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Estate Planning

 

What is Estate Planning?

Estate Planning can involve executing legal documents that:

  • Appoint someone to manage assets and income for an individual in the event of a subsequent period of physical or mental incapacity.

  • Appoint someone to make health care decisions for an individual in the event of a subsequent period of physical or mental incapacity.

  • Indicate that an individual does not want the use of heroic measures to maintain his or her life in the event of a terminal illness after a medical determination has been made that there is no reasonable expectation of recovery.

  • Appoint someone to administer an individual's estate after his or her death.

  • Specify how an individual's estate is to be distributed after his or her death.

  • Direct that a beneficiary's inheritance will be held and managed for his or her benefit for life, or for some period of time.

  • Avoid probate after an individual's death.

  • Reduce or eliminate estate taxes after an individual's death.

  • Make it difficult for a disinherited or dissatisfied beneficiary to contest an individual's estate plan.

  • Protect and preserve the share of a minor, disabled, elderly, or spendthrift beneficiary.

  • Protect the share of a beneficiary undergoing a divorce or at risk of being subject to lawsuits and creditor claims.

  • Provide for the succession of a family business to the next generation or for the buyout of a deceased owner's share by a partner or other individuals.

  • Make gifts or devises to charitable organizations and establish charitable trusts and private foundations.

Fundamental Estate Planning Documents

A general durable power of attorney, health care proxy, and will are customarily included in all estate plans. A living will is also included for individuals who wish to make a declaration concerning the use of heroic measures in the event of a terminal illness.  A trust is not part of everyone's estate plan, but is available if needed.

Durable Power of Attorney

A durable power of attorney permits another person to manage financial matters for you. It avoids the necessity of Probate and Family Court conservatorship proceedings with respect to management of your income and assets if you become incapacitated. Many financial institutions continue to challenge the validity of “old” durable powers of attorney. So it is advisable to periodically update them. The durable power of attorney statute is found in Massachusetts General Laws, Chapter 190B, Sections 5-501 through 5-508. The statue specifically states that a durable power of attorney does not expire with passage of time. This should help when using an “old” durable power of attorney with a reluctant financial institution.

A general durable power of attorney grants the person being appointed, known as the attorney-in-fact, the legal authority to exercise all of the powers that a person has over his or her property. It becomes effective immediately upon execution (i.e. when is it signed and notarized), and continues to be legally effective even if the person signing the general durable power of attorney, know as the principal, becomes incapacitated.

A springing durable power of attorney only becomes legally effective when the principal is determined by his or her physician to be no longer able to handle his or her own financial affairs. This type of durable power of attorney can be difficult to use if the principal's doctor does not want to give a formal letter stating that the principal is incapacitated, or if financial institutions or other enities or persons that the attorney-in-fact must work with refuse to accept the springing durable power of attorney without having an updated physician's certificate of incapacity each time a transaction is needed.

A limited durable power of attorney is one that is limited to a specific purpose, such as the power to complete a real estate transaction on behalf of the principal.

Health Care Proxy, HIPAA Release and Living Will

A health care proxy names a health care agent who may make medical decisions for you if you become incapacitated. You can give your health care agent the power to access your medical records if you include a HIPAA release in your health care proxy. Although Massachusetts does not yet have a living will statute, you may indicate your intentions not to be kept alive by heroic measures in the event of a terminal illness by executing a living will or by including living will provisions in your health care proxy.

Will

A will is a legal document that provides for the disposition of your estate upon your death. There are statutory requirements for a document to constitute a valid will in Massachusetts. Those requirements are found in the Massachusetts Uniform Probate Code, Mass. General Laws Chapter 190B, Sections 2-502 and 2-504. A properly drafted and properly executed (i.e. signed, witnessed and notarized) will helps assure that all persons having an interest in your estate are clear on your intentions. You can name a personal representative who will be responsible to carry out the directions you make in your will. A will does not have any legal effect until it is filed with the Probate and Family Court and allowed as a valid will after notice to interested persons. Therefore, having a will as the only means of transferring assets upon death means that probate is necessary. A will can be used to nominate a legal guardian and conservator for minor children. A parent can nominate a legal guardian and conservator for an adult disabled child as part of a will or by a separate witnessed instrument. It is recommended that you have a properly drafted, witnessed and notarized will even if you set up ownership of your assets to avoid probate.

