Woburn, MA Estate Planning and Elder Law

Using a prepaid funeral contract to spend down assets for Medicaid

One benefit of a prepaid funeral contract is that you are paying now for a service that may increase in price — possibly saving your family money.

No one wants to think about his or her death, but a little preparation in the form of a prepaid funeral contract can be useful. In addition to helping your family after your passing, a prepaid funeral contract can be a good way to spend down assets in order to qualify for Medicaid.

A prepaid or pre-need contract allows you to purchase funeral goods and services before you die. The contract can be entered into with a funeral home or cemetery. Prepaid funeral contracts can include payments for embalming and restoration; a room for the funeral service; a casket, vault or grave liner; cremation; transportation; permits; a headstone; a death certificate; and an obituary, among other things.

One benefit of a prepaid funeral contract is that you are paying now for a service that may increase in price — possibly saving your family money. You are also saving your family from having to make arrangements after you die, which can be difficult and time-consuming.

Another benefit is that it can be a way to spend down your assets. Medicaid applicants must spend down their available assets until they reach the qualifying level (usually around $2,000, depending on the state). By purchasing a prepaid funeral contract, you can turn available assets into an exempt asset that won’t affect your eligibility.

In order for a prepaid funer­al contract to be exempt from Medicaid’s asset rules, the contract must be irrevocable. That means you can’t change it or cancel it once it is signed.

Before purchasing a con­tract, you should shop around and compare prices to make sure it is the right one for you. Buyers need to be careful that they are buying from a reputable company and need to ask for a price list to make sure they are not overpaying.

For information from the Federal Trade Commission on shopping for funeral services, see: https://www.consumer.ftc.gov/articles/pdf-0056-funerals.pdf

For personalized attention and care, contact Simmons & Schiavo, LLP to schedule an appointment. • (781) 397-1700 • [email protected] • www.simmonsandschiavo.com

IRS now allows private debt collectors to dun taxpayers

In a move that could be confusing to seniors who are vulnerable to scams, the IRS is using private debt collec­tion agencies to collect past-due taxes. The new program began in April 2017.

Pursuant to a law Congress passed in December 2015, the IRS may now contract with private debt collectors to collect certain debts. The private collection agencies can work on accounts where the taxpayer owes money but the IRS is no longer actively working on the account, perhaps because it is older or because the IRS does not have the resources to continue pursuing it.

Historically, scammers have posed as the IRS to target seniors and other vulnerable adults to retrieve identifying information or payment. Up until now, tax professionals have been able to reassure clients that the IRS would never harass consumers over the phone. However, un­der this new rule private debt collectors may contact taxpayers by phone, which may make it more difficult to determine whether a scammer is targeting the taxpayer.

There are some ways to tell if the call is legitimate.

The IRS will notify taxpayers by mail if it is turning a case over to a private debt collector. In addition, the debt collec­tor is required to send a written notice once it receives the taxpayer’s information. Agencies are also required to abide by debt collection laws, which prevent debt collectors from harassing consumers.

The IRS has contracted with four debt collection com­panies:

• Conserve, located in Fairport, New York
• Pioneer, located in Horseheads, New York
• Performant, located in Livermore, California
• CBE Group, located in Cedar Falls, Iowa

To avoid scams, remember that private collection agen­cies will only ask for payments to be made online at IRS. gov or by check. Checks should be made payable to the U.S. Treasury and sent directly to the IRS, not to the private collection agency. The collection agency will not ask for payment on a prepaid debit, iTunes or gift card.

Rep. John Lewis, D-Ga., has introduced the Taxpayer Protection Act of 2017, which would repeal the IRS’s au­thority to contract with private companies to collect federal tax debts.

 

For personalized attention and care, contact Simmons & Schiavo, LLP to schedule an appointment. • (781) 397-1700 • [email protected] • www.simmonsandschiavo.com

Five things to know to reduce your tax on capital gains

Although it is often said that nothing is certain except death and taxes, the one tax you may be able to avoid or minimize the most through planning is the tax on capital gains. Here’s what you need to know to do such planning:

1. What is capital gain? Capital gain is the difference between the “basis” in property (usually real estate or stocks, but also including artwork and collectibles) and its selling price. The basis is usually the purchase price of the property. So, if you purchased a house for $250,000 and sold it for $450,000 you would have $200,000 of gain ($450,000 - $250,000 = $200,000).

However, the basis can be adjusted if you spent money on capital improve­ments. For instance, if after buying your house you spent $50,000 renovating the kitchen, the basis would now be $300,000 and the gain on its sale for $450,000 would be $150,000 ($450,000 - ($250,000 + $50,000) = $150,000). Just make sure you keep good records of any capital improvements in order to prove them in the event of an audit.

