5 FACTORS TO CONSIDER WHEN NAMING A PERSONAL REPRESENTATIVE
So you’ve decided to have your will and estate plan drafted. This process involves identifying what assets you own, where they should go and how they should be given to the recipient. Another important step in estate planning is choosing an individual to oversee the entire process once you’re gone. This person was once called an executor, but under current Massachusetts law the term is "personal representative."
The personal representative plays a critical role in the management and distribution of your assets after your passing. To have control over the individual chosen for this responsibility, you must name the person in your will. If you do not, the court will select a representative for you. This will most likely be your spouse or a close relative, but not necessarily the person in your life who is best suited to the task.
Dealing with funeral arrangements and legal matters can be an emotional and challenging process, which is why choosing a personal representative is a critical decision. Below, we’ve listed five factors to consider when naming this individual:
When handling finances and personal affairs, you would like your personal representative to be someone close to you and honest, whom you can trust. This is why many people opt for relatives, such as their child or spouse. Close family members may have a deeper understanding of your intentions and a personal desire to carry out your wishes. However, to avoid internal family conflict, it is also common for people to choose a trusted friend who is not also a beneficiary of your estate, and has no vested interest other than getting through the process and ensuring that everything is distributed to the people who are supposed to receive it.
2. Responsibility and Availability
Aside from trust, your representative should understand the importance and length of time required for successful completion of their role. This person is in charge of submitting your will to the court and handling your finances after your passing. Your beneficiaries will look to the executor for distribution of your assets, as well as notifying everyone, including creditors, of your passing. Probate can take months and sometimes years. You may have family members who you trust completely, but who are not the right choice for a task that will require their consistent attention for a long period of time, either because of their personalities, or because they have significant other demands on their time.
As mentioned above, the appointee is left with many tasks. After the probate process, where the court deems your will is a legal document, they have a list of jobs to complete. This includes gathering and identifying all of your assets, taking inventory of your estate, terminating your credit cards, filing your final tax returns, paying off funeral costs and bills using your estate funds, and so on. The individual must be well-organized and able to keep up with valuable information of your life, while still managing their own.
Depending on your residency, some states legally require your appointee to live in the same state, unless they’re a relative. Be sure to check your state’s law before naming a personal representative, in case it imposes preconditions. Whether required by law or not, you should consider the logistics involved and the extent to which someone located far away will be in the best position to handle them. That said, your priority should be picking the right person, and if the right person happens to live out of state, know that he or she can also hire legal counsel or other help to handle matters on the ground.
5. Age & Wellbeing
Last, but not least, you should consider the age and health of the prospective personal representative. Many people, if they make their estate plans when they are younger, include parents as personal representatives or guardians of minor children, but it may be a good idea to re-think this, especially as you (and your parents) get older. Because they are expected to carry out your wishes and legal affairs long after your passing, it’s wise to choose a personal representative who is younger and in good health.
Be sure to get approval from the person you choose as your personal representative before naming them in your will. It’s vital that the individual understands their responsibility and can commit to the role. It is also recommended to appoint a successor, or even more than one successor, in case your primary choice is unable to meet demands.
Another simple thing that is often overlooked is that your personal representative should be told where to find your will and other estate planning documents. Too often we have seen families spend unnecessary time and energy just trying to locate these basic documents. Wherever you decide to keep them, consider sending a set of instructions to your personal representative so that he or she can immediately get to the business of getting your estate finalized and distributed.
For more information regarding this individual’s responsibilities, or assistance in choosing one, our knowledgeable lawyers at SLNLaw are here to help.
HOW TO TALK WITH AGING PARENTS ABOUT ESTATE PLANNING
“Mom, dad, we need to talk.” Many people dread discussing financial arrangements with their elderly parents. It’s not easy reminding our parents that their time left on this earth is limited. This can be especially challenging if one or both of your parents is becoming less sharp mentally or showing signs of early dementia. These discussions are difficult, but necessary for their (and your) peace of mind. From something as simple to knowing where they have stored their wills and other estate planning documents to the more complex, like understanding what is being passed down and how, what their wishes are for final arrangements, and whether and to what extent you and your siblings need to be prepared to deal with estate taxes, having the whole family on the same page will only help everyone get through the difficult times when your parents pass.
And, at a much more basic level, the only way to find out if they even have an estate plan in place is to ask. The sooner you ask, the better their chances of getting something in place before it is too late.
So, what’s the best way to talk to your aging parents about estate planning? We’ve provided a few sincere approaches to help broach that intimate conversation.
