Woburn, MA Estate Planning and Elder Law

Another Aspect of the Estate Tax Debate: Income Inequality

A new study in the United Kingdom provides an ominous warning about the wealth prospects of younger people.

It seems we’ve been hearing the terms "income inequality" or "wealth inequality" frequently used in recent years to describe a growing economic trend of wealth concentration among a shrinking segment of the population.

These terms are now commonly used: from the work of economist Thomas Pikkety, to the Occupy Wall Street Movement, to every speech given by Senator Bernie Sanders, and even to the pages of The Economist. While we like to believe that everyone has a fair shot and that hard work is rewarded, a new study out of the United Kingdom raises some doubts.

Recently reported in The Independent article titled "Inherited wealth will decide how rich young people will become, a study warns," the study suggests that due to rising home prices, stagnant wages and diminishing pensions, the wealth of young people will not come from their own hard work. Instead, it will be primarily determined by the inheritances they receive from their parents.

Although this study was conducted in the United Kingdom, many of the same sentiments and perceptions also exist in the U.S.. In the U.K., this is prompting many young people to oppose estate tax cuts or repeal. As one liberal Democrat was quoted as saying, “It cannot be right that the wealthiest families amass vast fortunes, while millions of young people see their incomes fall and home ownership slip out of reach.”

As the new Congress and President Trump undertake discussions about the future of the estate tax here in the U.S., the debate may turn at some point to discussions of income inequality, wealth concentration and the potential social role of estate taxation.

Reference: The Independent (January 5, 2017) "Inherited wealth will decide how rich young people will become, a study warns."

Simmons & Schiavo, LLP • (781)397-1700 • [email protected] • www.simmonsandschiavo.com

Common Misconceptions about Living Trusts

People often hear things about living trusts from friends, family members and the media, and just assume they are true without taking the time to check them out. Here are some common misconceptions—and the facts.  

1.      A living trust is expensive. A well-drafted living trust will have a higher initial cost than a will. But when comparing costs the true cost of a will should include the costs of probate when you die, the costs of a conservatorship if you become incapacitated and the costs of a guardianship if you leave assets to a minor child. There may be some costs associated with transferring your assets to your trust when you set it up, but there are frequently similar costs associated with properly titling assets when a will is used as the primary estate planning document. Properly titling assets is essential to either a well-drafted living trust plan or a well-drafted will centered estate plan.  When you compare the total costs of both plans, the living trust centered plan will frequently be less.  

2.      Trusts are for wealthy people and I don’t own that much. Trusts have been around for hundreds of years, but because they were used mostly by the wealthy who needed special tax planning, it’s easy to see how trusts got that reputation. In recent years, however, the benefits of a revocable living trust for all size estates have become more known and desired. Generally speaking, costs for probate and court conservatorships/guardianships (which a living trust can avoid) take a higher percentage from smaller estates, which can least afford it, than from larger ones. In addition to the cost savings, most people choose a living trust because they want to spare their loved ones the hassle of dealing with the courts.  

3.      Most people end up going through probate anyway so a living trust is a waste of money. If your living trust is properly prepared and assets are properly titled, your assets will not go through probate. There are only three reasons why your assets would go through probate: 1) you didn’t transfer all of your assets into it; 2) your trust is not properly written (you need the services of an experienced attorney to do that); 3) you do not have a revocable living trust. (A trust that is part of your will is not a living trust and will not avoid probate; it can only go into effect after your will is probated.)  

4.      I would have to give up control over my assets. If you are your own trustee, as most people choose to be, you will be able to do anything with your assets that you could do before they were in the trust: buy/sell, change your trust or even cancel your trust. If you name someone else to be your trustee, you (and, generally, your beneficiaries later on) can replace the trustee if you are not satisfied. Trustees must follow the instructions in the trust or they can be held legally liable. You decide when your loved ones will receive their inheritances; your trustee can make periodic distributions, but assets that remain in your trust are protected from irresponsible spending, creditors, even divorce proceedings. Bottom line: a living trust lets you keep full control over your assets while you are living, if you become incapacitated and after you die.  

5.      I would have to pay trustee fees. As long as you are your own trustee, you do not pay any management fees. Successor trustees are entitled to receive a fee, but family members often do not take one. If you choose a professional trustee, they will only charge a fee when they start to act for you; usually it is a small percentage of the trust assets and, given all the services they provide, most people find the fee to be reasonable.  

