What Is Estate Planning?
Estate planning may include:
- Managing your assets while you are alive or become incapacitated.
- Ensuring your young children are raised by the person you choose if something happens to you.
- Your orders on how your assets should be handled, and who manages them.
- Names of those who will make medical decisions for you if you are unable to make them yourself.
- Distribute assets according to your wishes after you pass away
- Leave a lasting legacy
Our Estate plans range from simple to complex, depending upon your situation, and the type of documents that should be put in place. It is our job as estate and trust attorneys and specialists in Elder Law, to help you make these choices, based upon what you need and the appropriate legal resources available to you.
Who needs an Estate Plan?
When should you plan?
Many people know they need an estate plan but keep putting it off. The longer you wait, the fewer options you will have to protect your assets and leave a lasting legacy. Worse, if you become incapacitated, you will have no planning options at all. Your family will have to make the decisions you should have made yourself.
How can I protect myself and my family legally?
What type of documents should I have?
- Advance Directive
- Health Care Proxy
- HIPAA Release
- Durable Power of Attorney
- Trust (if needed)
What Health Care Documents should I have?
An advance directive is a document that enables you to specify your wishes in the event you are unable to express them. Massachusetts does not have a statute governing the use of these “living wills”. Therefore an “advance directive” is not supported by a Massachusetts Law. However, we draft one in our office as part of our planning to enable our clients to explore and also express their wishes that will instruct their Health Care Agent under a Health Care Proxy make decisions on clients’ behalf.
Most of our clients have had experience with a Health Care Proxy document in one context or another. The Massachusetts Health Care Proxy enables one to appoint an agent to serve as a decision maker if one is unable to or incapacitated and unable to make a decision regarding their health care. On a special note, during our discussions with families we try to deal with both health and fiscal issues ahead of time to avoid conflict when the time comes to take over in either role.
A HIPAA Release is a document that authorizes the release of medical records which are protected under HIPAA. HIPAA stands for Health Insurance Portability and Accountability Act.
What Is a Power of Attorney?
- A Limited Power of Attorney: The scope of this Power of Attorney is limited. These are often used to enable someone to sign documents to close on a home sale for you. The Agent acts on your behalf to ensure that the deal goes smoothly for you. There is often a time limit on these.
- A General Power of Attorney covers more ground and enables your Agent to handle things on your behalf immediately and continues indefinitely. This type of Power of Attorney is referred to as durable because it will not terminate because of a subsequent incapacity. This means that your Agent can start to do things for you as soon as you sign the document. It does not mean that they will. Everyone’s situation is different, and we discuss the options thoroughly at our meeting.
- A third type of Power of Attorney, A Springing Power of Attorney begins to work upon proof of your incapacity; and if you regain capacity then the Agent’s power stops. Although this type of Power of Attorney is permitted in Massachusetts, it is actually very difficult to work with. So, we do not generally recommend it, and can explain why at any meeting with you.
What Is a Will?
- A Will, often referred to last will and testament, is a legal document that names a person who should take care of things for you following your death, and provides instructions for what will happen to your assets.
- If a person dies without a will, they are described as “intestate.” In that circumstance, the laws of the Commonwealth or the state of your last residence will dictate distribution of your property in accordance with an “Intestacy Statute.”
- The person named in your will to manage the will distribution and court reporting is called a “Personal Representative.” In Massachusetts it used to be called “Executor.”
- Your will describes where and how you want your probate assets to be distributed following your death.
- Your will is important in that it is also the place where you name the Guardian or Conservator to manage your minor children (under age 18) and your assets, respectively;
- It is important to understand that without a Trust in place the court will distribute the assets through your Guardian and Conservator to your beneficiaries as soon as they reach the age of majority. (18 in Massachusetts). This is where we often recommend a trust to handle the assets of your minor children instead of a Court Ordered Guardianship. The age limit in a trust can go beyond the age of majority and the terms for use can be very specific.
What Is a Trust?
A colleague of mine once described a trust as being like a refrigerator with a set of “babysitter” instructions pinned to it to address a family’s directions for the baby sitter while they are away. So, a trust is really a set of instructions that dictate what happens to the assets in the trust during your lifetime and after following your death. The assets are what’s “in the refrigerator!”
