief discussion of clients' current situation and goals, plus review of the beneficiary designations for their life insurance and retirement plans.
Copyright © 2020 Attorney Nancy Weissman - All Rights Reserved.