Ask About Their Wishes
Often, it’s not what we say, but how we say it. For example, consider the following questions:
Instead of focusing on your parents’ death or incapabilities, focus on their desires. In this context, your parents have control over their decision. This approach opens up a comfortable pathway to discussing funeral arrangements and property matters, such as what to do with their house or to whom they desire to pass down assets. They may or may not have updated their estate planning documents recently, and asking about whether what is in those documents still reflects their wishes can also serve as a gentle reminder for them to check in with their estate planning lawyer, especially if you are concerned that one or both of them may be facing a decline in cognitive functioning or decision making.
Express Yourself as a Concerned Child
Many loving parents shudder at the thought of worrying their child. If you know your aging parents care deeply about your anxiety or concerns, start off the discussion by explaining a few things you’re worried about. Have you stressed about their debt and how it will be paid off? Are you unsure of how to handle their medical affairs in case of illness? Are you worried about how the family will manage either keeping them in their home or the costs of assisted living if that becomes impossible? Are you concerned about disagreements between your siblings about things like where they should be buried and how the funeral should be handled?
Explain to your parents that you and your siblings will be at ease if you’ve prepared as a family ahead of time before the unexpected has a chance to occur. Your parents might realize it’s better to discuss familial matters now rather than leave you scrambling in a crisis, and may be more open to talking about how to solve a problem for you than they are to thinking about their own needs and wishes.
Come Seeking Advice
“Mom, dad, I want to consider the kids’ well-being in case something happens to me. What are your thoughts on me hiring an estate planning attorney?” Open the floor by inquiring about their own estate planning attorney. It’s a good way to tell if your parents have considered estate planning already. Guide the conversation about how you desire to handle medical and financial affairs, going through a checklist of everything you need to address, such as designated beneficiaries, power of attorney decisions, and estates. Seeking your parents’ advice may change their perspective on solving their own matters.
Don't Forget These Are Still Their Decisions
It is important to remember that, no matter how concerned you may be about how your family manages after their passing, ultimately the decisions they make in their estate plans is up to your parents. Your conversations will be more productive, and cause less anxiety for them, if the clear purpose is not to try to change their minds about what they want, but to make sure you and your siblings understand it and that your family is prepared.
What If They Have Not Done Any Estate Planning?
The bad news if you find out your parents have no plan in place is that you and your siblings are at much greater risk for strife, turmoil and expense after their passing. The good news is that if your parents are both still mentally competent, there is still time for them to set things in order. It is important that they speak with an estate planning lawyer as soon as possible. The lawyer will most likely want to have a conversation alone with your parents as well- do not be alarmed- this is a necessary part of the process. The lawyer simply needs to make sure that your parents are expressing their own voluntary wishes. It is not meant to shut you out of the process, but to help ensure that the documents they put together are legally valid.
We’re Here for You
We understand that money and health are not always easy topics of discussion to bring up with your parents. However, a gentle, strategic approach may be what you need to get the conversation going. For legal advice, helpful planning tools and financial guidance, the experienced attorneys at slnlaw are here for you.
HOW TO PREPARE FOR YOUR FIRST ESTATE PLANNING SESSION
Whether you’re a newlywed or a retiree, you should have an estate plan. An estate plan is more than a will alone. An estate plan consists of multiple documents underlining the “whos,” “whats,” and “hows” of the management of your finances, assets and family matters in case of your absence.
The first step is often the hardest- deciding to make an appointment to talk to a lawyer about your estate plan. Most of the time, we find that once you take that step, the rest of the process is much easier than the process you went through in the first place to take that step.
As opposed to the average firm that may ask their clients to come prepared with countless document copies and tough decisions already made, our team offers guidance through every step of the process. In preparation for your first estate planning session, we came up with a brief list on how you can prepare to meet with us, which does not involve making a painstaking and detailed inventory of everything in your life, but simply organizing your thoughts so that we can better help you get the plan in place that gives you peace of mind.
Write Down Your Questions
Before the initial meeting, we suggest that clients write down any questions they may have for us. We encourage our clients to think of us as a resource. We want you to be comfortable asking us anything (especially how you can avoid probate and taxes!). As your estate planning lawyer, it’s essential for us to build a rapport, forming a deep understanding of what you need and the best way to handle your affairs.
Some questions we frequently hear from our estate planning clients include:
You don't have to have the answers to these questions for your first estate planning session, but knowing what is on your mind is a big help to us as we think about the plan that best meets your needs and addresses your specific concerns.
Visualize Your Family’s Future
Second, we’d like our clients to think about the future. What assets do you have and want to leave behind for your loved ones? What should become of your children and household after your passing? Who in your family is qualified to make financial decisions and medical decisions if you’re incapacitated?