2. How much is the tax? It depends, but as­sume 15 percent for federal tax unless your income is either very low or very high, plus whatever your state’s tax is. If we assume 5 percent state tax, then the tax on $200,000 of gain would be about $40,000.

There are three exceptions. First, if you owned the property for less than a year, you are subject to short-term capital gains tax rates, which are es­sentially the same rates as for income tax. Second, if your taxable income, including the capital gain, is less than $37,950 for a single person and $75,900 for a married couple (in 2017), there’s no federal tax on capital gain. But be aware that the capital gain will be included in the calculation and could put you over the threshold. Third, if your income is more than $418,400 for a single person and $470,700 for a married couple (in 2017), the federal capital gains tax rate is 20 percent, bringing the combined federal and assumed state rate up to just over 25 percent.

3. What is the personal residence exclu­sion? You may exclude up to $250,000 of gain on the sale of your personal residence if you’re single, and $500,000 if you’re married. To qualify, you (or your spouse) must have lived in and owned the house for at least two out of the five years prior to the sale. Those two years don’t have to be the same. For instance, if you lived in the house from 2013 to 2015 and owned it from 2015 to 2017, but rented it out, you could still qualify for the exclusion. If you are a nursing home resident, the two-year require­ment is reduced to one year.
4. What is carry-over basis? If you give property such as a family heirloom or real estate to someone else, they receive it with your basis. So, if your parents bought a vacation home many years ago for $25,000 and now its fair market value is $500,000 and they give it to you, your basis will also be $25,000. If you sell it, you’ll have a gain of $475,000 and no personal residence exclusion, un­less you move in for two years first. The combined state and federal tax would be $118,750.
5. What is the step-up in basis? On the other hand, the basis in inherited property gets adjusted to the value on the date of death. In the example of the vacation home, if your parents passed it on to you at their deaths rather than giving it to you during their lives, the basis would be adjusted to $500,000, potentially saving you $118,750 on its sale. But depending on the size of your parents’ estate it may be subject to estate tax, which would be payable within nine months of their death, while the tax on capital gain would not be due until you sold the property, perhaps decades in the future.
6. What are offsetting losses? If during the tax year you realized capital gain through the sale of property, you can offset it with capital losses. Say, for example, you sell your home and realize a lot of gain. You could also sell some stock that has gone down in value, creating a loss that offsets some of the gain on the house sale. In some instances, you can carry over loss from one tax year to the next to offset future gains.

By understanding and considering these rules, you can save on capital gains taxes and avoid a number of possibly expensive mistakes. Talk to your attorney about ways to lower or eliminate your capital gains tax.

If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit www.simmonsandschiavo.com

 

Estate planning for a single person

If you are single, you may not think you need to plan your estate. But single people have as much reason to plan as anyone else. Estate planning not only involves determin­ing where your assets will go when you die, it also helps you plan for what will happen should you become incapacitated, perhaps as the result of a stroke, dementia, or injury. If you don’t make a plan, you will have no say in what happens to you or your assets.

Without a properly executed will in place when you die, your estate will be distributed ac­cording to state law. If you are single, most states provide that your estate will go to your children, parents, or other living relatives. If you have ab­solutely no living relatives, then your estate will go to the state. This may not be what you want to have happen to your assets. You may have chari­ties, close friends, or particular relatives that you want to provide for after your death.

If you become incapacitated without any planning, a court will have to determine who will have the authority to handle your financ­es and make health care decisions for you. The court may not choose the person you would have chosen. In addition, going to court to set up a guardianship is time-consuming and expensive.

 All this can be avoided with the simple step of executing a durable power of attorney, allowing a person you appoint — your “attorney-in-fact” or “agent” — to act in your place for financial purposes when and if you ever become incapacitated. The person you choose will be able to step in and take care of your financial affairs if need be.

In addition, you should have a health care proxy. Similar to a power of attorney, a health care proxy allows an individual to appoint someone else to act as his or her agent for medical, as opposed to financial, decisions. Unlike married individuals, unmarried partners or friends usually can’t make decisions for each other without signed authorization.

You should also consider an advance direc­tive giving instructions on what type of medical interventions you would like if you aren’t able to express your own wishes when decisions need to be made.

Single individuals who are divorced need to make especially certain that the beneficiary desig­nations on their IRAs, life insurance policies, and relevant bank accounts are up-to-date. If you don’t, your ex-spouse could get the funds. Also, for single people of means, opportunities to avoid state or federal estate taxes can be more limited than for married couples, although advance planning can close the gap.

In short, proper planning is a good idea for everyone. Contact your attorney to help you create an estate plan.

If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit www.simmonsandschiavo.com

Wills Need Probate

If you inherit something through a will, you cannot just take the will to the bank and demand they give you the contents of a bank account.

How wills actually work, is not understood by everyone.