6.      I’d have to have a separate tax ID number and file a separate tax return. While you are living, you continue to use your own social security number and file your normal tax return. (The IRS considers a living trust to be a non-event because it can be canceled at any time.) Only if your trust will continue after you die will it then need a separate tax ID number and tax return.

http://www.estateplanning.com/common-misconceptions-about-living-trusts/

If you would like to discuss setting up your Estate Plan, please contact an experienced attorney at Simmons & Schiavo, LLP. Please call (781) 397-1700 or visit our contact us webpage.

Lesser Known Estate Planning Mistakes

Some celebrity estates are discussed endlessly. Everyone hears about the mistakes they made. Other celebrity estate planning mistakes go little noticed, but they can be just as important.

Celebrities are perhaps more aware than anyone else, how the media can sometimes appear to randomly decide to focus on one thing and not something else. Some celebrity marriages or breakups are discussed endlessly, while others are barely mentioned at all. The difference between the two is not always clear.

The same thing happens with celebrity deaths and estates.

The estates of some celebrities are the subject of headline after headline, usually pointing out mistakes that are made. For example, the estates of Robin Williams, Whitney Houston and Michael Jackson are well-known because of the mistakes in estate planning and the family feuds that ensued.

Other celebrity estate plans and their mistakes are not mentioned as often, but they can also be instructive.

Recently, the Lamorinda Weekly mentioned a couple of these lesser known mistakes in "Avoid These Celebrity Mistakes With Your Estate Plan," including:

• Failure to Update - Actor Heath Ledger prepared a comprehensive estate plan that left provisions for his parents and his sisters. However, he never updated his plans after his daughter was born and, as a result, she was not even mentioned in the plans. It did end well, however, with the family putting the bulk of the estate in a trust for her benefit.
• The Hidden Estate Plan - Florence Griffith Joyner also went to the trouble of getting an estate plan. The problem was that she did not tell anyone where to find the plan. No one was ever able to locate her will and the estate was only settled after four years of bitter fighting between her family members. Regardless of your celebrity status, contact a qualified estate planning attorney to do things right and to avoid unnecessary mistakes.
•  

Reference: Lamorinda Weekly (Dec. 28, 2016) "Avoid These Celebrity Mistakes With Your Estate Plan."

If you would like to discuss setting up your Estate Plan, please contact an experienced attorney at Simmons & Schiavo, LLP. Please call (781) 397-1700 or visit our contact us webpage.

Will Trump Kill the Estate Tax?

One of the biggest questions concerning estate planning right now, is whether Donald Trump will carry out his campaign promise to eliminate the estate tax and whether or not he should.

The estate tax is a one of those hot button issues over which political parties are sharply divided. While campaigning for the presidency, Donald Trump repeatedly said he would eliminate the tax. His is a position that most Republicans in Congress share. Now that Donald Trump and congressional Republicans have the power to do away with the estate tax, the question becomes whether they will actually do so.

Financial Advisor addressed that question in "Death to the Death Tax?"

“I think there’s a chance he [Trump] will repeal the whole thing,” said tax attorney Martin Shenkman, whose namesake firm in Jersey City, N.J., and New York City focuses on estate and tax planning for high-net-worth individuals, closely held businesses and real estate professionals.

Shenkman also said there’s speculation about abolishing the gift and generation-skipping taxes. He pointed out that, while these taxes do not raise a lot of revenue, they were at one time intended to minimize the wealth-concentration in our country. Whether or not they still serve this social purpose, or should, is up for debate.

With all of this uncertainty, no one can predict the final outcome, but, as Shenkman said, “There’s no reason to stop planning because of this uncertainty, if the end result of the planning is to get assets in a better place than they are now regardless of the tax.”

Reference: Financial Advisor (January 3, 2017) "Death to the Death Tax?"

Simmons & Schiavo, LLP • (781)397-1700 • [email protected] • www.simmonsandschiavo.com

What is Estate Planning?

Believe it or not, you have an estate. In fact, nearly everyone does. Your estate is comprised of everything you own— your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, personal possessions. No matter how large or how modest, everyone has an estate and something in common—you can’t take it with you when you die.

When that happens—and it is a “when” and not an “if”—you probably want to control how those things are given to the people or organizations you care most about. To ensure your wishes are carried out, you need to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will, of course, want this to happen with the least amount paid in taxes, legal fees, and court costs.