With a comprehensive estate plan, these matters are addressed adequately. You’ll receive the proper guidance on specific choices and how to handle your requests, including care for children, a particular property, and choosing your power of attorney. Clients aren’t required to have all of the answers to these questions, but they are helpful to consider beforehand.
Involve Your Spouse
You may be the one tasked with actually coming to the appointment, but these conversations should also involve your spouse. Most likely your ultimate estate plan will include reciprocal documents for each of you, in order to take maximum advantage of estate tax exemptions but also to make sure that the plan for your children is clear and settled, no matter which one of you passes first. If your spouse can't be at the initial appointment with you, then it is helpful to go through the exercise of writing down your questions together, so that when we meet we can have a complete picture of the issues your family is trying to resolve. You might also consider having your spouse available for a phone call when you have your first appointment, in case there are any questions about your options or how you move forward that you should both have a say in.
Consider End-of-Life Issues
Last, but not least, we strongly suggest that you think about your health care, funeral and burial wishes. These may be sensitive topics to consider, but they are important. Who you choose as a health care proxy should be someone who understands your wishes (for example, when do you or do you not want intrusive life-saving care), and who you trust to honor those wishes. It is also highly recommended to include your preferences with respect to final arrangements in a comprehensive estate plan. Including funeral arrangements in your will ensures your requests are honored and legally bound. It will also reduce the potential for family disagreements at an emotionally difficult time.
Clients may not come fully prepared for their first estate planning session, and that is okay. Our attorneys at SLN Law understand. We work with you to gather all paperwork and documentation needed as we walk through the process together. We also offer your first consultation free of charge. Estate planning doesn’t have to be overwhelming, not with our help!
5 ESTATE PLANNING RESOLUTIONS TO FOLLOW IN THE NEW YEAR
Change is inevitable, but preparation is not. If you don’t invest time in estate planning, your family could be caught unawares by a sudden change nobody has prepared for. With the new year upon us, why not add estate planning to your list of resolutions? Many unforeseen events occur every year, and in case of sudden misfortunes, it’s wise to protect your loved ones and assets. Below are five estate planning resolutions to consider for the new year, or any time, really, if you are reading this long after the new year:
1. Understand Why You Need an Estate Plan
You’re off to a good start if you already have a will; however, it may not be enough. As explained in one of our former blog posts, a will has limitations, and even if it gets your assets distributed the way you want, will not make the easiest path for your family members. Where a will merely expresses your basic wishes, comprehensive legal documents confirm your beneficiaries will receive specific assets, and smooth out the process for them so that assets can be distributed more quickly and without unnecessary legal and court expenses.
Estate planning also ensures you have appointed decision-makers for medical and financial matters in case you are incapacitated and unable to make decisions. Drafting and implementing your power-of-attorney and health care proxy, or updating them if circumstances have changed for the people you designated previously, is one easy step to take in the new year. Another is to check your life insurance policies and retirement accounts to make sure that your designated beneficiaries are up to date.
2. Have the Necessary Tough Conversations
No matter how delicate and sensitive it may be, one should not avoid conversations about death and disability. It’s better to discuss vital decisions and issues with your loved ones now, such as dividing assets, to eliminate friction and ill-feelings escalating. It’s imperative for family members to know and agree on an action plan in case of incapacity or untimely death. Also, at a very basic level, if you have invested time and money in creating an estate plan, you want to make sure your family knows where to find it, and knows who is going to be responsible for administering your estate. If you haven’t done so already, make it a priority to arrange those types of family discussions during the new year.
3. Make Time for an Update (If You Already Have an Estate Plan)
If you already have an estate plan in place, make sure to keep it updated. Significant milestones or life events, such as marriage, divorce, career change, or children who’ve reached adulthood can significantly affect your current estate plan. There is also the possibility of law and tax changes within your state that can do the same. It’s wise to review your estate plan periodically to ensure everything is up to date. If you do nothing else to start the new year, a simple call to your estate planning attorney to ask whether anything has changed in the law is an easy way to put your mind at ease for the rest of the year.
4. Create Specific Goals for Your Assets
To whom do your assets pass down after your passing? Are you passing on things that can be easily divided between your heirs, like money, or do you have to figure out how to liquidate or divide things like real property? Do you own a business that you intend for someone to carry on for you into the future?Do you have body of creative work that you want either given to specific people, published, destroyed, or some combination of all three? Are you aware of all of your assets? Before naming beneficiaries and making arrangements, it’s best to have full knowledge of all of your assets. Once you’re fully aware of what legally belongs to you, it’s easier to make the decisions for your family and loved ones accordingly. Another easy step to start the year on the right foot is to make a simple list of what you have and where you want it to go. Once you do that, you can easily hand off the work of creating your estate plan to your lawyer.
