A well designed Estate Plan can bring great peace of mind to you and your family.
Many people dismiss the importance of estate planning because they believe it applies only to those with significant wealth.
In reality, your estate is everything you own:
If you own something of value that you wish to pass on to someone else upon your death, you have an estate.
At its core, a basic estate plan conveys your wishes on how your assets should be handled after you’re gone. However, a quality estate plan goes far beyond distribution of assets.
A quality estate plan protects your heir’s inheritance from divorces, lawsuits, and creditors. It keeps your estate out of the lengthy, expensive, probate court process. It can prevent the tax-man becoming an involuntary beneficiary upon your passing for the estate “death” tax (currently in Massachusetts, estate tax is triggered for any estate over $1,000,000, which includes the value of your home).
Proper planning can also protect your nest egg from future long term care costs. Statistically, 7 out of 10 people will need some form of long term care.
In 2020, the average cost for a nursing home in the Boston area was $14,509 per month. With an average stay being about three years, that is $522,324! In-home care is even more expensive.
It’s easy to see how even after years of disciplined saving, nursing home bills or in-home care costs can quickly deplete your bank account. It’s important to take action now while you are alive and well. Click here to get started.
If you don’t own a home or any other sizeable assets, a Will may work for you. However, all Will-based plans will go through Probate court upon your passing.
Probate is a lengthy, expensive, and stressful process for all involved.. The average cost to probate an estate is around 5% of the estate’s value and takes 1 to 2 years to settle.
We have seen many families torn apart and stressed out dealing with probate. For this reason, we create trust-centered estate plans that avoid Massachusetts probate court entirely.
Let’s illustrate the inefficiency of a Will with a quick story about Bob and Betty.
Bob moved to Florida after the death of his wife. Since he’s a very popular guy among all the widowers on his cul-de-sac, he hooks up with “Betty the Bar Maid” and they get married.
Bob, being a standup guy, decides to change his will naming Betty the primary beneficiary. Now his son has been bumped to a secondary role.
One day Bob passes away and everything he owned went to his new bride, Betty. A few years later Betty dies.
Bob’s son calls his father’s Florida attorney who does not return his phone calls. Bob’s son hired us to investigate because he understood that he was his dad’s back-up beneficiary and next in line to receive his inheritance. We contact the Florida attorney asking to get information on his father’s three houses so he can start making plans.
Here’s the bad news: When Bob died, Betty went to her attorney and had her own will created. Who do you think Betty named as her beneficiaries? That’s right… Betty named her own children and left everything to her family… with nothing left for Bob’s son. A sad, but true story.
Bob likely never fathomed in a million years that this could happen. Unfortunately, this situation is more common than you’d think.
A will does not provide any asset protection and is typically woefully insufficient to protect your loved ones. What was needed in this situation was lock-down language, in a trust-centered estate plan. Language that stated after Bob died, Betty could not remove his son as the back-up beneficiary. This was a very expensive and hurtful lesson for Bob’s son.
Most trusts are revocable, meaning they can be changed or terminated (revoked) at any time.
Irrevocable trusts (we call them your “Treasure Chest”) are most often used to protect assets of a senior that will have future long term care needs.
For the purpose of Medicaid qualification, assets transferred to an irrevocable trust are not countable. Therefore, a senior could place their home inside this trust and it would be protected should they need to apply for Medicaid to cover long term care costs down the road.
Keep in mind that Medicaid has a 5-year look-back period. Once you apply for Medicaid, their office will review all asset transfers from the previous 5 years. This includes any transfers of assets into your “Treasure Chest”. The Medicaid office imposes severe penalties on those transfers including the denial of benefits.
The clock starts running the day your assets are transferred into your “Treasure Chest”. If your goal is to protect your home, it’s extremely important to take action now while you are healthy. That way, you can make it past the 5-year look back period before you need long term care.
It’s never too late to protect your life’s work. When we sit down with you, we discuss your goals and look into the future to develop a complete plan that protects you for generations to come.
If you or an aging loved one have been putting off making a plan, take action now while you are alive and well, before your family is left behind to suffer the consequences.
At Patrick J. Kelleher & Associates, P.C., we assist seniors and their families in making the tough, but necessary decisions regarding their wishes, goals, and being mindful of future long-term care needs.
We would be honored to help you and your loved ones. Click here to get started.
Estate planning is for everybody.
Depending on your stage in life, how your estate plan looks may vary. It is important for those younger, just turning 18, to have at least a proper power of attorney and/or health care proxy in place.
As you get older and obtain more property, having an estate plan is helpful to protect and preserve that property.
When you get married and have children, having a plan to guide others on who would help raise them and how any inheritance is handled would be significant. Unfortunately, we can not control if something were to happen to both you and your spouse.