The person who creates the trust is called “Settlor” (sometimes called the Donor, Grantor, or Trustmaker) The person who manages the trust assets is called the “Trustee”. The set of rules laid out in the trust is a list of to dos/don’t dos for the Trustee. The trust also lists who receives assets from the trust, or benefits from the trust, and in what proportions. The recipients are called “beneficiaries.” In the future, and for our purposes we will use the word Settlor for the person who will place assets into the trust.
There are two kinds of Trusts: Irrevocable and Revocable. Each is valid for its special purposes.
Irrevocable vs Revocable Trusts?
Irrevocable: This type of trust alarms our clients when they first learn of it, because it is a trust whose terms can generally not be modified, amended or terminated and where the Settlor loses control over the trust (eg. the Trustee will take over upon transfer of the assets to the trust); The Settlor is usually not the Trustee or the beneficiary, but they still may have certain rights. For example, a right to income from the Trust or a right to appoint beneficiaries to receive the trust assets.
Revocable: This type of trust can be amended, modified or terminated by the Settlor and without a beneficiary’s permission to do so. It is flexible in that the Settlor may change the terms of the Trust and the nature of the assets within the trust. Generally, the Settlor may serve as Trustee during their lifetime, and also may be a lifetime beneficiary. This trust is a way to hold assets during one’s lifetime, and distribute them following death as you plan. You don’t need to file a separate tax return for this trust since your Social Security number is used to hold any assets.
When do you choose to do a revocable vs an irrevocable trust?
Clients often come to the office and say, “I need a trust.” When I ask them why, they really can’t answer. It’s just that they’ve “heard” it is a good idea to “avoid Probate.” Sometimes they have “heard” they can use a trust to “hide” assets from the IRS or make themselves Medicaid Eligible.
For the record a trust does not “hide” assets; it holds them. It is usually illegal as well as unwise to “hide” assets. The effectiveness of the trust is to enable one to save on estate or other taxes or to allow a beneficiary to become eligible for Medicaid benefits. The advantages depend upon how the trust is drafted; the law in a particular jurisdiction, and in the circumstance in which the trust is used.
It is our job at Lannik Law as experienced elder law and estate planners to assist you with your long-term planning needs. This is accomplished by listening to you first; understanding your family’s specific needs and desires, comprehending your financial picture, and creating a plan that may a utilize revocable or irrevocable trust (plus other estate planning documents) that work for your circumstances.
When to Consider an Irrevocable trust?
- You need asset protection against a law suit if it could be an issue because of your profession.
- You might require long term care in a nursing home or at home. This is called Medicaid planning, and our office is uniquely qualified to help you or your family determine if you would qualify for Medicaid (MassHealth) coverage. Susana Lannik is a Certified Elder Law Attorney; and Jennifer Duhaime-Baker is a paralegal who has worked in the Elder Law and Estate Planning field for over 20 years assisting clients with planning needs and applying for MassHealth. Both have been successful in enabling many clients to utilize the Medicaid system for their long-term care.
- Use of such a trust can minimize future potential federal and or state estate tax.
- Use of such a trust effects a gift of an asset to a loved one.
- This type of trust is also often set up to avoid Probate. Probate avoidance may be desirable because probates are always cumbersome and expensive. Or an asset held in this type of trust that passes outside of Probate in Massachusetts will not be subject to an after-death lien for services provided to a Medicaid recipient.
- You need to protect assets for your beneficiary. Beneficiaries can be under age children; special needs persons, or those people who have creditors, predators (financial) or angry spouses who want a share of an inheritance they shouldn’t have.
When to Consider a Revocable Trust?
- You wish to avoid Probate Court and the Probate Process. Probate avoidance may be desirable because probates are often cumbersome and expensive. Or as above, described an asset held in the trust that passes outside of probate will not be subject to an after-death lien for services provided to a Medicaid recipient.
- You wish to allow a trusted person to easily manage your assets if you become unable to do so.