5. Prepare for the Unexpected
Death isn’t the only unexpected misfortune that can affect your family. What if you have an accident or illness that creates the need for long-term care, or renders you incapacitated temporarily? More than often, disabled individuals cannot make sound decisions about their finances or legal assets on their own, and sometimes even if you eventually make a full recovery a could be unable to make those decisions for weeks or months. Take into consideration the possibility of unforeseen events and establish plans that protect your loved ones. The simplest way to do this is to prepare a durable power of attorney and a health care proxy for each adult in your family, making clear who will be authorized to make those decisions.
An attorney can help you through your decision-making process, ensuring everything is up to date by both terms of law and personal life changes. The trusted attorneys of SLN Law are skilled at thoughtful estate planning, offering proper guidance on decisions that can protect your family from all circumstances.
6 ESTATE PLANNING MISTAKES YOU SHOULD AVOID
You want peace of mind knowing that your loved ones are taken care of after your death. While it may be difficult to think about, preparing a will and revisiting and updating existing estate plans that may have been made years ago are the best way to prevent needless mistakes in the future, many of which could cost your family thousands of dollars.
Attorneys that are experienced in this area can help their clients avoid making these six disastrous estate planning mistakes:
1. Not Having an Estate Plan in the First Place
No estate plan? You can bet there will be some confusion on how your assets should be distributed after your death. The law will decide which family members get your assets, but it does not provide a clear path for how to divide things like real property, interests in a business, or other things that your heirs could be forced to sell in order to divide. Also, the cost of getting through the probate process can eat up 3% to 8% of the value of your estate, which in turn takes that money out of the pockets of the people you mean to take care of with your estate planning.
Even if you have a will, it may not be enough. For example, most people think that all they need is a will, but many assets are typically not named in a will, such as IRA accounts and life insurance. Those assets will pass to whomever you have named as a beneficiary, no matter what your will says. And for a lot of people, these assets can represent most of what you have to distribute to your loved ones. You don't even need a lawyer for this part- you just need to check and make sure that your designations are up to date and accurately reflect who you mean to receive those funds.
2. Not Having Your Estate Plan Examined by a Professional
Do-it-yourself (DIY) wills that you create online might save you a few bucks, but it can cost your family thousands of dollars if it lacks in-depth tax planning strategy. That’s not even counting the costs of hiring a lawyer to mitigate the damage after the fact! In the worst case scenario, the probate court may not admit the DIY will at all. In this situation, assets will pass to those who would receive it, as dictated by state law, which may not be what you intended and may create confusion and stress for your family.
In the age of the internet, it is easy to be misinformed, and it is important to know what your state (meaning the state of your primary residence) requires. For example, there are states that recognize "holographic wills"- a handwritten will signed by the person making it, and you may read about this online. Massachusetts does not recognize any will, handwritten or not, unless it meets the specific signature requirements under state law.
3. Trusting Your Children with More Than They Can Handle at Their Age
Every parent wants to believe their children are fit to responsibly manage and benefit from their inheritance as soon as they turn 18, but that isn’t usually the reality. Most young adults typically aren’t experienced enough to manage large sums of money efficiently. When you add to that the fact that they will be receiving an inheritance at the same time that they are grieving and processing a parent's passing, and you have a potential recipe for poor choices that are hard to undo later. Setting up a trust with provisions regarding when your children can receive their inheritance and what kinds of things a trustee can authorize expenditures for in the meantime can not only protect your children, but also give them a structure and a person they can turn to as the learn how to manage their own affairs.
4. Depending on Family Members to “Do the Right Thing”
Rule of thumb: it’s better to establish a trust than to simply trust. Don’t rely on the goodwill of others to use your assets for the good of another, such as to take care of someone in your family. Anyone, including a family member, can opt to change their mind and oppose how you intended to use your assets after your passing. People's lives also change- the spouse you entrust with managing your assets for the benefit of your children may remarry and have other children competing for the same resources.
5. Not Realizing the Impact Taxes Can Have
Gift, income, and estate taxes all impact the sum passed to your descendants. For example, if you leave life insurance to one child and your Individual Retirement Account (IRA) to another, the child with the IRA will have to pay income taxes, while the one who received the life insurance will not. While you intended was to split your assets between them equally, the final amount they receive will differ. Also remember that in Massachusetts if your estate is worth $1 million or more (counting your life insurance, retirement savings, and real property like your home), your entire estate will be taxed. At $1 million exactly, your approximate tax liability will be $36,000. That is well more than the cost of a little planning ahead of time to avoid or minimize that tax burden.
