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Westport ElderLaw: 10 Estate Planning Must-Haves
Patricia Bloom-McDonald • Dec 08, 2014
Whether you have considerable assets earned over a lifetime of work and investments, are just beginning your career, or if you have children or not, everyone should have an estate plan in place. In Westport, Massachusetts, Patricia Bloom-McDonald has been handling Westport estate planning for her clients, regardless of their age or amount of their assets or family condition.
What is Estate Planning?
Estate planning provides the legal steps for how you want your estate, or your assets, distributed after you pass away. Simply having a will is enough for many people, but if you possess real estate, a business, a special needs child, or wish to do whatever you can to avoid probate and lessen the tax implications after your passing, then you should seriously consider a well-constructed estate plan drafted by an experienced and knowledgeable estate planning lawyer.
10 Estate Planning Must-Haves
When considering an estate plan, here are 10 estate planning items or topics that are essential:
- Make a list of your assets . This includes real estate, life insurance, business assets, retirement plans, annuities, stocks, bonds or other investments. Get a handle on their value and decide to whom you want to leave these assets.
- Draft a will . Many estate planning lawyers will a Will at a very reasonable price and will ensure that it is done according to laws of the Commonwealth of Massachusetts and make sure that the document includes provisions regarding your administrators, burial considerations, guardians for your children, and distribution of personal and real property to whomever you designate.
- Make a trust . A trust is a legal instrument where your property goes and is owned by the trust rather than yourself and is maintained by a trustee, who could be you. When you pass, the trust’s assets automatically go to whomever you named as beneficiary without probate. You can set up a trust for a special needs child as well to avoid any adverse consequences to his or her receipt of public benefits at the time your child receives the trust’s assets.
- Consider life insurance. If you are young enough, life insurance is relatively cheap and can provide considerable funds for your children if you die during the term of the policy. Term insurance is cheaper than permanent insurance, which is more of an investment. Talk to your estate planning attorney regarding which kind is best for you and how the funds are to be administered if your children are still minors when you pass away.
- Payable on death accounts. Did you know you can avoid probate for certain accounts, including your bank accounts, by changing it to a POD or payable on death account? Talk to the banking institution about how to arrange this simple method whereby you name a beneficiary of the account who receives the funds upon your passing. You may want to revise your will, however, since any child who is the named beneficiary will get all your accounts’ funds and may end up with a larger share of your estate than any of your other children.
- Make a durable power of attorney . This is for your finances and gives a trusted individual the power to make your financial decisions should be you become mentally or physically incapacitated.
- Health care proxy . In Massachusetts, you can obtain a health care proxy wherein you name someone to make medical decisions for you, such as whether life support should be continued or not. You can restrict your agent by listing the medical care you do not want or will accept.
- Knowing estate and gift tax laws . Federal law exempts estates of up to $5,340,000.00 in 2014 and $5,430,000.00 in 2015 from estate taxes but Massachusetts only exempts property up to $1,000,000.00. If your property is subject to taxes, avoid paying anything by making a gift to someone that puts you under the taxable amount. You can make such a gift at any time before you pass away. CAUTION: Any gift will be considered a disqualifying transfer within five years of apply for MassHealth/Medicaid Long Term Care medical benefits.
- Your final arrangements . Establish a POD account and name someone as beneficiary and have it used solely to pay for your funeral expenses. If you want your organs donated or you wish to be cremated, state this in a separate affidavit not a Will because a Will is typically read AFTER the funeral has been made, so be sure loved ones know of your wishes ahead of time.
- Keep your documents safely stored . Store your documents such as your will and trust instruments, insurance policies, stock certificates, other investment documents and property deeds in a safe location protected from Fire, theft, and water damage and advise loved ones where they can obtain access to them when and if you pass or become incapacitated.
These are some suggestions that many estate law legal practitioners recommend that you consider at any point in your life to give you the satisfaction and peace of mind that your loved ones will be cared for in the event of your passing.
If you live in the Westport, Massachusetts area, a small town of about 15,000 that sits on the Westport River and is the westernmost point of the original Massachusetts Bay Colony and is idyllic and quiet, and is home for boaters and fishermen you should contact elder law attorney Patricia Bloom-McDonald for all your Westport estate planning needs.
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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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