Life Estate Deeds – An Antique Technique Providing Modern Convenience

October 16, 2014

Filed under: Estate Planning,Financial,Uncategorized — Tags: , — Alexis @ 9:30 AM

When we pass away, our assets are divided into two groups – probate and non-probate. Non-probate assets are things like bank accounts and life insurance policies that you have named joint owners or TODs on – they transfer to the named beneficiaries upon your death without any court involvement. Probate assets are held only in your name. The court looks to your will, or the intestacy statute, if there isn’t a will, to determine who receives these assets. This can be a lengthy, and potentially costly, process.

 

One way to make your home a non-probate asset is to create a life estate. This concept was borrowed from old English property law. You, as the owner of the home, deed the home to yourself for life (making you the “life tenant”) and then to another person(s) known as the “remainderman” (most often your children). Upon your passing, the remaindermen immediately become the owners of the home (they just need to file a copy of your death certificate with the Registry of Deeds).

 

Creating a life estate has many benefits. First, upon your passing, your home transfers seamlessly to the remaindermen without any court involvement. Second, you are guaranteed the right to remain in your home for the rest of your lifetime – you cannot be compelled to sell or move out. Next, after your passing, the remaindermen receive a step-up basis for capital gains purposes, minimizing the capital gains tax due should they decide to sell the property after your death. Fourth, because the remaindermen have no ownership interest in the home until after your death, their creditors (in the event of a bankruptcy or divorce, for example) cannot access the equity in the home during your lifetime. Lastly, the entire value of the home can be protected from your nursing home costs so long as the life estate is created at least five years before you ask MassHealth for assistance in paying for nursing home care (more on this below).

 

Creating a life estate, however, has its potential pitfalls. First, the remaindermen must all sign off if you decide you want to mortgage, reverse mortgage or sell the property. The thought of giving up so much control can be frightening for many homeowners. (It’s worthwhile to note that your remaindermen should have their own powers of attorney in place, in the event you need their approval and they are out of the country, in the hospital, or otherwise incapacitated.)

 

Also, if you need to ask the state for assistance in paying for nursing home care in the five years following the creation of a life estate, you could be disqualified for a period of time. MassHealth uses a formula to calculate the “value” of your life estate based on your life expectancy and the value of the home. The disqualification can also be cured if the remaindermen agree to deed the property back to the life tenant outright, destroying the life estate. If it’s likely that you’ll be asking MassHealth to help pay for your nursing home care in the next five years, then you should meet with an elder law attorney to explore other options to protect the value of your home to the greatest extent possible.

 

A life estate deed can be a valuable addition to your estate plan. If you’re interested in learning more about life estates and whether this might be the right solution for you, call our office to schedule a planning session.

Beware of the Binding Arbitration Agreement in the Nursing Home Admission Packet

February 18, 2014

Filed under: Estate Planning,Financial,Health Care Facilities — Alexis @ 9:50 AM

Imagine that you’re being admitted into a nursing home.  You are having trouble making decisions and managing your affairs at this point.  Luckily, you planned ahead and have a Health Care Proxy in place.  Your agent fills out the reams of paper that seem necessary for your admission, including a binding Agreement to Arbitrate.  That means that if you ever have a dispute with the nursing home, you are agreeing in advance to use binding arbitration, and not a jury trial, to settle that dispute.  Your agent signs it, figuring you can’t be admitted without it.  All is well until a dispute arises and – boom – you’re stuck heading to arbitration.

While it may sound attractive, arbitration tends to favor the “big guys” – in this case, the nursing home and health care providers.  For you as the patient, or “little guy,” jury trials are far more consumer-friendly.

Good news, though – in January, the Massachusetts Supreme Judicial Court (our highest court) decided the Johnson case, which says that the decision to sign an arbitration agreement isn’t a health care decision.  And because the agent named in your Health Care Proxy can only make health care decisions on your behalf, if he or she signs an arbitration agreement, a court will find that agreement void.

But what if you have both a Health Care Proxy and Power of Attorney in place?  This difference is key because the agent named in your Power of Attorney CAN agree to binding arbitration on your behalf.  A Power of Attorney gives more business-related decision-making powers than a Health Care Proxy, so the agent named in your Power of Attorney can make financial and legal decisions on your behalf.  Agreeing to arbitration is not a medical decision but it is a legal one, so it’s one the agent named in your Power of Attorney CAN make.

