Estate Planning FAQ

A Health Care Proxy appoints a health care decision maker or "Health Care Agent" who has the legal authority to make medical decisions for you if you cannot do so.  A Health Care Proxy is specifically authorized by the General Laws of the Commonwealth of Massachusetts.  Your Health Care Agent is only authorized to act if you lack legal capacity.  Without a Health Care Proxy, your family could be forced to institute a costly Probate Court action to seek the authority to make medical decisions for you.

Health Care Agents sometimes must make very difficult decisions concerning life sustaining medical treatment.  Medical technology can prolong lives even when multiple, potentially life threatening conditions exist.  Although it is natural to avoid the topics of death and dying, appointed Health Care Agents must be aware of your beliefs and desires regarding life sustaining medical treatment, mechanical ventilation, and experimental treatment.

A Living Will is an important written record of intentions regarding life sustaining treatment.  A Living Will states that medical treatment that does not comfort, or ease pain, or promote recovery, should be withheld.  In other words, procedures that only postpone death will not be administered.  A well-drafted Living Will can lessen the burden of complicated healthcare decisions for your Health Care Agents.

A Will, also called a Last Will and Testament, contains basic instructions intended to take effect at death.  A Will has many purposes, including:

• Providing instructions governing how personal items (such as cars, furniture, clothing, and jewelry) will be distributed after your death;
• Appointing an executor who will oversee the settlement of your estate after your death;
• Naming a guardian for minor children;
• Providing direction that all debts be paid; and
• Providing instructions on how all other assets (after payment of liabilities and distribution of personal items) should be distributed.

A Will only controls the distribution of probate assets.  Examples of probate assets are a bank account, stock certificate, or home in the name of the deceased person alone.  The terms of a Will do not control the distribution of non-probate assets, such as life insurance policies, property held as joint tenants with right of survivorship, retirement funds with a living, designated beneficiary, or Trust property.  These assets will be distributed to the person entitled to the asset by operation of law or contract, outside of the probate process.

Dying without a will is called dying intestate.  When a person dies intestate in Massachusetts, probate assets are distributed according to the laws of the Commonwealth.  Dying intestate can cause unintended results.  For example, the probate assets of a married person dying intestate who is survived by a spouse and children will be distributed in two shares: 50% to the surviving spouse and 50% to the children.  If a married person dies intestate leaving no children but leaving siblings, the surviving spouse gets the first $200,000.00 plus one-half of the remaining assets.  For an estate of $800,000.00, this will result in the siblings receiving $300,000.00 by operation of law to the exclusion of the surviving spouse.  (See Massachusetts General Laws, Chapter 190, Section 1.)

We have all heard the stories.  "When Mom died, my uncle took the coin collection."  "When Dad died, I fought with my brothers over the tools, and I haven't spoken to my brother since then.”  "When my sister died, her second husband took all of my mother's family heirloom jewelry and sold it on eBay.”  "When Mom died, my brother's wife told my brother what she wanted, and he took my mother's china before we could get to the house.”  Any estate planning attorney hears such stories too often.  A well-drafted Will can avoid family divisions over personal items of little monetary value.

A Will should specify who is entitled to receive tangible personal items such as clothing, cars, jewelry, and household items.  Some Wills recite that specific items should be distributed to a particular individual.  Other Wills identify a group of people such as "my surviving children.”  Wills can also refer to a separate document to help the executor decide the recipient of certain items.

The key to avoiding family squabbles is to include a method of settling disputes.  If the executor is not entitled to share in the tangible personal property, we may give the executor the authority to settle disputes.  If the executor is entitled to a share of personal items, we may direct that any disputed item is to be sold, or determine the distribution of the disputed item by a random method such as drawing straws.  We can also direct that disputed items be sold and the proceeds given to charity.  These provisions often work to settle disputes easily.  Though estrangements may still happen, it is exceedingly important to give the named executor and beneficiaries clear directions on how to settle disputes involving tangible personal property.

To avoid unintended results and family squabbles over personal items and to provide clear directions to surviving family members, most adults should have a Will.