6. Not Understanding That Specifics Matter
Let’s say you decided to write a will that leaves all of your assets to your “surviving children.” If one of your children passes before you, would you like for your assets to pass to only your remaining children, or for your deceased child’s portion to pass to his/her children? It’s important to be specific when properly drafting an estate plan, factoring any and all worst case scenarios that might arise.
Hiring an attorney will not only save you from making unexpected estate planning mistakes, but also will give you access to immediate legal advice and guidance when revisiting estate planning decisions. Our experienced attorneys at SLN Law will help you create the best plan for you and your family and make sure you receive exceptional legal guidance. When you’re ready to prepare for your family’s future, we are one call away.
WHAT EVERY BUSINESS OWNER NEEDS TO KNOW ABOUT MASSACHUSETTS INDEPENDENT CONTRACTOR LAWS
It is common in many industries to use the services of individuals as independent contractors, or “1099 employees,” rather than putting them on payroll as W-2 employees. This is not exactly paying people “under the table,” as their income is reported on 1099 forms at the end of the year, but it is still a risky practice under Massachusetts law, and one which can cost an employer far more than the savings realized by using independent contractors.
The Law About Independent Contractors
The Massachusetts Wage Act defines an “employee” as any individual performing any services, unless the employer can prove all three of the following:
It is important to understand that all three of these tests must be met, and if any one is lacking, the individual will be considered an employee under the law, not an independent contractor.
It is the second prong that has proven most troublesome for employers. Even if a person functions independently, and “freelances” for other companies in addition to providing services for the business, if what that person does is part of the ordinary operations of the business, the employer could be breaking the law by classifying that person as an independent contractor.
For example, if I hire someone to paint my office, or plow the parking lot, those activities are not part of the usual course of my business as a law firm. If, however, I hire someone for 10 hours a week to do legal research, even on a temporary basis, that person is performing a core function of my business, and likely should be paid as a W-2 employee, no matter how few hours he or she works, or how temporary the assignment.
Ancillary support services (IT consultants, payroll or accounting services) are generally permissible to engage on a contracted services basis, assuming the other tests are met (actual independence and provision of similar services to others), and assuming those are not your core business activities. Gray areas abound. If you operate a restaurant, it is likely that you can hire a webmaster as an independent contractor, but if you operate an online store, an argument could be made that the website is part of your usual course of business, and therefore should be managed and staffed by employees under the law.
But My Accountant Said it was Okay!
We hear this all the time. Your CPA or accountant may have told you that, under the circumstances, it was permissible to classify certain workers as independent contractors. Your accountant is not necessarily wrong- he or she is just applying a different set of rules for a different purpose.
Specifically, your accountant’s job is to make sure you are following applicable tax rules. If you are paying someone as a 1099, you are not paying the employer’s share of employment taxes, and essentially shifting that burden to your worker, who will be responsible for self-employment taxes on that income. Should the IRS decide that the individual really was an employee, it may re-assess responsibility for those taxes to the employer.
To that end, the IRS has a series of factors it considers, referred to as the “20 Factor Test.”
Unlike the Massachusetts Independent Contractor Law, there is no one deciding factor, and the IRS can place different weight on different factors according to the circumstances.
Also unlike the Massachusetts Independent Contractor Law, the 20 Factor Test recognizes things like flexibility of schedule, part time or full time status, location of employee’s work, provision of tools and materials, and contractual terms between the parties as relevant factor. None of these matter under the Massachusetts Independent Contractor Law, if the employer cannot demonstrate all three elements cited above.
Why Is It Important to Get This Right?
It is truly surprising how many businesses in Massachusetts get this wrong, so you should not assume a practice of using independent contractors instead of employees is lawful, even if it is common in your industry. Further, it is important to understand the potential consequences under Massachusetts law of incorrectly classifying workers, even if your classification passes muster under the federal tax rules.
First, a violation of the Independent Contractor Law is a violation of the Wage Act, which means that if an employee wins a lawsuit and proves damages, those damages are automatically tripled and the employer is required to pay not only its own legal costs, but the employee’s as well.
Second, the measure of damages may be greater than you think. These can include the value of benefits that W-2 employees receive, the amount of self-employment tax liability the employee has incurred by being classified as a contractor, the lost opportunity to collect unemployment benefits if terminated, and any overtime pay that person would have been entitled to as a W-2 employee.
By way of example, imagine an independent contractor earning $50,000 per year in a company where W-2 employees receive two weeks of vacation per year, paid federal holidays, and an employer contribution to health insurance of $500 per month. In this scenario, the contractor is terminated and unable to find another job for three months. The damages that individual might claim are:
Even assuming this person never worked overtime (which could add substantially to the damages), there could already be a claim for almost $15,000 in single damages, which if proven would then be tripled by the court.