Finally, as you reach the age of 60-65, this is when an estate plan would be most significant. Putting a meaningful, robust, comprehensive plan in place is vital to leaving your legacy behind and protecting your estate from the four-headed monster.
An estate plan encompasses several essential documents, including a trust, that helps protect you in life and your legacy once you have passed away.
A will is typically insufficient to adequately protect your assets from the four-headed monster. It cannot address what will happen due to incapacitation. A will leads to probate court.
This could cost money and time for your loved ones. In addition, your legacy may then be subject to taxes and creditors. Plus, there is always the concern of nursing home costs due to incapacitation that a will won’t be able to address.
Trusts do not die. They can help your family avoid probate court when you pass away or become disabled. Second, they can protect your estate from the estate death tax.
Third, trusts can protect your assets from financial creditors and predators. Finally, trusts can also protect you from long-term care costs should you become incapacitated.
I call these concerns the Four-headed Monster of Elder Law and Estate Planning. Most people in the United States may be at risk without a proper plan.
This type of Trust can be revoked or amended during your life. You remain in control and have authority and possession of the assets in the Trust. You are the trustee maker and can be the trustee manager and beneficiary of the Trust. It can protect you from probate court, any estate death tax your state of residence may have, and creditors and predators of your estate.
However, it will not be able to protect you from the long-term care costs with Medicaid if you end up needing this in the future.
During a consultation, we may also discuss creating a Revocable Bypass Tax Credit Shelter Trust within the revocable trust framework to provide for tax planning.
In this type of Trust, you will relinquish control, possession, and authority of what assets are placed in the Trust. You will still be the trust maker. However, it is not recommended that you be the Trustee or the Beneficiary.
If you need long-term care, this protects your assets from various entities, especially the government and Medicaid. However, there is a 5-Year look-back period to consider if you are planning to make this type of Trust to protect assets.
Also, as an irrevocable trust, we can help you create a Medicaid Asset Protection Trust or a Veteran Asset Protection Trust if you are a Veteran.
This is also called “Asset Titling.” It is crucial when establishing a Trust. It simply means getting your treasures in your “treasure chest,” or Trust, after it is created.
No matter which type of Trust you choose, you will need to retitle your assets from your name as an individual to your name as the Trustee or to whomever you name as the Trustee of the Trust.
This could include bank accounts, retirement accounts, stocks, and property. This is a critical step in estate planning. If you do not fund your trust with your assets, it will not function as intended.
Trust funding is an automatic part of our process when you work with us. We ensure that your treasures are in your “treasure chest” so it not only functions properly, but meets your needs and goals.
There is no one size fits all plan. For most of us, a Trust-Centered Plan will be most beneficial. A few exceptions exist where a Will-Centered Plan may work, but usually, that is a one way ticket to Probate Court.
Besides a Trust or Will, here are the other documents that will help keep your Estate in order and peace in your family:
The bigger question is: how much will you, your estate, or your family pay if you do not have an estate plan in order?
The Four-headed Monster will cost far more than the standard estate planning costs. The Four-head Monster is:
Creating a comprehensive estate plan can prevent all these costs and losses to protect and preserve your estate, family, and legacy.
You are the expert on your family, and therefore you are the best person to choose the most suitable person. However, please note that the success of your estate plan may depend on who you choose.
Please take the time to reflect on your family relations and the person’s qualifications. You should consider their skill set and whether they have business acumen.
However, this is not the only thing to consider. Choosing a person that has the skill set to keep the family relationships in check is also important.
Ultimately, the three keys are:
If there is a mortgage on the property and you try to place it in the Trust, the bank will alert you to the “Due-on-sale clause.” This means they can try to accelerate the loan, and the balance could be due right away.
However, there is the Garn-St.Germain Act, which may be helpful in transferring the property into the Trust. The type of Trust you choose may affect whether this is successful.
Determining whether a property can be sold inside a Trust will require a careful reading of the language of the Trust itself. Generally, the Trustee will have the power to sell the property in the Trust if the language allows for that. This is why how a Trust is written is essential.
A life estate may be sufficient; however, a Trust has greater protection. A Life estate deed may help keep the property out of probate. There is also the possibility of getting a stepped-up basis. With a life estate deed, you will still be at risk of getting a lien on the life estate through Medicaid.
Further, suppose one spouse passes away, and the other spouse decides to sell the property. In that case, they would need to get permission from the other owners. The children will then have to pay capital gains tax on the sale of their home since it is not their primary residence.
Finally, if the life estate owner ends up with diminished capacity and the children want to sell the property, it may create complications in getting it sold.
Having a Trust can help avoid these pitfalls.