Probate is the legal process of transferring ownership of probate assets after a death.  As described in the previous section, a probate asset is an asset such as a bank account, stock certificate, or home in the name of the deceased person alone.  If a person dies owning probate assets, a legal proceeding in the Probate Court is necessary to transfer probate assets to the individuals named in the decedent's Will.

A probate proceeding can be a lengthy, public, and expensive court action.  First, an executor must be appointed.  This requires the filing of a petition and accompanying documents with the Probate Court and publication of a notice in a local newspaper.  Once an executor is appointed, an estate inventory must be filed with the Probate Court.  Creditors have an opportunity to file claims against the estate and an accounting must be filed to properly close out the estate.  All of the documents filed in connection with the typical estate are a public record and can be viewed by anyone who requests the file at the courthouse.

Estate proceedings take at least one year to complete.  The cost of a full probate proceeding can vary greatly depending on its complexity, the nature of the probate assets, the circumstances and relationship of the surviving family members, and many other factors.  It is not at all uncommon for relatively simple estate proceedings to cost several thousand dollars.

A Trust is one of the tools that can be used to avoid probate.  A Trust is an agreement between the person or people creating the Trust and the person or people who are entitled to benefit from the Trust.  The person who creates a Trust is called the “Donor.”  The person who is entitled to benefit from the Trust is the Trust's “Beneficiary.”  A Trust also names a “Trustee.”  The Trustee is responsible for control of any assets transferred to the Trust and manages those assets for the Trust Beneficiary.  A Trust can have more than one Donor, more than one Trustee, and more than one Beneficiary.

An important thing to keep in mind is that any assets transferred to a Family Revocable Trust will avoid probate at death.  Assets payable to the Trust at death, such as life insurance policies, will be managed as part of the Trust for the benefit of whoever is selected according to the terms of the Trust.  With a properly drafted and implemented Trust, you can avoid probate, have assets managed during your children or parents lifetimes, if necessary, and have a structured distribution.  These Trust benefits provide surviving family members with enhanced financial stability, as well as lower estate settlement costs.

A Family Revocable Trust is one example of how a Trust is used.  Depending on an individual's age, family circumstances, asset structure, and health, some benefits of a Trust may be more important than others.  You can only determine whether a Trust is an appropriate estate plan vehicle for you after consulting with an experienced estate planning attorney.

To determine whether estate taxes are of concern, we take an estate inventory of everything that was within the control of the person that died.  This includes, among other things, life insurance, real estate, bank accounts, cash, personal items, cars, stock, mutual funds, retirement accounts, and business assets.  If the date of death value of these assets is above the then-available Applicable Exclusion Amount, an estate tax will be due.

The analysis of whether estate taxes should be addressed as part of an individual's estate plan is the same as the analysis that we use after a person's death.  We start with a comprehensive inventory.  The value of an individual's estate determines whether planning to reduce estate taxes is necessary.  When we take a complete inventory of a person's estate, including the value of real estate, life insurance, and retirement funds, we have the answer.  Those individuals with estates that are below the threshold can concentrate on probate avoidance, asset distribution, and the issues raised in Sections I, II, and III.  Those individuals above the threshold risk estate taxation.  They have to decide whether they wish to plan to reduce or eliminate the tax or whether they wish to have their beneficiaries pay the tax.

Estate Tax Planning also differs depending on marital status.  The most common type of estate tax planning is available only for married couples.  This planning, called Credit Shelter Trust planning or By-Pass Trust planning, involves taking advantage of the Applicable Exclusion Amount to the greatest possible extent at the death of both spouses.

One final note on estate taxes.  It is important to be ever watchful for changes in financial circumstances.  Examples include elections made through employer sponsored benefit plans, changes in property values, additional life insurance, or even a modest inheritance.  Even a seemingly insignificant event can change your estate tax analysis considerably.

There are two general classes of Trusts: Revocable and Irrevocable.  A Revocable Trust, discussed in Section VI, is created by, controlled by, and taxable in the estate of the Donor.  A Revocable Trust can be amended as necessary by the person creating the Trust.