As I mentioned, arbitration tends to favor the nursing home if a dispute arises.  But how can you protect yourself?  First, most nursing homes do NOT condition admittance on whether or not you (or your agent) agree in advance to arbitration.  Simply refuse to sign the arbitration agreement within the admission packet, or if it is part of a larger document, cross out those paragraphs.

Also, your Power of Attorney document should make it clear that your agent cannot agree to binding arbitration before a dispute arises.  When a dispute happens, arbitration may be your best option – but you don’t want to make that decision before you know the facts.

And if you don’t have a Health Care Proxy or Power of Attorney yet?  Put them in place now.  It won’t take much time at all.

Heard at the Office: “I Don’t Need a Power of Attorney, My Spouse Can Manage My Finances for Me.”

February 6, 2014

Filed under: Estate Planning,Financial — Alexis @ 10:40 AM

That would be the simplest approach, but unfortunately, this is not the case. For any accounts that are joint with your spouse (usually bank accounts, like savings, checking, and CD’s), then yes, even if you are in the hospital or develop dementia, your spouse can manage those accounts.

But what about accounts that are in your name alone? Like your IRA and 401(k), for starters? And that Christmas account that you opened a few years ago, the one your spouse doesn’t even know about? If you are the only owner of an account, then you are the only one who can access those funds. Your spouse cannot help you with your accounts – unless you name him as an Agent under your Durable Power of Attorney (POA).

Only after you (1) name your spouse as an Agent in your Durable Power of Attorney and (2) contact your bank or financial institution to have him listed as a POA on the account, can your spouse then help you manage your accounts in the event you become hospitalized or otherwise unable to manage your finances.

If you develop dementia and have accounts in your name alone, and if your family needs to access those accounts for your care, then your family will be forced to go to court to establish a “Conservatorship” over you. That costs a lot of money (your money, by the way), and takes a lot of time and emotional energy.

Moral of the story? Put a Power of Attorney in place now. It doesn’t take much time at all.

Heard at the Office: “Can’t My Spouse Automatically Speak for Me at the Hospital?”

January 30, 2014

Filed under: Estate Planning,Medical Care — Alexis @ 10:40 AM

Under the law, no. In real life, sometimes.

Many people think that they don’t need to sign a Health Care Proxy because they assume that the law permits their spouse to speak for them in medical emergencies. The law actually says quite the opposite. Only you or someone you have named in a Health Care Proxy has the authority to make medical decisions for you.

Real life doesn’t precisely follow the law. If hospital staff get the sense that the family all gets along and don’t think anyone in the family will have an issue with the well-spouse being the decision-maker, they will often turn to the well-spouse to make the decisions. But if hospital staff sense any dissent among the family, they will want to see a Health Care Proxy.

But what if you never signed one? Well, the hospital will tell your family that they need to go to court to have a guardian appointed. That costs a lot of money (your money, by the way), and takes a lot of time and emotional energy.

And even if the family all gets along just fine, there are other reasons hospital staff may ask to see a Health Care Proxy (and if there isn’t one, send your family off to court). For example, if you need antipsychotic medications, like anxiety or depression medications, the staff will ask to see a Health Care Proxy. Another common example arises when hospital staff considers inserting or removing a feeding tube, or using or discontinuing use of a ventilator. As you can see, even if your family gets along, the hospital staff still will need to see a Health Care Proxy (or, you guessed it, send your family off to court for guardianship).

Moral of the story? Put a Health Care Proxy in place now. It doesn’t take much time at all.

Life and the Afterlife: Durable Powers of Attorney & Health Care Proxies vs. Wills

January 14, 2014

Filed under: Estate Planning — Alexis @ 2:15 PM

There is some basic vocabulary that almost everyone mixes up. Understanding which word to use when will help you better understand your estate planning documents.

During Life

During your lifetime, you want to have someone as “backup” to help you with your finances and personal business should you become incapacitated. (Or if you decide you’ve just had enough paperwork for one lifetime and would like to hand off financial management off to someone else.) You do this through your durable powers of attorney, and the person you name is called your agent.

