Posts Tagged 'Estate Planning'

The Costs of Procrastination

By Attorney Patrick G. Curley

Q.)   My spouse’s health has not been good. Our neighbor keeps telling us to get our estate plan done but with all the medical appointments, can’t estate planning wait?

A.) Waiting can be a costly mistake. Tackling estate planning today can help protect both of you and your assets for the future.

Timing is everything when it comes to estate planning. As we age, the dangers of procrastinating with estate planning increase exponentially.

We all procrastinate. Life is busy. Trust me, I know how busy it can be because I have a one and three year old! There are never enough hours in the day.

But I also know the value of peace of mind. By signing estate plans, my wife and I can rest easier knowing that if something happened to us, the Trustee our Living Trust will manage our matters (rather than the Probate Court interfering in our business), the Guardian we named in our Wills will raise our minor children (rather than the Court making that choice), and our Trustee will manage any inheritance for the benefit of our children until they reach age 25 (rather than the age 18 default under MA law).

Too many people rely on the false assumption that they will get around to doing their estate plan just before they die. Without a crystal ball, a significant number of seniors pass on or become incapacitated before they actually sign an estate plan. People sometimes say: “what does it matter, I’ll be dead.” But the reality is procrastination can be enormously costly and burdensome to you and your family.

We see firsthand the burden that procrastination puts on families. Families left paying tens of thousands of dollars in estate taxes that could have been avoided entirely had the decedent signed a carefully drafted Will or Trust. Families forced to pursue costly Conservatorship actions in the Probate Court because a loved one failed to sign a well-drafted Durable Power of Attorney before losing capacity. Families in which the entire inheritance is lost to nursing home costs for the surviving spouse because the decedent failed to ensure that the estate would be protected against the nursing home and Medicaid.

We also see firsthand the peace of mind that seniors can enjoy knowing that their estate plan is in place. They and their children no longer have to worry about the “what if” questions. Indeed, timely estate planning can be a tremendous gift to the adult children because they are not left picking up the pieces in a crisis.

This spring, we encourage you to add one more thing to your spring cleaning task list: Estate Planning. Do it for yourself and for the people you will leave behind. We guarantee you will sleep better once your estate plan is in place.  

(Patrick G. Curley is one of two dozen Certified Elder Law Attorneys in MA and has been selected for inclusion to MA Super Lawyers since 2011. He also serves on the Board of Directors of the MA Chapter of the National Academy of Elder Law Attorneys. Patrick practices law at Curley Law Firm LLP at 1 Common Street in Wakefield. Do you have an Elder Law or Estate Planning question? E-mail questions to Info@CurleyLawFirm.com or call 781.245.2222 x10 to be considered for future columns.)

What is a Life Estate?

(This article was originally published in the Wakefield Daily Item)

By LUCY J. BUDMAN, ESQ.

Q.   Is a Life Estate deed the best way for me to avoid probate of my home? 

 A.  While a Life Estate can avoid probate, you should also consider other probate avoidance strategies that can offer you more flexibility and protection.   

For most people their home is their most valuable asset and the one they want to make sure passes to their loved ones upon their death.  Before you can decide whether or not a Life Estate deed is right for you, you must consider your goals and the costs and benefits of a Life Estate deed.

A “Life Estate” means that you sign a deed conveying your home to someone else – let’s say your children – and you reserve a Life Estate for yourself (and your spouse, if married).  This guarantees you (the “life tenant”) the right to use and occupy your home for the rest of your life, then upon your death, the home passes outside of Probate directly to your children (the “remaindermen”).

Sounds simple, right? It can be if everything goes exactly right. But, if you want to refinance, move, or sell the property before you die, a life estate can cost a lot more than you expected. Some issues that can come up include:

  1. A Life Estate deed is irrevocable and you cannot undo the transfer without permission from the remaindermen, in this case your children.  If you decide that you want to sell, you must get permission from your children.  While you may trust your children implicitly, what if they become incapacitated or die, or what if they simply think they know what is better for you?
  2. Beware of negative capital gains tax consequences for your children if you sell the home during your lifetime.  Federal tax laws offer very favorable treatment for homeowners selling their primary residences.  But in the case of Life Estate deeds, the remaindermen do not typically live in the property so it is not their primary residence.  As a result, your children could owe tens of thousands of dollars of capital gains taxes upon the sale of your home if you sell it while you are alive.
  3. If you and the remaindermen agree to sell the home during your lifetime, you are entitled only to a portion of the proceeds based upon IRS tables, and the rest of the proceeds go to the remaindermen.
  4. Beware of refinancing because in most cases you will need the remaindermen’s permission and they must agree to be liable on the mortgage. Some banks simply refuse to offer financing for Life Estate property.
  5. If you do not keep your end of the bargain (paying real estate taxes, utilities and reasonable maintenance) for any reason, the remaindermen can sue you for damaging or wasting “their” property.
  6. MassHealth can deny your application and disqualify you for MassHealth benefits if you require MassHealth nursing home benefits within five years of the date of the Life Estate deed.  When you sign a Life Estate deed, you are making a substantial gift to your children.  MassHealth imposes gift penalties on all gifts within the five year look back period.
  7. Even if more than five years have elapsed since you signed the deed, if you require MassHealth nursing home benefits, MassHealth can record a lien on the property.  If the property is then sold during your lifetime, the MassHealth lien must be paid off.  Also, MassHealth will not allow you to use your income to maintain the home if you are in a nursing home, thus your children will not be able to sell the home, but will need to step up and cover the home costs including taxes, utilities and insurance.
  8. While most people will not pay an actual gift tax for singing a Life Estate deed, they are often still required to file a special gift tax return with the IRS. You should check with your tax advisor to understand your personal situation.