An Irrevocable Trust cannot be changed once it is created, and property transferred to an Irrevocable Trust cannot be taken back by the Donor of the Trust.  The purpose of an Irrevocable Trust is to remove an asset from the estate of the Donor for estate tax purposes.  For example, in a Family Irrevocable Trust, if you transferred $15,000.00 to the Trust, that money would not be taxable in the Donor's estate for estate tax purposes.

Irrevocable Trusts are most often used to own life insurance policies.  Properly implemented, an irrevocable life insurance can be used to create an estate tax-free source of life insurance proceeds.  This can be significant for two reasons.  First, large assets that can be a significant portion of an estate can be removed from taxation.  Second, an estate tax-free source of funds can be used for liquidity needs when estate taxes are payable, typically within nine months of a person's death.  For example, instead of selling a vacation home at a loss to satisfy a tax obligation that must be paid within nine months of a person's death, surviving family members can use the proceeds of an Irrevocable Trust to satisfy the tax obligation, so the property can be retained or sold in a more favorable market.

A very important rule, commonly called the five year rule, must be considered when creating an Irrevocable Life Insurance Trust.  If an existing life insurance policy is transferred to an Irrevocable Trust and the insured dies within five years of the transfer, the death benefit of that policy is included in the taxable estate of the insured.  If, instead of transferring an existing policy, the Trustee of the Irrevocable Trust purchases a new policy, the five year rule does not apply.  In that case, the death benefit is not taxable in the estate of the insured regardless of when the insured dies, so long as the formalities of the Trust have been followed.

Irrevocable Trusts may require annual maintenance.  What must be done on an annual basis depends upon the terms and design of the Trust.  For instance, some Trusts are designed to receive contributions on an annual basis and require the Trustee to notify the beneficiaries of the contributions to the Trust.  The formalities and financial implications of such a Trust should be discussed in detail with qualified estate planning counsel and an experienced financial advisor, respectively.

Many of our elders live to advanced ages with minimal health problems.  Others need more assistance.  In any case, it is common to wonder if our parents have taken care of their legal affairs.  Have they created Durable Powers of Attorney, Health Care Proxies, and Living Wills to appoint financial, legal, and health care decision makers?  Have they created Wills?  Are their Wills and other documents up to date?  Has anyone assessed their estate tax risks or identified whether probate expenses will be an issue?  Will we have to sell our grandfather's beach house to pay estate taxes?  What happens if Mom has to go into a nursing home?  How will she pay for her care?  Are distribution issues addressed, so my siblings won't argue over money or personal items of insignificant value?  Are beneficiaries of non-probate assets properly identified, so there are no unintended distribution consequences?  In short, are we going to inherit a legal and financial mess if our parents are sick or die? 

It is important to recognize that many people will resist talking to an estate planning attorney.  Perhaps this resistance is a result of privacy issues or difficulty in facing mortality.  You can assist your parents by explaining that estate planning is not only for the wealthy, and even in modest estates, proper planning can ease the financial and legal burdens of death and disability for other family members.

The estate planning process is very non-threatening.  There are no hard-sell tactics or hidden fees.  The process is that of information gathering, education, recommendations, creating drafts, review of drafts, incorporation of final comments, signing and implementation.  You and your family members will be guided through each step.

We recognize that estate plans are most effective when multiple generations have implemented quality plans.  Early intervention provides you with the maximum possible benefit.  With this in mind, we offer additional services of review of the estate plan documents of your parents, siblings, and children.

The reality is that your father may be right.  He may not have been treated well by the lawyer for his mother's estate.  Our attorneys are sensitive to these issues.  We address the natural suspicions of elder clients (and all clients) and set out the expectations clearly.  Although these things should go without saying, the following are some points to consider:

• When we meet with a parent, the parent is the client and we inform them of this in private.
• All information provided is kept in complete confidence, unless there is a written authorization in the file to the contrary.
• The elder client is informed and reassured that no one is trying to take his or her money/home/life savings.
• No work is performed, unless the elder client authorizes the work.
• Individuals named in documents in various roles are selected by the elder client and no one else.
• The elder client should remain in control of all matters, unless he or she instructs otherwise or is incapacitated.
• Fees are only incurred if authorized by the elder client.
• All fees and costs are disclosed in advance and in writing
• All direction is taken by the elder client alone.