Then Why Do So Many Businesses Get This Wrong?
One reason is the confusion described above between the federal tax rules and the Massachusetts wage and hour rules. Many businesses rely on their accountants in the first instance to “vet” these decisions. This is entirely appropriate as it relates to taxes, but the employment law analysis is a different animal.
Another reason is that violation of the Independent Contractor law is so common that people assume it is acceptable because so many others are doing it.
Finally, in our experience many business owners are simply not doing the math correctly, and assume that putting employees into W-2 status is more expensive and burdensome than it really is. Yes, you do have to assume the employer’s share of payroll taxes (7%), pay into unemployment, and take out workers compensation insurance. At the present time, you are not obligated to provide health benefits unless you have 50 or more employees, which exempts all or most of the businesses we encounter.
Whatever the costs, it is important to compare them to the costs of answering a misclassified employee’s civil lawsuit, including the costs of your own legal representation.
Have more questions? Contact our team at slnlaw LLC for more information on independent contractor classifications in Massachusetts and what it means for your business.
ARE YOU PREPARED FOR THESE 5 MAJOR LIFE MOMENTS?
There are some moments in life it’s impossible to prepare for on an emotional level. But when it comes to your finances and estate planning, it is possible to be proactive. An estate planning lawyer can help. Estate planning can help you at all times in your adult life, but you will see the greatest benefit the earlier you begin. Here are five key milestones where estate planning is essential:
1. When You Get Married
Before marriage, you probably only had yourself to think about. Now, you have a partner who may rely on you in some way for support. Even if you don’t provide for their quality of life, you likely would prefer that they receive your belongings, such as your home, car and valuables…or would you?
After you’re married, if you don’t want certain belongings to pass to a spouse if you die, you will need a will to clearly state your wishes. Do you want your parents to receive some of your assets? Once you are married, the law will assume that the vast majority (the first $200,000 and 3/4 of all remaining assets) will go to your spouse, with 1/4 of the remaining assets to go to your parents. You may want everything to go to your spouse, or you may want to take care of a sibling or some other relative- if this is the case, you need to have at least a will to set out your wishes in a legally enforceable way.
There are additional ways an estate planner can help when you’re a newlywed. You can set up power of attorney for each spouse as well as fill out healthcare proxy forms. Make sure you can each make financial and medical decisions for the other in the event of an accident or injury – you’ll be thankful you did if you ever find yourself in a critical situation.
Getting married is a joyous occasion that you may not want marred by long discussions about death and disability, but this is a major life change, and now is the time to talk it out with your new spouse and your estate planner.
2. When You Have a Child
Is there anything more life-changing than welcoming a child into the world? Now you truly do have another human being depending on you for support, and estate planning helps you make sure you do just that.
If you do not have a will, and your children are also the children of your spouse, the law will give everything to your spouse. This tracks what most parents of young children would instinctively prefer- that the other parent has all the resources needed to take care of the children- but it does not necessarily protect your children if your spouse were to later die or remarry and start a new family.
Other questions you will need to answer as you become a parent include who will care for your children if you die? How will your assets be distributed among your children? Comprehensive estate planning includes detailing your wishes, setting up a trust and planning ahead so your family receives as much support as possible in the event of your death.
3. If You Get Divorced
No one goes into marriage with the intention of divorce, but sadly, it’s a reality. Divorce brings a whole range of estate planning questions. Have you changed the name of your account beneficiaries? Would you like to change your healthcare proxy and power of attorney? Should you rename your will executor?
After divorce, you may wish to marry a second time. Again, an estate planning lawyer can help with key issues at this stage. What should a second spouse receive if you die? How will children of a second marriage be provided for? Answer these questions now and save your family hours in probate court and thousands of dollars in lawyer fees.
4. When a Parent Dies
When your parents reach the end of their life, there is a high likelihood that you will be called upon to take over their finances and make their medical decisions. If you and your parents don’t talk about estate planning before they become ill or pass away, it can be very difficult for you to access their accounts and provide the support they need.
What is the correct role for adult children and what are your parent’s wishes? Meeting with an estate planner with your parent beforehand can help you prevent trouble with banks and avoid contention within families.
5. When a Spouse Dies
If you or your spouse were to pass on, are you prepared for all of the imminent financial decisions that will result? Do both of you have at least some immediately liquid assets (like joint savings or life insurance policies) that will help the surviving spouse deal with expenses right away? Working with an estate planner ensures either you or your spouse has a strategy to deal with estate tax and bypass probate.