The bottom line is that while a Life Estate deed can help some people, you need to first consider all of these issues so you can make an informed decision.  You might save some money upfront setting the deed up, but tax costs, family issues and a lack of flexibility can end up costing you a lot more down the road. Other alternatives, such as Trusts, may be more costly to set up but save you stress and headaches as your life and situation changes.

If you already have a Life Estate deed, you may be better off leaving it the way it is but be sure to consult an attorney before selling the home or changing the deed in any way.

Many people say they never want to sell their home, but no one has a crystal ball—five, ten, fifteen years down the road, do you really want to be locked in? Before considering a Life Estate deed, speak with a qualified Elder Law Attorney to discuss the pros and cons both today and down the road.

What Trust is Best?

(This article was originally published in the Wakefield Daily Item)

By PATRICK G. CURLEY, ESQ.

Q .  I signed a Trust but I’m not sure if it is Revocable or Irrevocable.  Does it matter?      

A.  Yes, there is an enormous difference.  Both can accomplish excellent goals so let me spell out the key differences.   

If you establish a revocable trust, it means that you can change it by revoking or amending it during your lifetime. Revocable trusts are most commonly known for helping avoid Probate upon death.  In addition, the revocable trust offers the grantor (the person establishing the trust) 100% control during their lifetime.  Since you are in full control, the revocable trust cannot offer any asset protection.

On the other hand, if your trust is irrevocable, you may not amend or revoke it and you give up a significant degree of control.  Because of this loss of control, irrevocable trusts are less common than revocable trusts and often misunderstood. Irrevocable trusts can offer protection that revocable trusts cannot. For many families the benefits outweigh the loss of some control.

By way of example, we often prepare irrevocable trusts for seniors because their desire to protect their home against nursing home costs and Medicaid far outweighs the loss of control imposed by the trust.  This is especially true after we show clients that we can customize the irrevocable trust to ensure that the client can continue to live in their home, that the trustee can sell the home if downsizing is desired, and the client can change the trustee to make sure the trust is well managed.

Because of the control limitations of an irrevocable trust, we do not advise that people put all their assets in an irrevocable trust.  In fact, we often recommend a mix of both an irrevocable trust and a revocable trust.

Both irrevocable and revocable trusts can be drafted to include a number of other beneficial provisions.

If you sell your home, you owe capital gains taxes on the gain in value, which is loosely defined as the difference between what you paid for your home and the sale price.  The government grants a tremendous tax benefit to homeowners under which unmarried individuals can exclude $250,000 in capital gains on the sale of their primary residence, and married folks can exclude $500,000.  Irrevocable and revocable trusts, if drafted correctly, can preserve this capital gains tax exclusion. Other types of planning, such as life estate deeds or transferring a home to a child, can reduce or eliminate the tax benefit.

Both revocable and irrevocable trusts can be drafted to include estate tax planning benefits for married couples, which can effectively double the amount of money they can pass tax free to their beneficiaries.  Instead of paying more than you need to the government in taxes you can preserve your savings for your family.

Another feature that attracts a lot of interest from clients is the ability to protect their family’s inheritances under the trust.  Upon the elder’s death, rather than the inheritance passing directly to the beneficiary, the inheritance stays in trust for the benefit of the beneficiary.  The funds can be used for the beneficiary’s health, education, maintenance and support.  But the funds are protected against a number of risks including lawsuits against a beneficiary, claims by a beneficiary’s creditors, and demands by a beneficiary’s spouse in a divorce settlement.

If a trust beneficiary is a minor or has special needs, we can ensure that their share can be protected too. Without this planning, an 18 year old beneficiary would receive his full inheritance — and potentially blow it on expenses you would not approve (flashy car, gambling, vacations, etc.).  Likewise, without this planning, an inheritance can cause a special needs beneficiary to lose eligibility for public benefits programs they may be receiving now or need in the future.  With careful planning, the inheritance can be used for the benefit of minors or special needs beneficiaries without jeopardizing benefits eligibility or being subject to wasteful spending.