Many people think that if something is written down in a will, then everything is settled. They think all that is required is for the beneficiary to show the will to whoever is holding the property the beneficiary is to inherit.

That is not the way it works at all.

Unfortunately, the misperception is common.

In fact, estate attorneys are used to hearing this from people named in wills, who think it all works that way and are upset when they discover that it does not.

The Times Herald recently discussed this in "Wills won't work without probate."

A will is only a bunch of words on paper that have no real legal authority, until the will is filed with a probate court.

The court must then agree to accept the will as representing the valid wishes of the deceased.

Once that is done, the probate court appoints a personal representative for the estate.

That personal representative is then charged with carrying out the directives in the will, under the supervision of the court.

This can result in a long and often expensive process.

It depends on the size of the estate, the ability of the personal representative and whether there are any challenges to the estate.

Of course, this can all usually be avoided by speaking to an estate planning attorney about getting a trust instead of a will.

Reference: The Times Herald (Sep. 22, 2017) "Wills won't work without probate."

If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit www.simmonsandschiavo.com

 

2018 Estate Tax Exemption Projections

Experts predict that the estate tax exemption for 2018 will increase slightly to $5.49 million for a single person and $10.98 million for couples.

The IRS has not yet announced what the 2018 estate tax exemption will be. However, expert analysts think there will be some slightly good news for wealthy people.

They predict that the exemption should increase to $5.6 million for a single person and more than $11 million for married couples.

At the same time, they predict that the annual gift tax exemption should also increase to about $15,000, as Forbes reported in "Estate Tax Exemption To Top $11 Million Per Couple in 2018."

This should give wealthy people and their estate planning attorneys a little bit more flexibility, as they attempt to shrink estates to below the threshold.

While most people who might be affected by this exemption increase would prefer to see the estate tax repealed entirely, that is increasingly looking like it will not happen this year.

Congress has turned its attention to tax reform, but getting anything passed could be a long process and will likely continue into next year.

Repealing the estate tax is also controversial. If Democratic votes are needed to pass tax reform legislation, that might take the estate tax off the table.

If you have questions about your estate and how it might have an impact on the estate tax, then you should see an experienced estate planning attorney in your area.

Reference: Forbes (Sep. 15, 2017) "Estate Tax Exemption To Top $11 Million Per Couple in 2018."

 

If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit www.simmonsandschiavo.com

 

Estate Tax Repeal Could Hurt Charities

People who are opposed to eliminating the estate tax are often seen as wanting to do nothing more than to punish the wealthy. However, some of them are more concerned about the impact that estate tax repeal could have on charities.

At first glance, it might not seem like there is much of a relationship between the existence of the estate tax and charities.

The former takes money from the wealthiest estates involuntarily and uses it to help fund government programs. The latter are entities that people voluntarily give money to, in support of causes that they think benefit society.

However, the two are very much related, as Bloomberg discusses in "GOP Plan to Kill Estate Tax Sets Up Charitable Giving Conflict."

The issue is that one of the most common ways to get around the estate tax is to shrink an estate to just below the estate tax exemption limit. A great way to do this is to give money to charity.

When the estate tax was temporarily eliminated in 2010, charitable giving was reduced by 37%.

This has many charities very nervous about the possibility that the estate tax could be eliminated again, as the Trump administration and Congressional Republicans would like.

Republicans are looking for ways to get around this problem by finding other ways to encourage charitable giving.

It is not yet certain whether they will have the votes necessary to do that.

It is also not certain at this point whether they will have the votes to eliminate the estate tax either.

If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit www.simmonsandschiavo.com

 

Estate Planning Is Ongoing Process

It is not enough to get an estate plan once and leave it alone for all time. It needs to be constantly reviewed and updated to take account of changing circumstances.

Some people can get away with getting an estate plan once and never looking at it again. If someone never gets divorced, remarried, has more children or increases assets, then the first estate plan they get might be good enough for the rest of their lives.

This is true, even if that estate plan was written 50 years before the person passes away.

However, most people's lives are not that constant.

In fact, most people have significant changes in their lives as they get older.

When things change, then estate plans normally need to be changed as well, as Forbes discusses in "Why Continuous Estate Planning Is Essential For the Rich and Super-Rich."

The more wealth that you have, the more often you will probably need to change your estate plan.

This is because your assets will grow, how you hold those assets will change and tax laws will also change.

Nevertheless, it is not just the wealthy who need to constantly review and update their estate plans.

Everyone should do so, whenever there is a significant change in their lives that should be reflected in an estate plan.

Examples of these changes include divorce, remarriage, a new child, a new higher paying job, a new grandchild and much more.

If you have not changed your estate plan recently, then take a look at it.

Ask yourself whether it still does what you want it to do, given all the changes in your life.

If the answer is no or even maybe not, then talk to an estate planning attorney.

