Category Archives: Trusts

When do I update my estate plan?

Clients often ask, how often should I review my estate planning documents? The best answer is, when anything major changes in your life, when there are changes to the tax laws, changes with estate related laws, or when you have moved from one stage of life to another.

If you made your will when your children were young and named guardians who would take care of them and handle any assets, and now you have young adult children, the guardians will no longer be relevant. But while we hope our 22 year old children can physically fend for themselves, do we want them inheriting a chunk of money outright? Perhaps not; perhaps a review of your documents is in order. If these same children are now 18 and 19, do you have health care proxies for them? Will the college health service be authorized to speak with you if there is an accident or illness? Time to get some health care proxies in place.

Did you have a power of attorney, health care proxy, or other document drawn up when you were close to someone who is no longer in your life? While a divorce or legal separation may take the spouse out of your documents, breaking up with a significant other does not have the same impact. They could still be in your plans, perhaps in a way you would no longer be comfortable with. (I personally would not want any ex-boyfriends showing up in my hospital room to make decisions for me while I was unconscious!)

Has the probate code just undergone a major overhaul? (Yes, if you live in Massachusetts). Are Federal tax laws changing? (Not really, but we get to worry a lot about that).

Really, there is never a bad time to call your estate planning attorney and just check in as your life changes.

PS: If you move assets into an irrevocable trust, check with your tax specialist about whether you need to file a gift tax return!

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Do We Need a Trust?

Trusts come in different shapes and sizes, and some will work for you and some will not.  A good estate planning attorney, or perhaps your banker or financial planner, will need to know quite a bit about your individual situation before being able to recommend a trust. 

Trusts can be invaluable for asset management purposes.  Suppose for example, that your 25 year old son is not good with money right now. An inheritance held in trust and managed by a family friend or a professional trustee can help him manage his funds so that he has a nest egg for his first home or a bit tucked away to help him through a layoff later in life.  Or perhaps you are concerned that an adult child’s marriage is  rocky, and want to see that your money goes to your children and grandchildren, not to the soon-to-be-former spouse.  A correctly drafted trust can help with that.

It also is a good tool for incapacity planning.   If you create a trust and put assets into it, your trustee can see that the assets are managed if you ever become incapacitated.

Assets held in trust also avoid probate.  Because a trust is an entity, not an individual, when the person who funded the trust dies, the trust can continue to operate according to its terms.  This can provide privacy (probate filings are public), and continuing access to trust assets by the beneficiaries or the  remaining spouse.

Irrevocable trusts (ones that can’t be changed or revoked) can be used for estate tax planning, to hold life insurance policies, for Medicaid planning, or for other types of asset protection. 

When you think about doing a trust, think about your goals, who would be a good trustee, and find someone who is knowledgeable about tax law and estate planning to help you with the process.  Think about what assets should go into the trust, and how the beneficiaries are likely benefit (or not) by having assets held in trust.  Not every situation is right for trust planning; sometimes the simple approach is the best one.  Estate planning, whether trust based or will based, should be carefully tailored to reflect your situation, because each family, each inheritance, and each set of goals are a little bit different.

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Why Women need to think about Estate Planning

Statistically, women outlive men.  That means that the estate plan, or lack of estate plan, will often be played out by us.  If there is no will, no power of attorney, no trust protecting our assets, women are often left holding the bag, with no good results.  Often women do not manage the money side of things, and when pushed into that role by the illness or death of a spouse, all the grief and dislocation can be magnified by a sense of panic – needing to deal immediately with complex legal and financial concepts which can have long term consequences – sometimes impacting the rest of our lives.

Educate yourself, find an estate planning lawyer that you trust, and who can explain your options.  Find a financial planner, again, someone you trust, who will take the time to explain things until they really make sense.  Know who you want to call when you need them; don’t be in the position of having to find an advisor when you are desperate.  Put a plan in place.  This can be easier than you think, and while there will be some costs involved, consider what could happen without any planning.  An old plan (you know the one you did when the kids were little) may not work now that you are 62 and thinking about retirement. 

Start planning now, before there is a crisis,  and save yourself money, stress and time. 

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What IS a Fiduciary?

A fiduciary is someone who is placed in a position of trust, some examples are attorney in fact (under a power of attorney), trustees, conservators, guardians, executors, or attorneys representing clients.  When someone asks you to act as their power of attorney or executor of their will, you are taking on a fiduciary role, and the responsibility that goes along with it.