Because of the range of design options, it is vital that you consult a Qualified Elder Law Attorney to discuss how these trusts can benefit you.

Can a Trust help me?

(This article was originally published in the Wakefield Daily Item)

By PATRICK G. CURLEY, ESQ.

Q. Is a Trust right for me?    

 A. Trusts are not magic solutions to every problem, but they can achieve many important planning goals.

For many people, including many non-estate planning lawyers, a “Trust” is an intimidating legal term.  A common misconception is that Trusts are for the rich only.  Often people do not know what goals their Trust may accomplish for them.  I am afraid that part of the blame for the misinformation and misunderstanding falls on the shoulders of lawyers who fail to explain them to clients.

I use a simple analogy to help illustrate Trusts.  I tell clients that a Trust is like a bucket.  Someone has to hold the bucket and that person is called a Trustee.  If you want two people holding the bucket, then just add an “s” and call them Trustees.  You can put things you own (house, bank accounts, etc.) into the bucket.  The Trustee can take those things out of the bucket and distribute them.  In a nutshell, that is how a Trust works.

A Trust is, of course, a complex legal document.  At its heart, the Trust describes a virtual bucket that can hold assets, identifies the person establishing the Trust, identifies the Trustee (and who can replace a Trustee), and gives the Trustee directions on what to do with the assets in the Trust bucket.

Because many people want their Trusts to help them avoid Probate Court if they become incapacitated or upon their death, in most cases, it is ideal to fully “fund” the Trust at the time the Trust is created.  Unfortunately a lot of folks miss the boat on this.  Here is how it often plays out.

A client visits their lawyer and creates a Trust.  At the same time, the client signs a “Pour-over Will” to pour their probate assets into their Trust upon death.  The client leaves the office believing they are “all set.”  Years later the client passes away and the children think there will be no Probate because the parent had a Trust.  But during their lifetime, the parent never transferred their assets out of their name and into the name of their Trust.  As a result, the children must Probate the estate so that the parent’s assets pass through the Pour-over Will and into the Trust.  The time, stress, and expense of Probate was unnecessary.

So how do you get your assets into the Trust bucket while you are alive?  You have to carefully “re-title” your assets into your Trust.

For a bank or investment account, this would mean that you complete paperwork to change the name on the account from your name to the name of your Trustee and Trust.  For real estate, you would have to sign a deed conveying the real estate from you to the Trustee of your Trust.  Almost any kind of asset can be re-tilted into a Trust.

Before readers race to fund their existing Trusts, I caution readers to consult a Qualified Elder Law Attorney to confirm whether their Trust in fact accomplishes the planning goals they wish to achieve.  For example, let’s say you want to keep your house off limits to Medicaid.  If you learn that your Trust will not protect your house, then it makes no sense to deed your home into that Trust.

Readers also must confirm that it is most beneficial to fund the Trust today.  While in most cases, immediate funding is beneficial, with certain types of Trusts there may be potential Tax and MassHealth consequences you must consider before taking action.

A Trust can be a wonderful tool, but not all Trusts are created equally.  Be wary of any plans downloaded from the Internet or pulled out of a book.  Trust and Asset Protection laws are complex and change regularly.  Without experienced guidance from a Qualified Elder Law Attorney who specializes in this area, you might inadvertently make common mistakes like muddying the title to your home, causing unnecessary income taxes to your family, disqualifying a disabled child or grandchild from benefits they might be receiving, or losing your assets to nursing home costs.  A poorly-designed Trust can cost your family much more than no Trust at all.

In my next post, I will explain the dramatic differences between Revocable Trusts and Irrevocable Trusts.  I will preview that column by saying that the word “Irrevocable” in the name of the Trust does not mean that the Trust is in fact Irrevocable.  It is the language in the Trust that controls whether the Trust is truly Irrevocable.  As you can imagine, Medicaid and our Courts are more than happy to reject poorly-drafted Irrevocable Trusts, which render those Trust assets fully available to the nursing home.

What is Probate?

(This article was originally published in the Wakefield Daily Item on January 17, 2012)

By PATRICK G. CURLEY, ESQ.

Q. I already signed a Will, does my family go through Probate when I die?

A. Maybe, it depends on how you have set up your assets while you are alive.  Also, bear in mind that a new Probate law comes into effect on March 31, 2012.

Your Will is still valid under the new law, as long as it was valid under the old Probate law.  A Will by itself is always subject to Probate if there are assets to be probated.