Why Work with Us
Slnlaw LLC is a full-service estate planning firm that also offers individual services. In other words, we will design a service package that fits your specific needs. We understand no two people are alike, but everyone needs a detailed, knowledgeable estate planning lawyer to navigate the often confusing laws and regulations. Let us help – call today to set up a consultation.
YOU’RE RICHER THAN YOU THINK- MASSACHUSETTS ESTATE TAX
What You Need to Know About Massachusetts Estate Tax
Everyone has an estate. It may not look like a sprawling mansion in the countryside, complete with a butler and a carriage driver, but in the eyes of Massachusetts law, if you have any assets to your name (even just a bank account), you have an estate.
It’s highly likely that your estate makes you richer than you think, and here’s why: your estate is more than just your home and your current bank account balance. It includes life insurance, annuities, business interests, retirement accounts and more.
This is why you should consider estate planning: lowering the tax burden on your estate could help your family save tens of thousands in taxes, significantly adding to the inheritance of your loved ones. And whether you realize it or not, your assets likely add up to more than $1 million, which is when Massachusetts estate tax will begin to affect you. Under the current Massachusetts graduated estate tax rates, if all of your assets combined are worth even just a little over $1 million, your family will pay approximately $36,000 in estate taxes. If your assets combined are worth $999,999, they will owe nothing. This means the time and money (far less than $36,000!) invested in planning is well worth it if you can bring your taxable estate below that threshold.
The $1 Million Threshold in Massachusetts
If your assets are worth more than $1 million, your estate will owe Massachusetts estate tax when you die. And you won’t just owe taxes on the amount above $1 million – you’ll pay taxes on all of your assets over $40,000.
Massachusetts has graduated tax rates that range from 0.08% to 16%. You’ll pay about $36,500 in taxes on an estate just over $1 million, but you could pay nothing if you were able to keep your total estate at $1 million or less. That's a big difference, and far more than you will have to pay an attorney to draft a comprehensive estate plan and help you avoid or minimize this liability.
Are you close to the taxable threshold? Most people are closer than they think.
For example: If you have a $400,000 life insurance policy, stock holdings, an average 401(k) retirement and you own a home, chances are, you’re definitely close if not over the limit. And most of these assets will only grow in value as time goes by. It’s worth it to explore the tax saving benefits you could employ with conscientious estate planning. You may not think of yourself as “rich,” but Massachusetts will take its share upon your death unless you structure your assets in a way to benefit your heirs the most.
Giving Is a Great Solution
What’s a great way to reduce estate tax burden in Massachusetts? Give it away.
If you plan on leaving money to your children after your death, and you know your estate is over the $1 million Massachusetts exemption amount, why not begin to impart financial gifts now? You will get to see the benefits your money can provide to your heirs and you will actively reduce the amount they would have to pay in taxes after your death.
Giving is a sensible way to expedite the inheritance process without having to pay estate taxes, but state and federal laws have been established to put a limit on your ability to exercise this option.
In Massachusetts, any gifts in excess of $15,000 per year per receiver that were gifted after December 31, 1976 will reduce dollar for dollar the amount of assets you can have in your estate before incurring estate tax. You can give away up to $54,000 per year, per receiver without paying a federal gift tax, but if you die within three years of any size gift, even one within the $15,000 limit, it will remain part of your estate for tax purposes. Who counts as a "receiver?" Anyone. If you have an adult child who is married, you can give $15,000 to your child and another $15,000 to their spouse. If they have children, you can give $15,000 for each child into a trust or education savings plan.
Married couples can give away $30,000 per year to their heirs. They could conceivably gift $30,000 per year to each of their three children and reduce the value of their gross estate by $270,000 over the course of three years, without having to reduce their allowed exemption amount (the $1 million per person described in the section above.)
If you own a business or an interest in a closely held company (closely held means it is not publicly traded, which is the case for most small businesses), there are ways to leverage your giving limits. The IRS permits a discount on the valuation of a business because it is not publicly traded, and if you gift minority interests, there is an additional allowable discount. What this means is that you can give away an interest that may have a real value of more than $15,000, but can be valued for gift and estate tax purposes at $15,000 or less. It is also worth considering this kind of asset in a gifting strategy, because it does not necessarily take liquid assets that you may need in your own lifetime out of your pocket, and helps facilitate the transfer if you intend for family members eventually to take over the business.
Using Trusts to Minimize Tax Liability
There are many ways to use trusts to minimize your estate tax liability. If you are married, you can use trusts to basically pool your $1 million exemptions, making it effectively a $2 million exemption. You can also use irrevocable trusts as another way to give away assets but maintain some kind of say about how they are used. For example, you could place assets into a trust that allows you to receive income from the assets but earmarks the assets themselves for a beneficiary (a child or grandchild, for example).