Relatives of Heiress Huguette Clark Accuse Lawyer and Accountant of ‘Plundering’ Her Fortune; “Attorney Suspended over Will Bequest, Loan”; Northampton Executor Jailed

These cases, a high profile national story, a local disciplinary action, and a British story, have lessons for clients and attorneys working in the estate planning area.  The first is that your actions may well be scrutinized by those who are not favorably inclined towards you, so if you have done nothing wrong, be sure that your record keeping is precise, up to date, and accurate.  If you are acting as a fiduciary (executor, power of attorney, guardian or conservator) keeping accurate records is a DUTY, not something that you can do or not do as the spirit moves you.  A fiduciary’s duties are taken seriously, and if you are not a good record keeper, decline to act as a fiduciary for someone else. 

The other lesson, and perhaps the more obvious one, is that you have an ethical and legal DUTY to act in the best interest of your client (or of the protected person or the heirs), regardless of whether or not it is in YOUR best interest.   Again, this is not optional; if your actions could be misconstrued as not being in the client’s best interest, be meticulous in documenting, bringing in third parties, and recording the set of circumstances that led to such an outcome.  If you are simply a family member trying to do the right thing, get some professional assistance so you don’t wind up in a contentious law suit – or worse.

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But Doesn’t Everyone Need a Trust?

I recently had a client explain that they wanted a trust because Suze Orman said that everyone needed a trust.  Now, in general, trusts meet many needs, and are often a good idea.  Especially if there are minor children, adult children who might do better with structured payments, or long term care planning concerns, trusts can fill a valuable need.  However, just as not everyone NEEDS a prenuptial agreement, not everyone needs a trust. 

Trusts help  you avoid much of the probate process, but there are other ways to do this, too.  If your assets are jointly held with your spouse, and one of you dies, the assets will go “by operation of law” to your spouse without going through probate.  In a similar way, anything with a beneficiary designation (life insurance, annuities, most retirement accounts) will go to that beneficiary directly.  The probate court will oversee any assets that pass through your will, and sometimes this can be a good thing.  It does take time to probate an estate, but if the assets are fairly limited, the cost of setting up a trust may not be appropriate.

Regardless of whether you do or do not need a trust, please call an advisor you trust before you make important estate planning decisions, I know that you aren’t cookie cutter clients, why should you have a cookie cutter estate plan?

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Law meets Life–An occasional blog for North Shore Residents

Pet Round UP: Dogs on the Beach, Dogs in your Will.

The Manchester-by-the-Sea Town Meeting is April 4 and 5, 2011. One warrant item will be whether or not to further restrict dogs on Singing Beach. Did you know that if you vote on the issue that concerns you, and leave the meeting, that the warrant can later be amended and a vote re-taken? If there is a subject of interest to you on the warrant, be ready to stay for the entire meeting.

On another pet related note, Massachusetts just became the latest state to pass PET TRUST LEGISLATION. We now have a statute that allows you to leave a sum of money specifically for the care of your animal when you die. Thank you to Bruce Tarr for co-sponsoring this legislation. More info can be found here:  Pet Trust article

Do you have a great pet sitter, vet, groomer, or pet trainer that you’d like to recommend? Please send along their info, and I’ll do a listing in the next Pet Round UP.

P.S. Manchester residents: Dog licenses need to be obtained from Town Hall by March 31st.

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Putting a residence into Trust

First, a trust is a form of ownership that separates legal title from beneficial ownership.  So something held in trust is “owned” by trustees for the benefit, according to the terms of the trust, of the beneficiaries.  A trustee is a fiduciary, and is required to follow the terms of the trust.  Trusts have been around for centuries, and are used to serve several different purposes.

You might consider putting your home in a trust so that when you pass away it will go directly to the beneficiaries, without going through probate.  You might also put a residence into trust so that you don’t technically own it anymore, but you can still benefit from it in some way (you might be able to continue living there, for example).  Assets held by trusts often provide protection from creditors.  If your son is a beneficiary of a trust, a creditor or divorcing spouse typically could not reach the principal of the trust, as he does not technically “own” the assets.  People also put homes into trusts for Medicaid planning, or for estate tax planning.  These types of trusts need to be irrevocable and carefully drafted. 

Trusts take on-going work and administration once they have been created.  Irrevocable trusts, in particular, require their own tax ID number, and tax returns must be filed annually.

When you put a residence into trust, you take the title of the property from your name, and put it in the name of the trustees.  This is accomplished by drafting and executing a deed which is then recorded in the local registry of deeds. 

Trusts can be confusing or relatively straightforward; they can provide asset protection, a way of planning your legacy, or a way of protecting your family from unexpected events.  They’re an outstanding way of creating structure for a family member who has special needs, or unpredictable spending habits.  If you decide to do trust planning, choose your attorney carefully, and be certain that your advisor has experience working with the type of trust you need.

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Estate Administration

Probate is the process by which a deceased person’s property, known as the "estate," is passed to his or her heirs and legatees (people named in the will). The entire process, supervised by the probate court, usually takes about a year. However, substantial distributions from the estate can be made in the interim.