A Will simply tells the Probate Court how to distribute your assets and who should be in charge (under the supervision of the Court, of course).  That person will be called the Personal Representative under the new Probate law.  Without the Probate process a Will is just a piece of paper.  For this reason, upon your death, your family must file a Probate Petition to ask the Court to “allow” your Will before your probate assets can be distributed to your named beneficiaries.

Probate assets include those assets titled at the time of your death solely in your name and which fail to list a beneficiary.   For example, bank accounts or real estate are common probate assets.  Only probate assets are subject to pass under your Will.

Non-probate assets may include assets that you hold jointly with someone else (e.g. a joint tenancy on a house), assets that list a beneficiary (e.g. an IRA or life insurance), or assets that you own in Trust (e.g. a bank account titled in the name of the Trust).  If titled correctly, non-probate assets may pass upon your death to the named beneficiary or joint owner without any need for a Court probate.

If you are not careful, however, the beneficiaries you list in your Will might receive very little if your assets when you die are mostly non-probate assets.  There are sad situations where a parent creates a Will providing that their assets shall pass equally to their children, but for purposes of banking convenience they list only one child as a joint owner on all their accounts.  When the parent dies, everything they own passes to that one child who may then refuse to share it with his siblings.  The siblings could then engage in a long, expensive court battle with no guarantee that the Court will order that the funds be shared amongst the siblings as intended by the decedent in her Will.

The new Probate law is intended to make Probate speedier and easier for simple Estates – but at this point, only time will tell whether those goals will be achieved.  Probate historically has been a time-consuming, expensive process.  For this reason and more, many people take action so that upon their death, their loved ones avoid the Probate Court.

In most situations, I do not recommend joint ownership with children as a strategy to avoid probate.  Imagine if during your lifetime, the child gets divorced and your former son or daughter in-law walks away with your asset.  Or if the child gets in a car accident and is sued, the court may award your money to the plaintiff because the child was listed as a joint owner.  Joint ownership on real estate or ‘life estate’ deeds can also create tens of thousands of dollars in unnecessary capital gains taxes for your child if the real estate is sold during your lifetime.

Instead, I recommend the use of Trusts to avoid Probate and to achieve many other potential planning goals.  A mix of one or more Trusts can achieve various goals including but not limited to (1) protecting your assets against the risk of nursing home costs, (2) ensuring your family can avoid Probate Court Conservatorship proceedings if you become incapacitated, (3) protecting inheritances for a disabled beneficiary, (4) eliminating or minimizing Estate Taxes upon your death, and (5) protecting inheritances against divorce, creditors and lawsuits.

Oftentimes, people come to me with Trusts and they do not fully understand what goals their Trust accomplishes.  For instance, sometimes people think their assets are in an irrevocable trust and protected against the risk of nursing home costs.  Quite frequently, their Trust states that they have the right to amend or revoke the trust, thereby making the Trust revocable and all the assets in the trust countable to Medicaid.  For this reason, it is essential that people fully understand what their Trust achieves and does not achieve.  Because of the importance of this issue, I will focus on Trusts in my next column.

Finally, I strongly advise that everyone signs a Will, even if they have modest assets or they expect to have only non-probate assets upon their death.  You never know what you will die owning (if you die in a car accident, your probate Estate may recover a big settlement), so it is important you sign a Will to direct how any probate assets pass when you die.  And remember, without a valid Will, you are entrusting our legislature to direct where your assets go.  With all due respect to our legislature, its plan for your probate assets may not match yours.


Contact Us!

Do you have an Elder Law or Estate Planning question? E-mail questions to Info@CurleyLawFirm.com or call 781.245.2222 x10 to be considered for future columns).

About Curley Law Firm LLP

Serving clients throughout Massachusetts, Curley Law Firm LLP draws upon more than four decades of combined Estate Planning and Elder Law experience to ensure that you can achieve your planning goals.

Attorneys Patrick Curley and Lucy Budman are two of fewer than two dozen Certified Elder Law Attorneys (CELA) in Massachusetts. Attorney Mark Curley has practiced in the areas of Estate Planning and Elder Law for over three decades.

The value of working with a firm with CELAs on the team is the peace of mind you receive - knowing that you will get the very best advice available to protect yourself, your family and your assets. A CELA is a recognized expert in legal matters dealing with Estate Planning and Elder Law including Trusts, Wills, Asset Protection against Medicaid and nursing home costs, Medicaid (MassHealth) benefits planning and applications, Probate and Trust administration, Guardianship and Conservatorship, and VA benefits planning.

At a time when many lawyers claim to practice "elder law", having a CELA-led team working on your planning means having one of the very few experts in the Commonwealth on YOUR team.

For experienced representation and quality service from attorneys who will help you achieve your planning goals, please schedule a confidential Initial Consultation by calling us at (866) 406-8582 or visit our website at www.CurleyLawfirm.com

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