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Estate planning for federal and state taxes

We have all heard the saying "there is nothing certain but death and taxes."  These two certainties are another reason you need an estate plan.   Upon death,  the Internal Revenue Service will want to know whether you owe a federal estate tax.  This will depend on the size of your estate at death.  It will also depend on how your estate plan was formulated.  You should also be aware that certain states have inheritance tax as well as a separate estate tax.  There are many strategies that you can put in place to reduce or eliminate estate taxes during your life.  However, many of these strategies have to be set up well in advance, so there is no time like the present to get started. 

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As these areas are complex, please do not  hesitate to call us for a free consultation to meet the attorney.

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ESTATE PLANNING

What happens to them if something happens to you?

Don't let a stranger decide.  This is the gist of why estate planning is done.  It is planning for the benefit of the survivors. We assist clients with their estate plan so their family or survivors are protected.  You can make your plan as detailed or structured as you would like.  We help you with ideas or implement those ideas that you already have.  The important thing is that there is a plan for the unexpected life occurrences.  Don't put it off.

MINOR CHILDREN

In the worst scenario that you and your spouse were to die, leaving surviving minor children, you need to have a plan for them.  If you do not, the court and people you do not know, will need to intervene to formulate the plan. How can you prevent this as inexpensively as possible?

You need to have a basic Will for starters.  If you prepare a Will, you can state with certainty who is in charge of your estate to manage your assets.  You will want to name a Personal Representative (formerly called an Executor or Executrix).  You can also designate a guardian for  your children in your Will. 

It is necessary that the Will be prepared using all the formalities required by the Massachusetts law to be valid.  Primarily it should be the free act and deed of the person making the Will and should be notarized and signed in the presence of two witnesses who do not benefit by receiving anything in the Will.

Some persons would also use a Trust as an estate planning tool.   In most situations, it is possible to appoint a Trustee to manage your assets after your death for the benefit of your minor children. 

If you are a couple without significant assets worried about how your children would be supported, you could prepare a Trust now, that will be funded with Life Insurance proceeds at the time of your death; but it is extremely important that this is set up with detail, as there are things that could cause it to fall into the probate court. For example, you must make sure that life insurance is payable to the specific named Trust as the beneficiary when setting up the life insurance policy.  

With a Trustee appointed by you in your Trust, you can designate in what manner the trust funds should be used.  For example, you may want those funds to be used for the benefit of the children and also have an additional requirement that they be used for the children's education. 

Of course each estate plan must be carefully drafted to the needs of the particular family, couple or single parent.  The statements here are quite general, and should not be construed to be a perfect plan for your individual situation.

As in all situations presented here, there is no substitute for obtaining legal advice for your specific situation.

ADVANCED PLANNING AND TRUSTS FOR ASSET PROTECTION 

Many persons have very limited knowledge in the areas of Medicaid and Medicare.  Some have called wanting to put their home in a trust so that Medicaid does not take their home asset upon their death.  With topics such as these, which concern regulations mandated by the state and federal government, we encourage persons to discuss their specific situation with an attorney.  There are things you can do to protect your assets, so long as you make a plan in advance.  You want to become familiar with the regulating laws, the "look back statute."  What are countable assets and non-countable assets.  There are also special rules for the principal residence.  

DEED WITH A LIFE ESTATE

 A real estate owner can transfer the property while reserving a life estate, thereby becoming the life tenant.  A life estate is an ownership interest for the rest of the life tenant’s life including the following:

a.   The right to live on and occupy the property;

b.   The right to all income generated from the property;

c. The duty to maintain the property for the Remainderman; (the individual who will own the property after the life tenant dies or subsequently releases the life estate interest.  The transfer on death is automatic and avoids probate.  However, after transferring into a life estate, the property can only be sold or mortgaged with the agreement of the life tenant and the Remainderman.

d.    On the bright side, with a Life Estate transfer, there would be a stepped up tax basis on the property for Remainderman at the death of the life tenant, which would be lost on an outright distribution.  However, this stepped up basis can only remain if the property is not sold or transferred during the life of the life tenant.  If the property is sold prior to the death of the life tenant, there will likely be issues with capital gains.

e.    Keep in mind also that Medicaid attaches a lien to the life estate if the property is sold WHILE the life tenant is still alive, then MassHealth can only collect on the lien from the proceeds of the sale attributable to the life estate’s actuarial worth and not the Remainderman’s actuarial value.  

HOMESTEAD PROTECTION

An Estate of Homestead is a type of protection for a person’s residence, in the form of a document called a “Declaration of Estate of Homestead”. The form is filed at the Registry of Deeds in the county where the property is located, referencing the title/deed to the property. It allows homeowners in Massachusetts to protect their property up to five hundred thousand dollars ($500,000) of the value of their primary residence, per family.

The real property or manufactured homes of persons sixty-two (62) years of age or older, regardless of marital status, or of a disabled person or persons, regardless of age, shall be protected against subsequent attachment, seizure or execution of judgment to the extent of five hundred thousand dollars ($500,000) each.