Trusts

A trust is a written agreement concerning the holding, administering and distributing of property entered into by a person who creates the trust arrangement, known as the settlor, donor, grantor or trustor, and a person or entity that will manage the trust property, known as the trustee, for the benefit of other persons, known as the beneficiaries.  A living trust, also referred to as an intervivos trust, is a trust created by a person during his or her lifetime that becomes effective when the document is executed (i.e. signed and notarized by the settlor and trustee).  A testamentary trust is a trust created by a person as part of his or her will that becomes effective only upon death.  More than one person can be the settlors of a single trust and more than one person can be trustees of a trust. 

Revocable Living Trust

A revocable living trust is a trust that can be revoked or amended by the settlor during his or her lifetime. This type of trust becomes irrevocable upon death, and also usually becomes irrevocable when the settlor becomes incapacitated. A funded (i.e. property ownership changed to the name of the trust during the settlor's lifetime) revocable living trust avoids probate with respect to the property owned by it prior to the settlor's death. In addition to avoiding probate, revocable living trusts can be used to hold and manage assets for a family member or other beneficiary for some period of time after the settlor's death, can include provisions to reduce or eliminate estate taxes when applicable, and can include provisions to protect a beneficiary's interest in the trust from creditors such as a spouse in the event of a divorce or someone who has a legal claim against the beneficiary.

Irrevocable Living Trust

An irrevocable living trust is a trust than cannot be revoked or amended by the settlor during his or her lifetime. Irrevocable trusts are used for various purposes, such as to insulate life insurance proceeds from estate taxes; to protect assets from future creditors and lawsuits; to preserve assets in the event of future nursing home costs; to preserve assets for beneficiaries receiving government benefits based on financial need such as SSI, MassHealth/Medicaid, and housing programs; and to transfer assets, such as an ownership interest in a family business, to the settlor's beneficiaries at a discounted value for estate and gift tax purposes.

Credit Shelter Trust

Married couples can still use “credit shelter” trusts to use two federal and Massachusetts estate tax exemptions when passing assets to their children or other beneficiaries, rather than lose one of the exemptions on the first death. A credit shelter trust is part of a revocable living trust. Other names used for this type of trust arrangement are: by-pass trust; marital and family trusts; and A/B trusts. Each spouse creates and funds a credit shelter trust for one another.

Charitable Trust

There are different types of charitable trusts. The primary purpose of a charitable trust is to benefit a charity. Estate, gift and/or income benefits are available for gifts to a charitable trust. A charitable trust can be created as part of a revocable living trust; as an irrevocable trust; or as part of a will.

Nominee Trust with Schedule of Beneficial Interests

A nominee trust is a relatively simple and short form of trust that does not disclose the beneficial owners.  The trustees and successor trustees as well as the trustees' powers and other matters are included in the trust instrument.  Generally, a nominee trust provides that the trustees may only act as directed by the beneficial owners.  The beneficial owners are identified in a separate document known as a schedule of beneficial interests.  Nominee trusts are unique to Massachusetts.  Other states do not use them.

Specific areas of Estate Planning:

  • Planning for Potential Future Incapacity

  • Probate Avoidance

  • Trusts for Minor Children

  • Tax Planning

  • Asset Protection Planning

  • Business Succession Planning

  • Planning for Special Needs Children

  • Planning for Disabled Family Members

  • Planning for Persons having Difficulty Managing Financial Affairs

  • Family Gifting Programs

  • Charitable Gift Planning

  • Planning for Advanced Age, sometimes referred to as Elder Law

  • MassHealth | Medicaid Planning

  • Pre-Marital and Post-Marital Agreements

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