- You need to protect assets against estate tax exposure on the Federal or State Level.
- You need to protect assets for your beneficiary. Beneficiaries can be under age children; special needs persons, or those people who have creditors, predators (financial) or angry spouses who want a share of an inheritance to which they should not be entitled.
There are many kinds of Irrevocable Trusts, and many uses for Revocable Trusts
There are many kinds of Irrevocable Trusts. In some instances the Settlor will have a right to the income but will not benefit from Trust Assets at all. Irrevocable Trusts may be used to hold life insurance (Irrevocable Life Insurance Trust) or to protect assets from Medicaid claims. (Medicaid Qualifying Trust) This latter must be properly drafted and there is a
5-year look-back period under Medicaid that must always be taken into account. At Lannik Law we sometimes have older clients who are frail who want to put their assets into an Irrevocable Trust to be able to “go on Medicaid.” Given life expectancies, a possible need for long-term care within the next five years, and other factors, we may counsel them not to utilize such a trust but to work through other options. A third type of Irrevocable trust, called a “see through trust” may enable one to have retirement assets passed through to named beneficiaries via this trust. The rules for irrevocable trusts are arcane and they require careful drafting to meet client needs and expectations. For example, it is a general principle that assets placed into an Irrevocable Trust come in at a certain basis value, and upon transfer of the property to ultimate beneficiaries there is a whopping Capital Gain. This is because, without more an Irrevocable Trust takes whatever is put into it at the Settlor’s value. For example, Client pays $50,000 for a home in l967, transfers it to the trust in 2022; and now the trust sells it in 2023 for $1,200,000. The rate for Capital Gain is 30% or so of the actual gain from $50,000 to $1,200,000, and must be deducted from the sale price. Thus, the beneficiaries are out $360,000 before they leave the real estate attorney’s office!
There are ways to work through the Capital Gain problem but they are complex, and tax law is not always compatible with Medicaid law. So due consideration of all of the factors must be taken. There are limitations as well as advantages that come with each choice. It is our job at Lannik Law to inform you of both.
What is an Estate?
Your legacy is also part of your estate. It encompasses everything from your work ethic and sense of responsibility to the issues and institutions that have come to mean the most to you during your lifetime. All of these can be passed on, along with your assets, to future generations of your family and even to society as a whole.
What Is Probate?
What are fiduciaries?
How to choose your fiduciaries?
These appointments are sometimes difficult for our clients to make, and we can be of help in discussing the roles with you, the persons you might appoint, and the legal documents related to those appointments. A description of each fiduciary job follows below:
a. Health Care Proxy Agent
The Health Care Agent is the person you list in your Health Care Proxy to make medical decisions for you if you are incapacitated and unable to make them yourself.
This is such an important role! It is vital to choose a person who will be comfortable making decisions on your behalf, and have the same or similar ideas to you regarding your medical care.
We recommend that clients appoint a health care agent who lives nearby if possible; and a successor health care agent as well. Like the choice of an attorney-in-fact under a Power of Attorney, the health care agent you appoint should be capable of handling the role, and that person’s relationship to the family should be considered.
The most successful choices and decisions are made while you are competent to make them, and while there is no looming health care crisis. It is important to let your health care agent be aware of the measures you want or don’t want taken. In our office we try to work this through the Advance Directive which will give some guidance to your health care agent and family.
b. Agent or Attorney-in-Fact under Power of Attorney
The Agent you name in your “Power of Attorney” document will handle what you have authorized them to do under that document. A court need not be involved here, but an Agent under a Power of Attorney MUST act in your best interests as your agent.
This person’s qualifications of fiscal ability or ability to hire someone who can help are similar to those required for a Personal Representative. Unlike an appointment for Personal Representative who serves following appointment as such by a Court under the dictates of your will, an Agent under Power of Attorney may only act while you are alive. A client frequently chooses the same person to take on both roles.
You should consider family relationships here as you have for your Personal Representative under your will. A special note: if you have any doubts about these choices at all, don’t make them! The choice of neutral parties is often helpful.
c. Personal Representative
The person named in your will to manage the will distribution and court reporting is a “Personal Representative.” In Massachusetts it was formerly “Executor.” Despite the fact that you have named the person you wish to serve, the Probate court must still say “yes” or agree to that appointment.