That is estate planning—making a plan in advance and naming whom you want to receive the things you own after you die. However, good estate planning is much more than that. It should also:

• Include instructions for passing your values (religion, education, hard work, etc.) in addition to your valuables.
• Include instructions for your care if you become disabled before you die.
• Name a guardian and an inheritance manager for minor children.
• Provide for family members with special needs without disrupting government benefits.
• Provide for loved ones who might be irresponsible with money or who may need future protection from creditors or divorce.
• Include life insurance to provide for your family at your death, disability income insurance to replace your income if you cannot work due to illness or injury, and long-term care insurance to help pay for your care in case of an extended illness or injury.
• Provide for the transfer of your business at your retirement, disability, or death.
• Minimize taxes, court costs, and unnecessary legal fees.
• Be an ongoing process, not a one-time event. Your plan should be reviewed and updated as your family and financial situations (and laws) change over your lifetime. Estate planning is not just for “the wealthy,” either, although people who have built some wealth do often think more about how to preserve it. Good estate planning often means more to families with modest assets, because they can afford to lose the least.

  Estate planning is for everyone. It is not just for “retired” people, although people do tend to think about it more as they get older. Unfortunately, we can’t successfully predict how long we will live, and illness and accidents happen to people of all ages.

  Estate planning is not just for “the wealthy,” either, although people who have built some wealth do often think more about how to preserve it. Good estate planning often means more to families with modest assets, because they can afford to lose the least.

  Too many people don’t plan. Individuals put off estate planning because they think they don’t own enough, they’re not old enough, they’re busy, think they have plenty of time, they’re confused and don’t know who can help them, or they just don’t want to think it. Then, when something happens to them, their families have to pick up the pieces.

  If you don’t have a plan, your state has one for you, but you probably won’t like it.

  At disability: If your name is on the title of your assets and you can’t conduct business due to mental or physical incapacity, only a court appointee can sign for you. The court, not your family, will control how your assets are used to care for you through a conservatorship or guardianship (depending on the term used in your state). It can become expensive and time consuming, it is open to the public, and it can be difficult to end even if you recover.

  At your death: If you die without an intentional estate plan, your assets will be distributed according to the probate laws in your state. In many states, if you are married and have children, your spouse and children will each receive a share. That means your spouse could receive only a fraction of your estate, which may not be enough to live on. If you have minor children, the court will control their inheritance. If both parents die (i.e., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.

  Given the choice—and you do have the choice—wouldn’t you prefer these matters be handled privately by your family, not by the courts? Wouldn’t you prefer to keep control of who receives what and when? And, if you have young children, wouldn’t you prefer to have a say in who will raise them if you can’t?

  An estate plan begins with a will or living trust. A will provides your instructions, but it does not avoid probate. Any assets titled in your name or directed by your will must go through your state’s probate process before they can be distributed to your heirs. (If you own property in other states, your family will probably face multiple probates, each one according to the laws in that state.) The process varies greatly from state to state, but it can become expensive with legal fees, executor fees, and court costs. It can also take anywhere from nine months to two years or longer. With rare exception, probate files are open to the public and excluded heirs are encouraged to come forward and seek a share of your estate. In short, the court system, not your family, controls the process.

  Not everything you own will go through probate. Jointly-owned property and assets that let you name a beneficiary (for example, life insurance, IRAs, 401(k)s, annuities, etc.) are not controlled by your will and usually will transfer to the new owner or beneficiary without probate. But there are many problems with joint ownership, and avoidance of probate is not guaranteed. For example, if a valid beneficiary is not named, the assets will have to go through probate and will be distributed along with the rest of your estate. If you name a minor as a beneficiary, the court will probably insist on a guardianship until the child legally becomes an adult.

  For these reasons a revocable living trust is preferred by many families and professionals. It can avoid probate at death (including multiple probates if you own property in other states), prevent court control of assets at incapacity, bring all of your assets (even those with beneficiary designations) together into one plan, provide maximum privacy, is valid in every state, and can be changed by you at any time. It can also reflect your love and values to your family and future generations.

  Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age you want them to inherit. Your trust can continue longer to provide for a loved one with special needs, or to protect the assets from beneficiaries’ creditors, spouses, and irresponsible spending.

  A living trust is more expensive initially than a will, but considering it can avoid court interference at incapacity and death, many people consider it to be a bargain.

  Planning your estate will help you organize your records and correct titles and beneficiary designations. Would your family know where to find your financial records, titles, and insurance policies if something happened to you? Planning your estate now will help you organize your records, locate titles and beneficiary designations, and find and correct errors.

