WHAT IS ESTATE PLANNING

No one likes to think about one’s own death. However, planning ahead can help your family avoid unnecessary complications, delay, and expense. This may be done through wills, trusts, joint ownership, and life insurance. In addition, modern estate planning also includes “life” planning through powers of attorney and health care proxies. These enable someone else to act for you in the event of your incapacity. Understanding the following terms is the first step toward planning your estate. However, no estate planning steps should be taken without consulting with a qualified professional

•           Probate

This is the name for the process in the Probate Court through which the ownership of your assets passes to your heirs. It includes the collection of your assets, the payment of your bills, and the distribution of your estate. It only covers what you own outright, not joint property, trust property, or life insurance proceed

•           Will

Your will is a legally binding statement of who will receive your property at your death. It also appoints a legal representative to carry out your wishes. However, the will only covers probate property, not joint property, trust property, or life insurance proceeds

•           Estate Tax

The estate tax applies to both the probate and nonprobate property of the decedent. For the federal government, the amount free from taxation gradually increased over several years from $1 million in 2002 to $3.5 million in 2009. While the federal estate tax was eliminated in 2010, it was reinstated by legislation passed in December of 2010. The estate tax exemption returns with and exemption $5.0 Million with maximum tax rates of 35%.  The tax applies to those who died in 2010 although the estate can elect out of it for that year if it is willing to accept capital gains tax treatment for pre death gains. This law expires at the end of 2012.Massachusetts has a tax on estates exceeding $1,000,000. This is not an exemption, it is a threshold. If the estate exceeds these amounts, the whole estate is taxable. The rates are roughly 1/3 of the federal rate under the new la

•     Marital Deduction

On the federal and state level, anything passing to the surviving spouse of a decedent is not included in the taxable estate and, consequently, is not subject to taxation. All assets then owned by the surviving spouse at his or her death are taxed in their estate. Where the combined estates exceed the exemption or threshold amounts, special marital deduction planning may be necessary to avoid unnecessary taxes.

•           Trust

A trust is a legal entity under which one person-the “trustee”- holds legal title to property for the benefit of others-the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. An irrevocable trust is one that cannot be changed after it has been created. A revocable trust is one that may be changed or rescinded by the person who created it. Trusts are often used for tax planning, to provide for someone with expertise to manage assets, or to shelter assets to protect them from creditors or for long-term care planning.

•           Durable Power of Attorney

Under a power of attorney, you may appoint someone else to act for you when you are unable to do so yourself. The reason may be your mental incapacity or your inability to be somewhere when needed. The person you appoint-your “attorney-in-fact”-must always act in your best interest and try to make choices you would make if you were able to do so

Similar to a power of attorney, through a health care proxy you may appoint someone else to act as your agent-but for medical, as opposed to financial, decisions. Unlike a power of attorney, the health care proxy does not take effect until your doctor determines that you are incapable of making decisions yourself. Before that decision, your agent may make no decisions on your behalf. You may include in your proxy a guideline for your agent to use in making decisions. These may include directions to refuse or remove life support in the event you are in a coma or a vegetative state. On the other hand, your instructions may be to use all efforts to keep you alive, no matter the circumstances.

•           Community Spouse Resource Allowance (CSRA)

If your spouse has to move to a nursing home, you will have to pay for his or her care out of pocket until he or she qualifies for Medicaid. Under the Medicaid program the nursing home spouse may only have $2,000 in “countable” assets. (Noncountable assets include your home, household belongings, one car, and prepaid funeral plans.) The amount the healthy spouse is permitted to keep under the Medicaid program is known as the “community spouse resource allowance” or “CSRA.” The CSRA is all of the couple’s combined assets up to a maximum of approximately $110,000.00. In some cases, the community spouse is entitled to retain assets above the maximum limit when his or her income is less than the minimum monthly maintenance needs allowance, which is described below.

•           Minimum Monthly Maintenance Needs Allowance (MMMNA)

The Medicaid rules also govern the amount of income the community spouse is entitled to once the nursing home spouse qualifies for Medicaid. Normally, the community spouse keeps his or her income and the nursing home spouse pays his or her income to the nursing home, keeping only a $72.50-a-month “personal needs allowance.” However, if the healthy spouse’s income is low, he or she may be entitled to a share of the nursing home spouse’s income. In each case where a married nursing home resident qualifies for Medicaid, the Division of Medical Assistance calculates a “minimum monthly maintenance needs allowance” or “MMMNA” for the community spouse based on his or her housing costs. This will range from a low of approximately $1,800 to a high of $2,700 a month. (these figures are revised periodically). If the community spouse’s own income is below his or her MMMNA, he or she will be entitled to a share of the nursing home spouse’s income to make up the difference.                                                                              

ESTATE PLANNING PROVIDES SOLUTIONS TO THE FOLLOWING  CONCERNS

·     How will I avoid the cost and inconvenience of probate for my spouse and children?

For many clients, the best solution is a revocable trust, often referred to as a living trust.

·     If I can’t make legal, financial, or healthcare decisions for myself, how can I be sure my wishes are carried out?

Again, a revocable trust may provide the answer. In addition, every client needs a durable power of attorney and a health care proxy appointing a trusted individual to make financial and health care decisions for you when you no longer can yourself.

·     How can I make sure my wealth and possessions end up in the right hands when I’m gone?

Wills and trusts are vehicles for passing on your assets to those you choose. Many clients are concerned about funds they leave to their children being at risk of their children’s creditors, spouses upon divorce, or simply bad decisions their children may make. For them, a family protection trust can provide the protection they seek. In addition, proper planning will prevent the payment of unavoidable estate taxes upon your death.

·     My spouse needs more care than I can give. Will we lose everything to pay for care, or are there options?

Not if you plan properly, the earlier, the better. There are a number of planning options available to spouses of nursing home residents to protect their financial well-being while qualifying their ill spouse for MassHealth coverage of nursing home fees.

·     My child is disabled. How can I provide for her future?

We have helped many parents of children with special needs plan for their children through the creation of a special needs trust funded with life insurance.

 .   I own my own successful business and some of my children are actively involved in running it with me. How do I leave it so that those children will have a career in the business and ultimately take it over while still providing economic benefit from the business for my spouse and other children?

We have helped many business owners working with their accountants and other financial advisors to sort out the issues involved in succession planning for business. Also closely related may be estate tax and avoidance of probate issues to assure smooth operation of the business after death without strapping those left behind with large bills for estate taxes and administration expenses. Options revolve around choice of entity for the businesses, structure of the control of the entity after death as well as trust planning for ownership of the entity and tax savings.

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