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Celebrities Who Have Died Without a Last Will and Testament Have Taught Us to Plan NOW
Patricia Bloom-McDonald • Oct 22, 2021

Over the last few years, we’ve seen lots of stories in the news about athletes, musicians, and other celebrities who’ve died without a Last Will and Testament, and the ensuing court battles by families.  While you may not be a world-famous celebrity, there are some really good reasons you should consider making a thorough inventory of your assets and setting up an estate plan  now :

  1. It will be easier for family members to help you in a crisis .  Estate planning covers disability as well as death.  If you are faced with a medical crisis or a nursing home situation, your family members will need to know your financial information and your wishes regarding your medical care – and be able to act upon them.  A properly-drafted Durable Power of Attorney (for financial reasons) and a Health Care Proxy with Advance Health Care Directives will let your appointed individuals act on your behalf, and an inventory of your income and assets will allow them to do everything from pay your mortgage to feed your dog.

  2. It saves family members from playing detective .  Don’t make your loved ones spend precious time trying to piece together your financial situation by ransacking your house by digging through shoe boxes in your closet filled with old bank statements, piles of mail, and tax returns.  Make it easy for them – keep a simple notebook listing your bank accounts, CDs, investment accounts, and retirement plans, along with information about your sources of income and the names of your financial advisor, tax preparer, and lawyer.  And be sure to let your family know where the notebook, along with your important papers, can be found.

  3. It can save you – and your family members – time and money .  By sitting down and making a comprehensive list of all of your assets, you can see how complicated (or not) your financial picture may be.  Do you have assets in three different banks and two different credit unions? Time to simplify! Close out the smaller accounts and consolidate.  Do you still have old 401(k) money spread out in several brokerage accounts? Consolidate those accounts and rebalance your portfolio.  Are you holding individual stock certificates or savings bonds in a safe deposit box? Transfer the stock to your brokerage account and register the bonds on the US Treasury website, so that you and your loved ones can manage them more easily.  By managing these things now, you can simplify your life and save your loved ones the time and expense of doing it if you become incapacitated or die.

  4. It can ensure that your assets are disposed of the way you choose .  By preparing a Last Will and Testament and reviewing your assets with your advisor, you ensure that  you  decide where your assets wind up – not the court system.  Most importantly, put beneficiaries (including contingent beneficiaries) on all your financial accounts; this allows your financial assets to pass directly to the named beneficiaries without the need of Probate Court costs, oversight, and time delays in distribution. Also, be sure to review and update the beneficiary designations on assets such as retirement accounts, 401(k) plans, and life insurance policies, since those assets are disposed of by beneficiary designation, rather than your Last Will and Testament.

  5. It can help you minimize, or even eliminate, certain taxes .  None of us really like paying taxes.  And although most of us won’t have to worry about estate taxes when we die (under current law, there are no federal estate taxes imposed until an estate is above $11,700,000, and no Massachusetts estate taxes until an estate is above $1,000,000), a thorough asset list and proper estate plan can address any estate tax risks as well as take into consideration inheritance tax, capital gains tax, and even some charitable tax planning, for those of us who want to donate to charities.

So remember: a good estate plan is a lot like flood insurance – if you don’t have it when you need it, it’s too late.  Make the time to invest in peace of mind for yourself and your family.

 

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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