The emotional trauma brought on by the death of a close family member often is accompanied by bewilderment about the financial and legal steps the survivors must take. The spouse who passed away may have handled all of the couple’s finances. Or perhaps a child must begin taking care of probating an estate about which he or she knows little. And this task may come on top of commitments to family and work that can’t be set aside. Finally, the estate itself may be in disarray or scattered among many accounts, which is not unusual with a generation that saw banks collapse during the Depression.

Here we set out the steps the surviving family members should take. These responsibilities ultimately fall on whoever was appointed executor or personal representative in the deceased family member’s will. Matters can be a bit more complicated in the absence of a will, because it may not be clear who has the responsibility of carrying out these steps.

First, secure the tangible property. This means anything you can touch, such as silverware, dishes, furniture, or artwork. You will need to determine accurate values of each piece of property, which may require appraisals, and then distribute the property as the deceased directed. If property is passed around to family members before you have the opportunity to take an inventory, this will become a difficult, if not impossible, task. Of course, this does not apply to gifts the deceased may have made during life, which will not be part of his or her estate.

Second, take your time. You do not need to take any other steps immediately. While bills do need to be paid, they can wait a month or two without adverse repercussions. It’s more important that you and your family have time to grieve. Financial matters can wait. (One exception: Social Security should be notified within a month of death. If checks are issued following death, you could be in for a battle. For more on Social Security’s death procedures, click on http://www.ssa.gov/pubs/deathbenefits.htm)

When you’re ready, but not a day sooner, meet with an attorney to review the steps necessary to administer the deceased’s estate. Bring as much information as possible about finances, taxes and debts. Don’t worry about putting the papers in order first; the lawyer will have experience in organizing and understanding confusing financial statements.

Below are some of the steps in probate:

1. Filing the will and petition at the probate court in order to be appointed executor or personal representative. In the absence of a will, heirs must petition the court to be appointed "administrator" of the estate.

2. Marshaling, or collecting, the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an "inventory," with the probate court. It’s generally best to consolidate all the estate funds to the extent possible. Bills and bequests should be paid from a single checking account, either one you establish or one set up by your attorney, so that you can keep track of all expenditures.

3. Paying bills and taxes. If an estate tax return is needed—generally if the estate exceeds $1 million in value—it must be filed within nine months of the date of death. If you miss this deadline and the estate is taxable, severe penalties and interest may apply. If you do not have all the information available in time, you can file for an extension and pay your best estimate of the tax due.

4. Filing tax returns. You must also file a final income tax return for the decedent and, if the estate holds any assets and earns interest or dividends, an income tax return for the estate. If the estate does earn income during the administration process, it will have to obtain its own tax identification number in order to keep track of such earnings.

5. Distributing property to the heirs and legatees. Generally, executors do not pay out all of the estate assets until the period runs out for creditors to make claims, which is a year after the date of death. But once the executor understands the estate and the likely claims, he or she can distribute most of the assets, retaining a reserve for unanticipated claims and the costs of closing out the estate.

6. Filing a final account. The executor must file an account with the probate court listing any income to the estate since the date of death and all expenses and estate distributions. Once the court approves this final account, the executor can distribute whatever is left in the closing reserve, and finish his or her work.

Some of these steps can be eliminated by avoiding probate through joint ownership or trusts. But whoever is left in charge still has to pay all debts, file tax returns, and distribute the property to the rightful heirs. You can make it easier for your heirs by keeping good records of your assets and liabilities. This will shorten the process and reduce the legal bill.

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What’s in a “Basic Estate Plan”

I know that lawyers hate to admit that there is any such thing as a basic, vanilla estate plan.  The truth is, there is such a plan and some people have a need for one.  Equally true, however, is that you should probably have some good advice before you decide that you are one of those people.  When I talk about “basic”, I’m talking about the following items (this is somewhat specific to Massachusetts residents).  In later posts, I’ll describe each in some detail and give tips for getting organized to create one.

— Will

— Trust (maybe)

— Health Care Proxy

— Power of Attorney

— Emergency Guardianship Proxy (if you have minor children)

— A complete review beneficiary forms

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Massachusetts Pet Trust Legislation signed into law

On January 7th, Governor Patrick signed legislation allowing funds to be set aside for the care of pets.  A pet owner may establish a fund and designate a trustee so that in the event of death or incapacity, the pet owner can be certain their pet will be cared for.  Massachusetts is one of 44 states to enact pet trust legislation; this is good news for pets, for pet lovers, and for the shelters in our community who traditionally care for pets after the owner has passed away.  Our own Bruce Tarr was one of the co-sponsors of the bill –many thanks to him, to those that drafted and moved this through the legislative process, and to the Governor for signing it. 

 

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