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WHEN TO UPDATE YOUR ESTATE PLAN
Patricia Bloom-McDonald • Apr 20, 2021

Life is not stagnant; situations change and evolve. Your estate plan should reflect your current status and expected future status and desires. There are many life changes and developments that might warrant an update, which is why it’s important to periodically review your estate plan with Attorney Patricia Bloom-McDonald. Below, we’ve a list of questions to help determine if it’s time for an update.

Federal Changes

  • Have federal estate tax laws changed since your last estate plan was drafted?

Federal estate tax gift and estate tax exemptions have changed in the past few years. If your estate plan was written prior to these changes, an update might be in order.

  • Are federal estate tax law changes on the horizon?

Changes in presidential and congressional leadership might signal future changes in the law. You should determine if there are current tax saving strategies you want to implement before the new changes take effect or if it would be better to wait until the new laws are in place.

Marital Status

  • Has your marital status changed since your plan was created?

Changes in marital status can influence how assets are transferred after someone has died. Marital status changes can include marriage, as well as divorce, formalized separation, or even widowed status. If a change is accompanied by a settlement, there might be compliance issues to consider, such as whether an ex-spouse must be included on an insurance policy or how to treat alimony payments after death. In addition to reviewing your current estate plan, any documents with beneficiaries such as insurance policies, retirement plans, and 401(k) plans should also be reviewed. Changes in marital status could include other details that should be discussed with your lawyer to ensure that your estate plan reflects your wishes.

  • Have you signed a prenuptial agreement?

States have varying presumptive laws. These laws could be inconsistent with your desired estate plan. To ensure that postmortem stipulations in a prenuptial agreement are carried out, the agreement and the estate plan should be reviewed by a lawyer who is admitted to practice within the state in which you reside.

Children, Grandchildren, & Dependents

  • Have you welcomed children or grandchildren to your family?

New additions to your family, such as children, grandchildren, and adopted children, whom you want to provide for, might require an estate plan update. Children might also require guardianship designations, and new additions to the family could result in asset shifts as well.

  • Have you added college funds for children or grandchildren to your estate plan?

You can establish a trust to fund college or other education expenses for your children or grandchildren in a trust or will. In addition, you might want to look at establishing or contributing to an established 529 plan for a child or grandchild.

  • Have any of your children reached adulthood?

When a child turns 18 and becomes an adult, does this affect how you want to allocate your assets? Adult children situations might require different estate plans, such as trusts. It is also best to be specific and stipulate at what age you feel it is appropriate to release inherited funds. Estate plans can even be created that stagger the release of funds over time.

  • Has a child changed their marital status?

If one of your children marries, divorces, or separates, this could affect how you choose to distribute your assets. You might want to remove ex-spouses if they were named in your estate plan.

  • How do you want to handle unpaid loans to your children?

If you have lent money to children, or even grandchildren or others, your estate plan should reflect how this loan should be treated if it is not paid back prior to your death. Is the loan forgiven or is the outstanding debt used to calculate that person’s portion of the assets?

  • Are there new dependents who should be added, such as aging parents or children returning to the home?

Any new dependent whose care you want to provide for after your death should be added to your estate plan.

Assets & Ownership

  • Have there been significant changes to your net worth, either increases or decreases?

Substantial shifts in your net worth may require estate plan tune-ups. If your estate has grown to over applicable federal and state estate tax exemption amounts, it is subject to those estate taxes. Provisions should be in place to manage tax implications. Conversely, if your estate value has dropped below the threshold for applicable estate taxes, the tax management structures in your estate plan can be relaxed.

  • Have you acquired a vacation home or other new properties?

Reviewing and updating deeds and considering trusts and other entities for ownership might be warranted to ensure that property is handed down to whomever you wish. Another issue to consider is whether the new property is in another state than the one you live in. The laws in that state need to be understood when planning to hand down property to others.

  • Do you own or have you started a new business?

Business ownership and its succession require consideration in an estate plan, along with other tax and business planning. Most of this planning needs to be done well in advance of any exit, whether planned (like a family or employee transfer plan or sale of the business) or unplanned (death or disability). Remember that your business transition and estate planning need to be aligned to get the best results. Your plans should clearly stipulate succession, whether it be to a family member or to a non-family member.

  • Do you own life insurance?

If you have purchased life insurance since your last estate plan was drafted, it is important to note that the value of this asset is calculated in the value of your estate and could significantly affect your estate plan.

  • Do you have a retirement plan, IRA, or 401(k) plan?

Remember that the beneficiary designations in any of these plans supersede directions that are given in an estate plan. It might be necessary to review the documents to make sure they communicate your beneficiary wishes.

  • Are you know receiving income from a trust?

Depending on the amount received, this income could have effects on your estate taxes. It might be worth reviewing with your CPA and Attorney Patricia Bloom-McDonald to determine if it is better to redistribute this income to a beneficiary.

Gifts & Donations

  • Are you planning to make a charitable donation upon your death?

Many people add charitable bequests to their estate plan later in life, once their children are grown or the value of their estate allows it. These donations need to be specifically added to your estate plan and cannot be added by an executor/personal representative after your death.

  • Since you last updated your estate plan, have you received any inheritance or large gift?

Any significant changes in the value of your estate might necessitate new considerations on how the estate’s assets are allocated. These changes might also affect your beneficiary’s estate taxes.

Home & Health

  • Have you moved to a different state since you last updated your estate plan?

If you have moved to a new state, your estate plan might need to be updated to take into account any differences in state laws. Your new state might differ in the regulations around powers of attorney and other matters.

  • Have any of your beneficiaries passed away since you last updated your estate plan?

If any of your beneficiaries are now deceased, and you have not already accounted for their passing, your estate plan should be updated to ensure your assets are passed down according to your wishes and not to others outside of your plan.

  • Are you or your spouse now incapacitated or seriously ill?

If you or your spouse are incapacitated or dealing with a serious illness, it is important to make certain that your durable power of attorney documents are up to date. Special need trusts to ensure that incapacitated or ill spouses are cared for can be created by working with Attorney Patricia Bloom-McDonald.

Executor/Personal Representative, Guardian/Conservator, and Durable Power of Attorney designations

  • Do your executor, guardian, or attorney-in-fact designations need to be updated?

Are all the people you have designated to help manage your estate plan, including executors/personal representatives, guardians/conservators, and attorneys-in-fact, still willing and able to serve in their designated roles? If any one of these people have passed away, fallen seriously ill, moved, or are unwilling to perform their duties as laid out in your estate plan, an update is in order.

It is particularly important during these uncertain times to make sure your estate plan is updated.

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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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