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Essential Estate Planning Tips
Patricia Bloom-McDonald • Feb 28, 2014
Most Americans are aware of the importance of planning for their future, yet an estimated one hundred and twenty million of them have no estate plans to speak of. An estate plan, or retirement planning, is the best way to protect yourself, your assets, and your loved ones in the event of your death, illness, or in case of an accident. There is nothing like the peace of mind that comes from knowing that all of your affairs are handled in the way that you choose, even after you are gone. There are many steps that you can take to help make sure that your assets are passed on as you wish and that your loved ones are taken care of. If you are considering an estate plan, give the law offices of Estate Planning Lawyer Patricia Bloom-McDonald a call today.
Estate Planning Tips
- Always Have an Updated Last Will and Testament – Without a Last Will and Testament, there is simply no way to be sure that your property and assets will be passed on in the way that you would choose. If a resident dies without a Last Will and Testament in the Commonwealth of Massachusetts, then Massachusetts law will decide how your assets will be distributed. This is also true if you have any dependents, such as young children or elderly parents who depend on you for their care. Custody or guardianship of such dependents will be determined by the courts if you have not written a Last Will and Testament which expressly shows whom you wish to look after your loved ones when you are not longer able to.
- Make Sure You name Beneficiaries for All Accounts – It is not enough to simply name a Personal Representative to your Last Will and Testament when you are preparing an estate plan. Every contract that you draw up during the planning process should have its own designated beneficiary, no matter what is written in your Last Will and Testament. This means that your life insurance policy may name Aunt Susie as a beneficiary while your retirement plan could name your spouse. It is important to carefully choose each beneficiary, and to update them after a marriage, divorce, birth, etc.
- Be Careful When Choosing Your Estate’s Personal Representative – The Personal Representative to your Last Will and Testament, or the executor to your estate, is in charge of making sure that your debts are paid and that your assets are distributed in the manner that you have set forth in your Last Will and Testament. Many people choose their spouse, or perhaps an older child to be their Personal Representative, but in some cases, this can be quite a burden for your loved one to carry out. If you have a large estate, if the process of settling your estate will be a long one, or if there is likely to be confrontation within the family about your estate, then perhaps choosing someone other than a spouse or child would be best. In such cases, it may be best to hire a professional executor, such as a certified public accountant to handle things for your estate.
- Inform Loved Ones Where Vital Documents Are Located – What good would it do to have a Last Will and Testament if no one was aware of it upon your death? While you do not want everyone knowing where your Last Will and Testament, insurance papers, and other documents are located, it is important to make sure that your trusted loved ones are aware of what you have and where they can be found if you are unable to communicate this personally. Documents such as a birth certificate, marriage licenses, death certificates, Durable Power of Attorneys, a Last Will and Testament, life insurance policies, retirement papers, etc., should all be stored together in a location protected from fire, theft, and water damage; tell your trusted loved ones where they can find these documents when they are needed.
Contact an Estate Planning Lawyer
These are just a few tips for anyone who is considering estate planning. Retirement lawyers have the knowledge and expertise to help make sure that your loved ones and your assets will be protected through your estate plan.
If you need advice on any of these subjects, give Estate Planning Lawyer Patricia Bloom-McDonald a call today.
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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.
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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