  Most people don’t give much thought to the wording they put on titles and beneficiary designations. You may have good intentions, but an innocent error can create all kinds of problems for your family at your disability and/or death. Beneficiary designations are often out-of-date or otherwise invalid. Naming the wrong beneficiary on your tax-deferred plan can lead to devastating tax consequences. It is much better for you to take the time to do this correctly now than for your family to pay an attorney to try to fix things later.

  Estate planning does not have to be expensive. If you don’t think you can afford a complex estate plan now, start with what you can afford. For a young family or single adult, that may mean a will, term life insurance, and powers of attorney for your assets and health care decisions. Then, let your planning develop and expand as your needs change and your financial situation improves. Don’t try to do this yourself to save money. An experienced attorney will be able to provide critical guidance and peace of mind that your documents are prepared properly.

  The best time to plan your estate is now. None of us really likes to think about our own mortality or the possibility of being unable to make decisions for ourselves. This is exactly why so many families are caught off-guard and unprepared when incapacity or death does strike. Don’t wait. You can put something in place now and change it later…which is exactly the way estate planning should be done.

  The best benefit is peace of mind. Knowing you have a properly prepared plan in place - one that contains your instructions and will protect your family - will give you and your family peace of mind. This is one of the most thoughtful and considerate things you can do for yourself and for those you love.

  Reference: http://www.estateplanning.com/What-is-Estate-Planning/

  If you would like to discuss setting up your Estate Plan, please contact an experienced attorney at Simmons & Schiavo, LLP. Please call (781) 397-1700 or visit our contact us webpage.

Be on the Lookout for Trust Scams

Unscrupulous companies employ salespeople to scam the elderly into paying large sums for worthless estate planning documents that are not created by attorneys.

As a recent article in My San Antonio "'Trust mill' scam hits elderly hard" illustrates, this is an important thing of which elderly people need to be aware. A reader wrote in to ask questions about an estate plan his parents had purchased from what they thought was an attorney in Dallas.

When the man's father passed away, his mother could not find the original documents, but was able to receive copies of a will, revocable trust and general durable power of attorney from the party that sold them to the couple.

The reader wanted to know if the copies could be used in place of the originals.

What happened next is all too common.

The columnist consulted with the state bar and learned quickly that there was no Dallas attorney. The person who sold the couple the documents had never been an attorney. It was actually a salesperson hired by a company to sell elderly people so-called estate plans.

Companies known as "Trust Mills" sell people form estate documents, which leave the victims thinking that they have good estate plans.

They do not.

They have one-size fits all documents that are often worth less than the paper they are printed on.

If you want to get an estate plan, do not rely on someone who shows up at your door or who offers you a free lunch to sit through a seminar. Make sure that you are dealing with an actual estate planning attorney.

Reference: My San Antonio (Dec. 15, 2016) "'Trust mill' scam hits elderly hard."

If you would like to discuss setting up your Estate Plan, please contact an experienced attorney at Simmons & Schiavo, LLP. Please call (781) 397-1700 or visit our contact us webpage.

Family Estate Disputes Not Just about Money

It is well known that many wealthy families have massive fights over estates. Sometimes, the public watches these disputes play out in the courts and media. They are not just about money.

Estate battles have been going on between siblings for as long as there have been estates and wealthy people who pass away. History books are full of the wars that occurred when a king passed away and his children fought with large armies for the crown.

In the U.S., the participants in a family estate fight no longer enlist armies and fight it out on a field of battle. People now fight things out in court. However, the reasons for the disputes today are very similar to what they were hundreds of years ago.

While ostensibly these feuds are over the wealth, crown or other inheritance, there is normally something deeper going on as Psych Central points out in "Death, Wealth, and the Psychological Anatomy of a Family Dispute."

Psychologists and even pop culture have known for a long time about sibling rivalry. Although there is disagreement about the core reasons for the phenomenon, no one disputes that it exists. Whether it has its roots in birth order, a desire to be loved more by parents or something else, sibling rivalry is a real thing that does not go away when children grow up.

The same psychological reasons that lead siblings to argue over who gets to ride shotgun in the car, are the same reasons that lead to arguments over estates.

Little can be done to end sibling rivalry in a family. On the other hand, knowing that it exists and making estate plans with it in mind, can go a long way toward making sure it does not get completely out of control in a fight over an estate.

Reference: Psych Central (Dec. 13, 2016) "Death, Wealth, and the Psychological Anatomy of a Family Dispute."

