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Beware of Frequent Estate Planning Scams
Patricia Bloom-McDonald • Jun 15, 2021

Estate planning offers are everywhere – on television, on the internet, through phone solicitations, and even through in-person presentations (albeit less so with the COVID-19 pandemic). So how do you ensure that your intentions are captured in your estate planning documents and no one is taking advantage of you? For starters, avoid the following prevalent estate planning scams.

1. Cold Calls Offering to Prepare Estate Plans

Telemarketers and scam artists have infiltrated virtually every industry, and the legal field is no exception. These calls and emails frequently mirror those from “long lost relatives” who have had their wallets stolen and are stranded in a foreign country. Promises of providing for and protecting loved ones are common ways for scam artists to entice individuals, particularly the elderly, to pay a fee in exchange for estate planning documents. Any cold call from an individual requesting funds be wired to a bank account in exchange for estate planning documents should be approached with skepticism. Further, even if documents are produced as part of the transaction, they may not be tailored to one’s needs and may not be legally binding. Thus, these situations should be avoided.

2. Paying for Estate Planning Templates

For a simple one-time payment, some companies will offer estate planning documents that may be downloaded and modified by an individual. Although the price may be attractive, individuals should avoid using these pro forma templates to draft their individual estate plans. These templates are rarely tailored to meet state-specific requirements and often fail to take into consideration various contingencies that are necessary for a comprehensive and complete estate plan. Also, estate planning documents must be signed in compliance with the governing law. Even if you were to prepare an estate plan that meets your intentions, if it is not signed correctly, it could be disregarded by the Probate Court.

3. Not Needing an Estate Plan

Although less of a scheme, individuals frequently believe that they do not need an estate plan. Either they have minimal assets, or they have a family where everyone gets along. However, estate planning isn’t just about what happens after you die. Proper estate planning also considers who can make health care and financial decisions during life in the event of incapacity. Putting these documents in place can help minimize the need for family members to petition the Probate Court in certain situations. Even if you do not plan for incapacity, death frequently brings out the worst in people. An individual is better off naming their fiduciaries and directing where their assets should go rather than relying on their family (or the Court) to determine these issues after death. Even further, telling your family your intentions in advance may also minimize potential litigation in the future.

4. Paying Exorbitant Legal Fees

There is no question that an estate plan can cost money, and you frequently get what you pay for. However, paying money upfront to have your intentions memorialized in writing should minimize the fees and costs paid by your estate in administering your affairs. Thus, heirs should be wary if an attorney hired to administer an estate is charging exorbitant costs for what appears to be a well-prepared estate plan. Fiduciaries and family members should not hesitate to reach out for a second opinion in these situations.

5. Executing Documents You Do Not Understand

Estate planning documents are intended to plan for incapacity and death. It is important that these documents represent your intentions. However, if you fail to read the documents or do not understand what you have read, how do you know whether your goals are accomplished? It is important that you make sure that you understand what you are signing. An experienced estate planning attorney will be able to explain the documents in a clear manner and should confirm your understanding prior to signing.

So, how does one avoid these frequent scams? Establishing a relationship with an experienced attorney who you trust is key. An estate planning attorney should spend the time getting to know you, your family dynamics, and your wishes before putting a plan in place.

 

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Using a Credit Card When You Have a Special Needs Trust