You also want to name someone now to make health care decisions for you if at some point in the future you can’t make or communicate your own. You do that though a health care proxy, and the person you name is called your agent.

In the Afterlife

After you pass away, the durable powers of attorney and the health care proxy become null and void. At this point, your assets will be managed by others in one of two ways, depending on how you held title to the various assets during your lifetime: (1) nonprobate and (2) probate.

Nonprobate assets are those assets on which you have put someone else’s name along with yours, such as joint ownership on a house, listing a beneficiary on a life insurance policy, or listing a “payable on death to” on a bank account. Whomever you named will take ownership of that asset at your death, either automatically or by filing simple forms with the financial institution holding that asset.

Probate assets are those that are in just your name, for example if you are a single person and own your home, or if you have a bank account in your name alone. Those assets will be governed by your will, and the person you name is your personal representative. That’s actually a new term – the Massachusetts legislature recently overhauled the probate laws. The person you name as the “manager” under your will used to be called the executor. Your personal representative will manage the assets and distribute them to the devisees that you have named in your will.

Where Do Trusts Fit in?

Trusts serve you both during your lifetime and after you die. You will name someone in your trust to serve as the “manager” – that person is called the trustee. It is very common to name you (the “grantor” or “settlor” of the trust) as the first trustee, and to name successor trustees to take over during your lifetime should you need help, as well as after you die.

If your attorney drafts a trust for you, she will most likely tell you which of your assets to transfer to the trust. For any assets held by the trust while you are living, the trust acts like a durable powers of attorney: If you become incapacitated or if you would simply like someone else to manage the trust assets for you, then whomever you have named as your (successor) trustee can manage those assets while you are living. After you die, the trust acts like a will: The trustee will manage the assets and distribute them to the beneficiaries that you have named in the trust.

[Side Note: If you have a trust, then you may be wondering why you also need a durable powers of attorney and a will. There are two reasons: First, not every type of asset can be placed into a trust, for example, retirement benefits. Second, you want these extra documents as “back up” in case over the years you acquire new assets or open new accounts and forget to list the trust as owner.]

Understanding which word to use when will help you have a more productive conversation with your elder law attorney (and to impress your friends).

Heard in the Office: “I Want to Name My Son Executor under My Power of Attorney.”

August 2, 2012

Filed under: Estate Planning — Alexis @ 10:20 AM

I hear this a lot.  This post is about vocabulary.

A Durable Power of Attorney is the document where you name someone to help you while you are living – you name someone (usually a spouse, child, sibling, or best friend) to help you in case you are unable to manage your finances yourself, for example if you are in the hospital, develop dementia, or – gasp – go on vacation.  When you name someone in your Durable Power of Attorney, we call her an “Agent.”   You Agent can help you, while you are living, with banking and personal business, like paying bills, applying for a reverse mortgage, changing the amount of your IRA distributions, etc.

After you die, the Agent’s power ceases.  Now your Will comes into play, and whomever you have named as your “Personal Representative” takes over managing your finances.  (Wait! What happened to the word “Executor”?  See this post.)  Your Personal Representative will pay your last bills, cash out your life insurance, probably consolidate multiple bank accounts into one account, sell your house, etc., and then, once all the dust has settled, divide the proceeds up among your heirs.

The “Agent” under the Durable Power of Attorney and the “Personal Representative” under your Will have essentially the same jobs.  And quite likely, you have named the same person in both documents.  (Usually, whomever a client wants handling her money while she is living is the same person she wants handling it after she dies.)  But to avoid confusion when your Agent is dealing with the bank or other financial institution, make sure the Agent refers to herself as the “Agent” and not the “Executor.”  If she introduces herself as the “Executor,” people will think that means that you have died – and most of us would rather not have others thinking that until the time actually comes.

 

 

Trusts

December 21, 2011

Filed under: Estate Planning,Uncategorized — admin @ 10:05 AM

Most Americans don’t realize that they have an estate. Most people think that an “estate” includes a mansion in the hills, a private jet, or millions of dollars in investment accounts. But the true definition of “estate” is a person’s possessions or property—regardless of the size or amount. Everybody has an estate; and if you own a home, have a retirement account, or have any personal property of value you should consider creating a trust for your “estate.”