Once your Personal Representative is appointed it is his or her job to do the following: Gather all of the assets. Or ensure they are safely secured if the assets are personal property such as jewelry. This used to be called “marshalling the assets.” Sounds like a soldier’s job, but the balance of the job, making sure debts expenses and taxes are paid and distributions are made to the beneficiaries under your Will, is really financial. If you have left assets in your single name then the Personal Representative must address them through the dispositions in your will. If you have not left a Will then assets in your single name will still be probated through the Massachusetts laws of Intestacy. Intestacy means, dying without a will, and the law of intestacy dictates the order of distribution to a list of beneficiaries within the statute.
Your Personal Representative should be able to manage finances or locate professional help to manage them. It is not unusual for a Personal Representative to hire the help that will enable them to make reasonable decisions. The good news about the job of Personal Representative is it is relatively short. At best he or she should count on about an 18-month tenure to manage an average Massachusetts estate. But the management is not month by month. Rather it is “chunked” into different phases. For simple probates the time to manage may be less. This is unlike a trust where management could require years of attention, and require accounting on a relatively regular basis. Probate of a will of a loved one is not always a job to which one aspires. Therefore, take care that the person you name is up to the job—or at least up to hiring good help!
Since a Guardian must be approved by the probate court, to work with your minor child, it is important for you to consider who will take on this role when you are no longer living or are unable to care for your child. We discuss this choice extensively during our meeting.
Thus, it is important to let the Probate Court know who should take on this responsibility by nominating that person in your will, should they be needed. If you do not have a Will and consequently do not appoint a Guardian, the court will appoint one for you. And it may be exactly the person you don’t want to be around your child.
Your “Trustee” is the person who is responsible for managing the Trust. This means he or she must follow the instructions in the trust; provide for the trust beneficiaries accordingly; and take care of and be responsible for the trust assets that are used to accomplish these jobs.
A Trustee like a Personal Representative or an agent under a durable power of attorney, is a “fiduciary” which means that they owe a high level of care and are legally responsible to exercise that care in a reasonable manner. They cannot go to Foxwoods to invest your assets. A judgment call on my part–nor should they invest them in crypto currency as it has always been too risky, and prudence is the hallmark of a good Trustee.
In general the Trustee of a revocable trust starts out as being you with a named successor if you become incapacitated or die.
The Trustee for irrevocable trusts is someone who is named under the trust, and in most cases it will not be you. The Trustee accepts his or her role upon the signing of the trust and their acceptance of that responsibility. This enables the Trustee to work for the Trust immediately. It is notably different than a Personal Representative who is appointed under a will, but who must be approved for that role by a court. Thus, if the assets are in the Trust the Trustee may begin his or her work right after his or her appointment.
The Trustee role is financial. So, our recommendation is always to choose someone who “likes” and “understands” numbers and will follow through with any necessary task, and who will also seek professional help to guide them where necessary. Our trusts allow and encourage a Trustee to retain an accountant or an attorney for this type of assistance and guidance. The role of the Trustee is so important that careful consideration in the choice of this person should include an understanding of family relationships and their impact on this person’s work.
In addition to choosing a Trustee, it is important to name a successor to serve as Trustee to back up the initial choice. Sometimes the initial Trustee has pre-deceased or is unable to serve due to illness or other limitations. Without a successor, the Trust will have to be submitted to a Court to locate one, which defeats the purpose of most trusts—keeping them OUT of Court!
To conclude: Try to communicate regularly with your family and your appointed fiduciaries, and with your attorney.
What would an initial meeting cost?
|Estate Planning Consult||1 Hour Complementary Consult|
|Elder Law Consults||1 Hour Complementary Consult|
|Review of Current Estate Planning Documents||$350 for Review, plus
1 Hour Complementary Consult
|MassHealth Consult||1 Hour Complementary Consult|
|Probate and Estate Administration||$350 for 1 Hour Consult|