25 May, 2023
A special needs trust (SNT) allows you to meet your needs while receiving government benefits, such as Medicaid/MassHealth and Supplemental Security Income (SSI). When you have a special needs trust, you can use it to pay for goods and services government benefits do not cover, such as therapy, education,and housing. Since receiving income directly from your trust would jeopardize your eligibility for benefits, your trustee cannot give you cash from your SNT. When you use a credit card for permitted transactions, and your trustee pays off the balance with funds from your trust, these payments to a credit card company are not considered income. An SSI or Medicaid/MassHealth recipient who is capable of managing their own affairs can therefore use a credit card to make small purchases, and the trustee of the special needs trust need not micromanage every transaction. In the past, beneficiaries of SNTs sent their bills to their trustees for payment. Today, an individual with an SNT who qualifies for a personal credit card may find that using a credit card is more convenient. Credit cards have several benefits. Using a credit card to manage payments from your special needs trust allows you to maintain independence, gain access to some of the advantages of a credit card, and easily keep records while preserving your eligibility for Medicaid/MassHealth and SSI. Although credit cards can help people manage their special needs trusts, there are also several important restrictions and considerations to keep in mind. Consult with a special needs planner to ensure all transactions are acceptable under the trust's rules and comply with government regulations. The Benefits of Using Credit Cards When You Have a Special Needs Trust If you have a special needs trust, using a credit card has many benefits, including: Independence : Allowing you to maintain your independence. You can use your card to make qualifying purchases yourself. Your trustee does not have to make the transactions for you. Access to the Typical Advantages of a Credit Card : Using it responsibly can help you establish or build credit history, which may be important for your future financial needs. Record-Keeping : Credit cards provide easy record-keeping and a convenient way to monitor transactions from your special needs trust, which can also help special needs trustees fulfill their duty to maintain records. When you use your card, your trustee can observe your purchases and ensure that all expenses are allowable under the trust’s rules. Your statements can help your trustee keep track of funds leaving the trust. Benefits Eligibility : While adhering to Medicaid/MassHealth and SSI’s income and asset limits, you can access funds from your SNT. Credit cards can help prevent your trustee from accidentally providing you with cash payments that could affect your eligibility for government benefits. Considerations When Using a Credit Card for Your Special Needs Trust While you can use a credit card to access funds from your special needs trust for certain transactions , restrictions apply. If your trustee sees a charge on your card that could affect your benefits eligibility , they can flag it for review. You cannot use your credit card to pay for food and shelter, which SSI would cover. When administering your funds, your trustee must ensure that any expenditures are for your sole benefit if you have a first-party special needs trust. While using a credit card is appropriate, you should not use a debit card. Debit cards are considered cash income. Best Practices When using a credit card for a special needs trust fund, remember several best practices. Choose a card with low fees and interest rates. Set a clear budget and monitor transactions regularly. Keep thorough records and receipts of expenses. Consult with your special needs planning attorney. A special needs planning attorney can help you navigate the rules that apply to your trust and understand how to use a credit card to preserve your Medicaid/MassHealth and SSI eligibility. 

How an ILIT can help offset estate taxes

12 May, 2023
With the Federal estate tax exemption possibly about to be lowered, it may be time to think about steps you can take to keep your estate from being taxed. An irrevocable life insurance trust allows you to pass on money to your heirs while avoiding both the federal estate tax, as well as any applicable state estate tax which is currently $1 million in the Commonwealth of Massachusetts. Senate Democrats have proposed lowering the current estate tax exemption from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. While it is unclear if this proposal will pass, it is likely that some change to the estate tax is coming. Even if Congress does not take any action, the current rate will sunset in 2026 and essentially be cut in half, to about $6 million per individual. In the Commonwealth of Massachusetts, the current estate tax exemption is $1 million for individuals and is taxed at dollar $1.00. A proposal to raise it to $3 Million and the tax to start at $3 Million (not at $1.00) has been submitted in the legislature but has not yet been voted on or enacted. One way to make up for any estate tax your estate may have to pay is by setting up an irrevocable life insurance trust [ILIT]and funding it with a policy that has a death benefit that would pay your heirs some or all of the amount your estate will be taxed. If you purchased such a life insurance policy directly, it could end up being taxed as part of your estate. But if a trust owned the policy, it could pass outside your estate. While a life insurance trust can be highly beneficial, it is also complicated to set up and maintain properly. The following are some of the requirements: Trustee . If you are setting up the trust, you cannot also serve as a trustee. If you are the trustee, you have control of the trust, which could lead to the trust being included in your estate. You will need to name another trusted person or financial institution to act as trustee. Policy ownership . The trust must own the life insurance policy. If you transfer an existing policy to the trust and die within three years, the policy will still be considered a part of your estate. To avoid this risk, the trust can purchase a policy directly rather than receive an existing policy. Premiums . You need to transfer funds to the trust to pay the policy premiums, which creates an issue with gift taxes. A transfer to a trust is usually not subject to the $15,000 yearly gift tax exclusion. For a gift to qualify for the exclusion, the recipient must have a "present interest" in the money. Because a promise to give someone money later does not count as a present interest, most gifts to trusts aren't excluded from the gift tax. To avoid this, you can use something called a “Crummey” power which gives beneficiaries the right to withdraw the funds transferred to the trust for up to 30 days. As part of the process, the trustee needs to send them a letter, known as a Crummey letter, letting them know about the trust funding and their right to withdraw the funds. After the 30 days have passed, the trustee can use the funds to pay the annual insurance premium. You run the risk of the beneficiaries withdrawing the funds, but if they know that by allowing the money to stay in the trust they will receive more money later, it shouldn’t be a problem. Beneficiaries . The beneficiary of the life insurance policy is usually the trust. Once the funds are deposited in the trust, the trustee can distribute the assets to the beneficiaries in the way specified by the trust. For example, if your beneficiaries are minors, you can wait to have the trustee distribute the assets. Keeping the assets in the trust will also protect them from your beneficiaries’ creditors. The downside of an irrevocable life insurance trust is that you do not have the ability to change it once it is set up, although the policy would effectively be canceled if you stopped paying the premiums. If you are considering this type of trust, discuss it with your attorney.
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