What Else Can You Do to Reduce Your Tax Burden?
There are many additional estate planning strategies we recommend at slnlaw. From opening a credit shelter trust to establishing a Family Limited Partnership, you have options and we have explanations.
Find out if you’re close to the $1 million threshold – schedule a free consultation with our estate planning team to figure out what you’ll owe and how to lower (or erase) your projected Massachusetts estate tax bill.
5 REASONS A WILL ALONE ISN'T ENOUGH
Even though it’s not a topic you like to think about on a day-to-day basis, you know you need to prepare for your family’s life after your death.
A will is one of the most common estate planning documents, but surprisingly, this legal document probably doesn’t suffice and won’t guarantee your wishes are carried out. If you’re relying on a will as your sole estate planning document, you could be leaving your family unprotected. While writing a will is a great start, it isn’t comprehensive enough to account for all of the complexities of your finances and your life.
Here are the top five reasons you need more than a will when it comes to planning your estate:
1. A will is just a suggestion of your wishes and must be validated by a judge through a process known as probate.
Probate is public, lengthy, expensive, and leaves your will and wishes open to contest or challenge by parties who think they should be included. The more assets that pass automatically to your heirs outside of the probate process the better. Probate could prevent your family from gaining possession of your assets for up to a full year following your death, when they may have immediate needs for cash to take care of themselves, pay the bills, pay any estate tax you may owe, and much more.
The probate process is estimated to eat up between 3% and 8% of the value of your estate, which could be a significant sum. You may not be able to avoid the probate process entirely, but a careful and comprehensive estate plan can help ensure as many assets as possible pass outside of probate, and that to the extent you need to go through the probate court the process is streamlined and simplified.
2. A will is often inflexible.
Once a will is written and signed, it is set. It can only be revoked by destroying the original document, leaving you without a will, amending the will through a document called a codicil which still requires the same formalities as a will in order to be legally valid, or going through the entire will drafting process again and signing a new will.
At your death, a valid will, once probated, is set. There can be no changes. A will drafted 15 years ago does not have the flexibility to deal with the unexpected.
On the other hand, while a trust is also indelible, a trust has an appointed trustee. This living person who you trust to follow your wishes is also able to react and deal with the unexpected more appropriately and with more finesse than an aged document that is unable to contemplate every potential circumstance.
3. A will alone won’t fully protect your estate from taxes.
Alone, a will is unable to shield your assets from federal and state taxes, which can significantly reduce the total left to your descendants. This is most likely more relevant to you and your family than you might think: if you have a life insurance policy, equity in your home, and typical retirement savings, your taxable estate could easily exceed the $1 million exemption under Massachusetts estate tax laws, which could cost your family $36,000 or more in taxes. There are additional documents and strategies, including trusts and family gifting plans, which can help you minimize or avoid altogether this additional tax burden on your family.
4. A will is limited to property that does not already pass automatically to beneficiaries.
Simply because you choose to distribute your property equally to your three children, does not mean that all your property will go to your three children. Only property passing under your will and included in your estate will go to your children. Other assets, such as retirement plans, life insurance proceeds, and certain property held jointly, pass automatically to whoever is named as the beneficiary or who owns the property jointly with you. Your will cannot override deeds or beneficiary designations. Whether you have a will or not, it is important to periodically check your beneficiary designations to make sure they have kept up with changes in your life and are consistent with what you want.
5. A will names who will take care of your minor children, but is limited in describing how your children should be raised.
A will can name a conservator and guardian for your children, but the details of how you want your children raised, such as education and religion, are not topics people typically feel comfortable including in a public document.
A will is just a note with your basic wishes expressed. But a comprehensive legal document like a trust has the power to do more than state your expectations. You can delay monetary distributions until your children are old enough to handle such distributions. You can provide more direction for your chosen guardian in terms of education, religious upbringing, and more. You can also protect your children from misuse of trust funds.
Another thing a will cannot do is protect you and your family if you are incapacitated. A will only takes legal effect upon your death, so it cannot control who makes medical decisions for you, or financial or legal decisions, if you are alive but unable to do so yourself. This is why most comprehensive estate plans include two key documents: a health care proxy and a durable power of attorney. These two documents allow you to designate decision makers ahead of time.
Protect Your Family
Estate planning may not be as straightforward as drafting a simple will, but an experienced estate planning lawyer can help you find peace of mind by creating the set of documents, including wills and trusts, that will address your specific situation and goals. Get the confidence that comes with knowing your loved ones are protected – contact slnlaw today for a free estate planning consultation.