Simmons & Schiavo, LLP • (781)397-1700 • [email protected] • www.simmonsandschiavo.com

Estate Tax Could Be Early Test for President Trump

President-elect Donald Trump ran his campaign as a populist champion of the working class. His vow to eliminate the estate tax could be a test of whether or not he is.

Pollsters have long known that asking questions in different ways can lead to different results. This is true when Americans are asked about the estate tax. If people are asked whether they favor a tax when someone dies, the majority will say that they do not. However, when they are also told who the estate tax affects, then the majority of people support the estate tax.

Overall, the country is more or less equally divided on this issue.

That makes watching what President-elect Donald Trump and the Republican majority in Congress do about it interesting as an indication of what type of President he plans to be, as Bloomberg discusses in "Estate Tax Repeal Would Be a Bonanza for Trump and His Cabinet."

Trump campaigned on the notion that he would bring prosperity to the working class. However, he also favored repealing the estate tax, which no one in the working class pays. His family would also benefit greatly from repealing the tax. One estimate of his net worth, that he has said is too low, would indicate that his estate would save $545 million by not having to pay estate taxes. Several members of his cabinet would also save millions of dollars.

This is important for people who do want to see the estate tax eliminated.

If Republicans do make an attempt to repeal it, then it is certain Democrats will make noise about how much the President and Cabinet stand to gain to use as a wedge between the President and his supporters. For that reason, Republicans might think twice about a quick repeal even though they have long advocated eliminating the estate tax.

Reference: Bloomberg (Dec. 9, 2016) "Estate Tax Repeal Would Be a Bonanza for Trump and His Cabinet."

Simmons & Schiavo, LLP • (781)397-1700 • [email protected] • www.simmonsandschiavo.com

Put Investments in Your Trust

Deciding what should go into your trust and what should not, can sometimes be complicated. However, it is not complicated when talking about your investment accounts.

Once you get a proper trust drafted by an experienced estate planning attorney, you then need to start funding the trust. You need to start adding your assets into the trust.

That can sometimes be difficult, since you might not want everything to go into your trust right away. Your estate plan might be created so that it keeps certain assets out of the trust for various reasons. You might not want to wait to put some things in the trust until after you pass away when your will directs that it is where they should go.

One class of assets, however, should almost always go into your trust as The Herald Bulletin discusses in "If you have a trust, that's where your investments should go."

Any investments that you have should almost always go into your trust. This is done for tax reasons most of the time, but it is a clear call.

That does not mean, however, that you should put your IRA into a trust. That is a complicated decision that you will want to talk to your attorney about. However, any other investments should be put into the trust.

Whenever you have questions about what should or should not be placed into your trust, the best thing to do is to ask your estate planning attorney.

Reference: The Herald Bulletin (Dec. 17, 2016) "If you have a trust, that's where your investments should go."

If you would like to discuss setting up your Estate Plan, please contact an experienced attorney at Simmons & Schiavo, LLP. Please call (781) 397-1700 or visit our contact us webpage.

Don’t wait until it’s too late to execute a power of attorney

A durable power of attorney is an extremely important estate planning tool, often more im­portant than a will.   If you become incapacitated due to dementia or some other reason, this crucial document allows a person you appoint (your “attorney-in-fact” or “agent”) to act in place of you (the “principal” ) for financial purposes.   The agent under the power of attorney can quickly step in and take care of your affairs. But in order to execute a power of attorney and name an agent to stand in your shoes, you need to have capacity.  

Regrettably, many people delay com­pleting this vital estate planning step until it’s too late and they no longer are legally capable of doing it. What happens then? Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time and costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship the representative may have to seek court permis­sion to take planning steps that he or she could have implemented immediately under a simple durable power of attorney.

This is why it’s so important that you have a dura­ble power of attorney in place before the capacity to execute the document is lost. The standard of capac­ity varies from jurisdiction to jurisdiction. In some instances this threshold can be quite low: The client need only know that he trusts the agent to manage his financial affairs. In others the rule is that since the agent generally has the right to enter into contracts on behalf of the principal, the principal should have the capacity to enter into contracts as well, and the threshold for entering into contracts is fairly high.

If you do not have someone you trust to appoint as your agent, it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney that simply nominates the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination “except for good cause or disqualification.” Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation. To execute a durable power of attorney before it’s too late, contact your attorney. 

If you would like to discuss your current Estate Plan, please contact an experienced attorney at Simmons & Schiavo, LLP. Please call (781) 397-1700 or visit our contact us webpage.