Trusts come in lots of flavors.  They can accomplish all sorts of fancy tax planning, can include certain family members but not others, can run scholarships or foundations – the things you can do with a trust are endless.  But most clients in my office need what I call the “plain vanilla” trust.  That’s a straight-forward revocable family trust.  Mind you, it’s still twenty pages long and takes hours to put together, but within the world of trusts, this is the simple one.  The one that most of us should have, the one that I have set up for my family.

A revocable family trust serves two main purposes.  The first goal – the one everyone thinks about – is that it will distribute your stuff after you die.  It substitutes for the will.  Within your trust, you do what you typically think of as the will’s job – you say how your want your estate distributed after you die.  Usually people split their assets equally among their children, but that’s not always the case.  We can designate whomever you want and in whatever portions you want under your trust (we can do that under a will, too, but right now we are talking about trusts).

So why would we use a trust instead of a will?  Simple answer: it will save your family lots of headaches. If you don’t direct your assets to a trust, and instead just leave all your assets in your own name, then when you die those assets will be governed by your will.  So far so good.  But after you die, there has to be a legal process of changing title on your assets from your name to the people you’ve named in your will.  That legal process is called the “probate process.”  It requires that your children work with an attorney, go through the court’s system (which can take at least a year, quite often longer), complete lots of paperwork, and spend plenty of money on court fees and attorney’s fees.  If you instead set up a trust now and take the time to transfer your assets to your trust now, then after your death, your children have precious little to do.  The trust will already own the assets.  Now the trustee (probably one of your children) just has to review bank statements, sell the home, and cut checks to all your beneficiaries.  The trustee will have some work to do, but an awful lot less work compared to taking all of your assets through the probate process.

Another reason to have a trust – and this is the reason that no one thinks about except us lawyers who think of all the “what if’s” – is to protect you while you are living.  If you transfer your assets to your trust now, and you go on vacation or are in the hospital or develop dementia, then your successor trustee (usually a child, sometimes a sibling or best friend) can take over managing your assets.  Bills will be paid, that CD will be renewed when the maturity notice comes in the mail, etc.  Your successor trustee steps into your shoes and manages your money, so things continue seamlessly, even though you are unable to manage your own affairs.  What a relief.

I should clarify what it means to “transfer your assets to your trust.” That’s really a fancy way of saying that you are “changing the name” on your accounts.  For example, if you have a money market at the bank in your name, then after you sign the trust, I would tell you to call the bank and have them change the owner of the money market from you individually to the revocable family trust that you just signed.  They will probably have you complete a new signature card.

Since you will be the trustee of your trust, nothing will feel any different on a day to day basis – you are still the one accessing your accounts, reviewing statements, paying bills, etc.  The difference is that you have a Plan.  If you need help managing your assets during your lifetime, you have empowered your successor trustee to step in and take care of you.  And you have lined up your assets so that your family will not have to deal with the hassle and cost of probate after you pass away.  A plan.  Feels good, doesn’t it?

 

Who Will Make Your End-Of-Life Decisions When You Are Incapacitated?

December 28, 2010

Filed under: Estate Planning,Medical Care — Tags: — Alexis @ 11:10 AM

As we get older, the threat of illness or injury increases, and many of us wonder what will happen if we fall or get injured.  Who will make important healthcare decisions if we become incapacitated?  How will medical personnel know how to treat us if we cannot communicate with them?  The answer to all of these questions is: Healthcare Agents.

A healthcare agent is the person you name in your Health Care Proxy to make medical decisions for you when you cannot make them for yourself.  This person will talk to doctors, manage your medical care, authorize treatment, and possibly even make life and death decisions.  Knowing all this, it is important to choose someone who thinks clearly under pressure, is not intimidated with medical problems, and who will keep the medical staff in check.  But beyond choosing the right person, it is essential to discuss your wishes with your agent ahead of time.

Executing a healthcare directive and nominating a healthcare agent is not just about choosing the right person to make the big life-and-death decisions for you, it’s also about taking care of the loved ones you leave behind.  Most people have strong wishes about life-support and end-of-life care, but rarely do they want those wishes carried out at the expense of their loved ones.  Creating a healthcare directive which outlines those wishes—and discussing those wishes with your agent and your family—is important not only for your own peace of mind, but also to ensure the peace of mind of your loved ones, those who will be left to mourn your absence after you’re gone.  As a health care directive, I give each client the “Your Way” workbook.

