Why You Need an Estate Plan
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More than half of adult Americans do not have a will. Even among those who do, their will may not do what they think it will.
With very few exceptions, everyone needs some kind of estate plan. No matter what your net worth, an estate plan can help you avoid probate, decide who will raise your children, and ensure that your assets go where you want them to. What you need is specific to your situation, and may be affected by major life changes that can change your estate planning needs. Also, in Massachusetts you have to plan for estate taxes if your assets are worth $1 million or more. Many middle class families are closer to this threshold than they think. This is because the assets that are counted include things like life insurance proceeds and other things that pass outside of probate like your home and funds in your retirement plan. A good estate plan will also take care of you if you are unable to make decisions. You should have a health care proxy identifying who can make medical decisions for you if you are unable to. You should also have a power of attorney identifying who can make legal and financial decisions for you in the event of incapacity. Avoiding ProbateWithout an estate plan, your family will have to get the distribution of your assets approved by the Probate Court. It is estimated that the cost of the probate process can eat up 3% to 8% of the assets available leave to your loved ones.
Anything that has to go through probate can also take a full year to distribute. This can leave your family without access to assets they need for a long period of time. If you only have a will, you will still have to go through the probate process for anything that passes through your will. A comprehensive estate plan that includes a will and living trust or revocable trust can remove some or all of your assets from this process. |
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Protecting Your Assets From the Cost of Long Term Care
Depending on your age, you may need to consider strategies to protect your assets from the cost of long term care or assisted living. These costs are not covered by traditional health insurance or Medicare. This means if you do not have long term care insurance, you will need to either spend your own money or qualify for assistance from MassHealth/Medicaid.
There are numerous tools available to protect your assets from these costs, including transferring real property subject to a life estate and creating an asset protection trust. It is important to remember that Medicaid and MassHealth have a five year "look back" period. Any transfers you make within five years before applying for assistance will not be considered effective transfers. The time to think about these estate planning strategies, therefore, should be well before you have a need for long term care.
There are numerous tools available to protect your assets from these costs, including transferring real property subject to a life estate and creating an asset protection trust. It is important to remember that Medicaid and MassHealth have a five year "look back" period. Any transfers you make within five years before applying for assistance will not be considered effective transfers. The time to think about these estate planning strategies, therefore, should be well before you have a need for long term care.
Protecting Your Assets From Estate Taxes
You also need to consider the impact of estate and inheritance tax. In Massachusetts, estate tax applies if your assets at your death are $1 million or more. This includes everything that passes automatically like your home or other jointly owned real property, as well as life insurance proceeds and funds in any retirement accounts.
You should also know that if you and/or your spouse is not a United States citizen, the threshold for estate tax liability is much lower.
An estate worth just over $1 million will have an estate tax burden of approximately $36,000.00. This can leave your surviving spouse or other family member facing difficult decisions about selling estate assets just to pay the taxes.
For a married couple, there is a simple estate planning strategy using trusts to allow the spouses to pool their exemptions. That means when the first spouse passes, the exemption is really $2 million for the surviving spouse. There are other strategies involving irrevocable trusts and gift planning that can help if you are not married or your marital assets exceed $2 million. If you are married to a non-citizen, there are additional steps you must take to take advantage of the spousal exemption rules.
You should also know that if you and/or your spouse is not a United States citizen, the threshold for estate tax liability is much lower.
An estate worth just over $1 million will have an estate tax burden of approximately $36,000.00. This can leave your surviving spouse or other family member facing difficult decisions about selling estate assets just to pay the taxes.
For a married couple, there is a simple estate planning strategy using trusts to allow the spouses to pool their exemptions. That means when the first spouse passes, the exemption is really $2 million for the surviving spouse. There are other strategies involving irrevocable trusts and gift planning that can help if you are not married or your marital assets exceed $2 million. If you are married to a non-citizen, there are additional steps you must take to take advantage of the spousal exemption rules.
Taking Care of the People You Want To
If you die without a will, the Commonwealth of Massachusetts will decide who gets your assets. In many cases, this is not far from what you might want. For example, if you are a married couple with children who are all from that marriage, your surviving spouse will receive 100% of your probate assets. If you are unmarried with children, your children will receive your assets.
But for many families the situation is more complex. You or your spouse may have children together and also children from a prior marriage. You may be married with no children but have other people in your life you would like to take care of. You may want to leave most of your estate to children from a prior marriage but also to make sure your surviving spouse receives the required spousal share. There may be reasons you want to leave one child out of your plan or distribute your assets unevenly among your children.
There are as many different situations as there are families. A well-crafted estate plan can ensure that what you own is distributed according to your specific goals and desires.
But for many families the situation is more complex. You or your spouse may have children together and also children from a prior marriage. You may be married with no children but have other people in your life you would like to take care of. You may want to leave most of your estate to children from a prior marriage but also to make sure your surviving spouse receives the required spousal share. There may be reasons you want to leave one child out of your plan or distribute your assets unevenly among your children.
There are as many different situations as there are families. A well-crafted estate plan can ensure that what you own is distributed according to your specific goals and desires.
Protecting Yourself If You Are Incapacitated
This is not always an "end of life" issue. There are many reasons you or your spouse could be unable to make decisions due to injury or illness. The condition could be temporary but decisions often still need to be made.
If you are unable to make medical decisions, you need someone who you trust and who understands your wishes to be the "point person" for doctors and hospitals when treatment decisions are necessary.
If you are unable to make legal or financial decisions, you need someone you trust to manage your affairs until you recover. This can include corresponding with banks, mortgage companies on your behalf, accessing your bank account to pay necessary bills, and managing any property you have.
If you are unable to make medical decisions, you need someone who you trust and who understands your wishes to be the "point person" for doctors and hospitals when treatment decisions are necessary.
If you are unable to make legal or financial decisions, you need someone you trust to manage your affairs until you recover. This can include corresponding with banks, mortgage companies on your behalf, accessing your bank account to pay necessary bills, and managing any property you have.
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Jenna Ordway
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Our estate planning attorneys are ready to help. We have a simple process for getting you from wherever you are now to executed and final documents. It starts with an initial consultation, which is absolutely free. You can use the button below to schedule a free information call, or simply give us a call at 781-784-2322.