Reference: Forbes (Sep. 6, 2017) "Why Continuous Estate Planning Is Essential For the Rich and Super-Rich."

If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit www.simmonsandschiavo.com

Cutting a Child Out

It is not all that unusual for a child to not live up to the expectations of parents. Sometimes parents will be so disappointed when that happens, that they will attempt to cut the child out of their estate plans. They might want to reconsider.

Wealthy parents often have extremely high expectations for their children. They want their children to go to school, get a good job, raise a family and do all of the things that made the parents so successful.

However, sometimes a child just does not live up to those expectations.

Sometimes there is a black sheep who does everything the parents would not want him or her to do.

If the problems are severe enough, then the parents might even stop contact with the child and seek to cut him or her out of their estates.

The latter is often a bad idea, as the Globe and Mail discusses in "Think twice, wealthy family, before cutting the black sheep out of your will."

One big thing to consider is that a child who receives nothing has no incentive to not cause problems.

A no-contest clause can prevent someone who does receive an inheritance from challenging an estate plan that they do not like, but it cannot prevent someone from doing so who is set to receive nothing or very little from an estate.

This can make cutting a child out of an estate plan a very expensive proposition.  This is because the child has no reason to not launch legal fights.

A black sheep child can also be more easily controlled by using an estate plan to incentivize that child into desired behaviors.

An estate planning attorney can help you create a trust, for example, that only distributes money to the child when certain actions are taken by the child.

Reference: Globe and Mail (Sep. 19, 2017) "Think twice, wealthy family, before cutting the black sheep out of your will."

If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit www.simmonsandschiavo.com

 

Planning for the Future (Without a Crystal Ball)

Creating a will, trust, or any type of estate plan has always involved dealing with an uncertain future. Consider that just 20 years ago in 1997, the estate tax had an astonishing 55% rate with only a $600,000 exemption. Back then, tax-driven estate planning was a mathematical necessity for a large segment of the population.

Fast forward to 2017. Not only do we now have a generous $5.49 million exemption and a lower 40% rate, we also have renewed emphasis and action from the President and Congress on repealing the estate tax, as evidenced by the September 27, 2017 Unified Framework for Fixing Our Broken Tax Code. So what does this mean for you, as you’re planning for the future?

Estate Tax Repeal Means No Need to Plan...Right?

Nothing could be further from the truth! Although there was a lot of tax-driven planning in the past, in recent years estate planning has largely focused on preserving family unity, protecting assets, ensuring privacy, and effectively passing along financial and emotional legacies.

And, for those with high net worth, it’s also worth mentioning that estate tax repeal isn’t a foregone conclusion at this point either. The Unified Framework still must be crafted into legislation that must pass both houses of Congress and then be signed by the President. Given the political division the country faces (and the likely stiff opposition to the President’s tax proposal from Congressional Democrats), this will be no small feat.

While we wait for Congress to act on the Unified Framework, it’s also worth noting that the estate tax was already effectively repealed for more than 99% of American estates when the exemption was raised to $5 million (and indexed for inflation) in 2010. The vast majority of estates fall below this threshold and need no special planning to avoid the estate tax. But don’t think you’re out of the woods because you have less than $5 million.

Today, the focus of estate planning has shifted away from death taxes to other concerns that affect most families. Estate planners, like us, can now work with you to protect you and your family against costly, public probate, guardianship, or conservatorship court proceedings and also further your legacy goals.

You might be worried about some of these things happening to your family:

• A financially irresponsible child or grandchild wasting their inheritance simply because they lack the financial maturity to handle wealth.
• A divorcing spouse of one of your heirs taking advantage of family wealth.
• Family discord lurking under the surface that tears your family apart, especially after the death of the patriarch or matriarch.
• A lawsuit, judgment, or bankruptcy that causes your family to lose their inheritance.
• Alzheimer’s or another cognitive impairment affecting you or someone else in your family.

Luckily, we have well-developed, flexible legal strategies (such as lifetime trusts, standby special needs trusts, and robust incapacity planning, to name a few) for overcoming these issues. Although estate planning can’t necessarily repair a damaged family relationship, proper planning can help make sure it does not get any worse. But these strategies only work when we have a chance to work with you to implement or refresh your will, trust, and estate plan.

So, there’s no crystal ball. Where should I go from here?

According to WealthCounsel’s 2016 Estate Planning Literacy Survey, about 74% of Americans find estate planning to be a confusing topic. So, you’re not alone if you’re unsure about your next steps. We’re here to help.

If you don’t yet have a will or trust, now is the time to explore getting one. If you have an “old” will or trust, now is the time to talk with us about whether you need an update. Modern families need modern estate planning solutions, and we are ready to help you create a flexible estate plan that works now, and will work in the future, even if the current tax laws change (even though no one has the proverbial crystal ball).

If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit www.simmonsandschiavo.com