And if you don’t name an agent in a Health Care Proxy?  Your family will be forced to go to court and spend thousands of dollars pursuing a guardianship.

Can A Trust Benefit Your Family?

December 15, 2010

Filed under: Estate Planning — Tags: , , — Alexis @ 9:04 AM

Most Americans don’t realize that they have an estate.  Most people think that an “estate” includes a mansion in the hills, a private jet, or millions of dollars in investment accounts.  But the true definition of “estate” is a person’s possessions or property—regardless of the size or amount.  Everybody has an estate; and if you own a home, have a retirement account, or have any personal property of value you should consider creating a trust for your “estate.”

Before you scoff that you aren’t wealthy enough to need a trust, consider that there are many different kinds of trusts, each of which may be used for specific situations.  Some trusts are complicated and extensive, created by wealthy families to preserve assets through generations.  Other trusts are simple and to the point, created by young parents to ensure that their minor children will be provided for.  What kind you will need will depend on a number of factors, including the size of your estate, your goals for that estate, the age of your children, your marital status, whether you have a special needs child or grandchild, and many, many more.

Most trusts created for estate planning purposes are revocable living trusts (or RLTs).  An RLT is a document created not simply to distribute your property, but to own your property during your lifetime, to be invested and spent for your benefit or the benefit of your named beneficiaries.  As such, a trust takes effect as soon as you sign it, and your property is protected by it, as soon as you place your assets in the name of your trust.  There is a lot of flexibility available with a revocable living trust, and yours can be created to fit your unique situation.  Most RLTs name the trust creator (you) as the initial trustee, nominating individuals or banks to take over as trustee when you become incapacitated or pass away.

One of the primary benefits of a trust is that when you pass away, property is not merely distributed and that’s the end of it; you can instruct the trustee to distribute the money slowly and in any number of ways, for example, keeping it out of the hands of a spendthrift child or protecting it for the benefit of a special needs child.

You may not have a Back Bay penthouse or an Italian villa, but you do have a family to protect.  We’d like to help.  Contact our office to find out if your family needs a trust.

4 Essential Qualities Your Executor Should Have

December 1, 2010

Filed under: Estate Planning — Tags: , , — Alexis @ 9:44 AM

If you have a Will, you have an executor. You are placing a lot of trust in your executor. After all, this is the person who will be serving in your stead when you pass away—helping your loved ones, overseeing your finances, paying your final bills and distributing your property. Serving as someone’s executor can be a tough job, and choosing the right person for that job can be just as difficult.

Although it is commonly considered an honor, serving as an executor is a lot of work, and often requires a great capacity for organization, attention to detail, meeting deadlines, and more. You may be tempted to name your favorite sibling or eldest child just to keep from hurting any feelings, but your family and heirs will not be well served if you choose your executor based on emotion rather than ability.

Keeping this in mind, here are four qualities to consider when choosing who will serve as your executor:

1. Is the person trustworthy? Your executor will be privy to all of your financial secrets: reviewing estate assets, determining your liabilities and paying off creditors, settling outstanding debts, and making distributions to heirs. Chances are you don’t want all that information spread throughout the family or community.
2. Is this person organized? The person you choose will be in charge of a number of detailed tasks, both large and small. He or she will be making lists of assets, meeting court deadlines, making timely distributions for estate taxes, and more. Missing or being late for one of these many steps can draw out the entire process, costing your heirs both time and money.
3. Is this person financially savvy? One of the responsibilities of executor is to keep the estate viable (making sure the mortgage and fees continue to be paid) during the probate process. If you have investment accounts you’ll want to ensure they won’t languish and lose their value before they can be distributed to your heirs.
4. Is this person compassionate? Although probate can be a difficult and detailed process, it is at its core about the people you love. Your executor should have the ability to be caring and compassionate during this emotional time.

Part of the estate planning attorneys’ job is to help you think through who among your family or friends would be best suited for the job. If you have any questions at all about who to name, make sure to bring it up with your attorney.

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