Massachusetts Estate Planning & Asset Protection Blog

The Question

 My father fought in WWII and died in January 1993. My mom presently lives in an Assisted Living Community.  My mom is 92 years old and cannot live on her own anymore.  Would she qualify for a VA benefit of any kind?  How would I go about obtaining this information to help my mom. Her Assisted Living Community costs her more than $3500 a month. Mom sold her house but once the money runs out I worry what will happen and how she will be cared for?  I would appreciate any information you could give me.

 Answers for Massachusetts Veterans

The good news is as a surviving spouse your mother may be eligible for an “Aid and Attendance” benefit.  In order to qualify for this benefit your mother must have limited assets and low yearly Income for Veteran’s Administration Purposes (IVAP).  You should locate your town or region’s Veteran’s Service Officer who is critical to the filing of an application with the local VA regional office. 

Qualification:

There is a two-part test for qualification, an assets test and an income test.

I. The Asset Test

In order to qualify to receive benefits your mothers total net worth, less certain exemptions allowed by the Veteran’s Association, should be under $50,000 (home, vehicles, life insurance policies).  It may be possible to qualify for benefits if your total net worth is greater than $50,000 but being under that number greatly increase an applicant’s chances of qualification.

II. The Income Test

The countable income for veterans’ benefits is determined by taking an individual’s gross income and subtracting from that all of their unreimbursed medical expenses to determine their IVAP, which is ultimately used to determine whether or not a person qualifies.  For your mother, a surviving spouse with no dependents, her IVAP cannot exceed $1,056 per month. 

 The cost of an assisted living facility, and even part or all of the cost of an independent living facility, can also be an allowable medical deduction to reduce a veteran’s gross income to a much lower net countable income that may qualify him or her for veterans’ benefits. It is very important to meet with a knowledgeable veteran’s service officer or an experienced elder law attorney for a pre-filing consultation to determine whether or not a veteran may qualify. It is also important to review the estate planning work to see what may be done to assist the veteran in qualifying for this particular benefit. There may be planning steps that can be implemented before applying that will help a veteran or widow to qualify and or obtain an increased benefit.

Determining what is the countable income as measured by the Veterans Administration is very confusing to many individuals in. An attorney skilled in elder law and accredited with the Veteran’s Administration can provide a veteran and the veteran’s family with appropriate pre-filing consultations to determine the appropriate steps that must be taken to be able to determine if it would be right to apply for this VA benefit. 

 If you are in Massachusetts and would like to discuss Veteran’s Benefits more extensively, please call our office at (781)-237-2815 or register to attend one of our free educational workshops.  You can also access our free Nuts & Bolts Guide to Veteran’s Benefits and learn what you can do to maximize your benefit.

Proper planning can set your estate, your assets, and your family in line for a smooth transition but improper or incomplete planning can bring untold hardship, especially if the matter ends up in court. Courtesy of Bill Singer’s blog through Forbes, here’s another sad story to add to the file of otherwise avoidable legal woes. The entire story and Singer’s commentary are worth reading, but in essence it is the story of Financial Industry Regulatory Authority (“FINRA”) Arbitration 10-02435 (May 9, 2011), or the shortsightedness of one Newman Trowbridge, Jr, Esq.

Mr. Trowbridge opened an IRA in 1994 and named his then wife as beneficiary of the account. Then two things happened: (1) his IRA was taken over by Capital One and his account was reassigned to a new broker (Rick Schenck, Sr.) and (2) he and his then wife underwent what was apparently a terrible and protracted divorce. Mr. Trowbridge later re-married, put his life back together, and continued with his IRA with gusto (he quadrupled the balance) until he suddenly and tragically passed in 2009. At that time, Trowbridge’s estate went to his wife along with all the various accounts for which he named her as beneficiary, but the IRA went to his ex-wife. The story is familiar and you probably saw it coming, but Trowbridge had failed to reassign the beneficiary of his IRA and it has remained under his first wife.

Unfortunately, the story doesn’t end there since the recent widow had attempted to reclaim the IRA. She went so far as to present the broker with a court order stating that all accounts that make up the decedent’s estate must be transferred to the heirs of the decedent, but that didn’t work since the IRA isn’t a part of the estate to begin with. The broker defaulted to the named beneficiary, or the ex-wife. In response the widow tried suing on counts of negligence, amongst other things, since the broker had not carried out his duty by advising the late Mr. Trowbridge to rename his beneficiary. The suit is why this is the story of FINRA Arbitration 10-02435, and why it is all the more bitter since the widow lost the suit and it was held that the broker did his job (the case was even removed from his record.) Instead, the FINRA arbitration placed the blame squarely on Mr. Trowbridge, adding insult to injury since, we can presume and the court admitted, he probably didn’t intend to hand the IRA over to his ex-wife.

The lesson is three-fold.

1. Firstly, you must adapt your plans whenever you undergo a life-change, like renaming beneficiaries after divorces and marriages.

2. Secondly, planning is about making sure your affairs are in order before those plans are needed, that is, fully fleshing out your plans early so an unexpected death doesn’t keep you from finishing the most important details.

3. Finally, it’s a pretty tricky world when you try to undo the damages of incomplete or poor planning, and often an unforgiving one for your surviving family members and loved ones.

At Dennis Sullivan & Associates we have created the Lifetime Protection Program, to help  clients review their situation, including beneficiary designations. This is important because of changes in health, family, the law and finances.   To review your own planning, you can use our self-guided 19-Point Trust, Estate & Asset Protection Legal Guide. 

To learn more about protecting your home, spouse, family and life savings, attend a free, educational Trust, Estate & Asset Protection Workshop . Register online or call 800-964-4295.

According to recent research from The Center for Retirement Research at Boston College, 70% of baby-boomer households will receive inheritances worth a total of $8.4 Trillion. With an average of $300,000 for most inheriting households, and an average of $1.5 million for the wealthiest inheritors, the better part of a generation is expected to see a nice bump in their assets. The question, then, is what to do about it.

Ashlea Ebeling of Forbes recently approached the topic with a number of considerations, from warnings to ideas.

Consider Keeping it Separate. The first thing to take stock of is how your state handles inheritances. Most states consider an inheritance the separate property of the person who received it, as long as they keep it separate. So think carefully before you put the money into a joint account – or use it to make major improvements on a jointly owned home, for example. Keeping an inheritance separate can provide a level of asset protection -- by keeping it eparate you also shield it from loss due to your spouse’s debts and/or lawsuits.

Special Treatment for Retirement Assets. If the inheritance is an IRA then you can use it to stretch out the withdrawals over your own life expectancy and in this way maximize the tax benefit on those funds. Don’t try to take the money out and redeposit in your own IRA. That’s not allowed. Instead, the IRA should be renamed. If you want to move it from one custodian to another, do so in a “trustee-to-trustee” transfer. In certain circumstances, you may even want to “disclaim” the account and give it to your children if you don’t need it.

Review Your Own Estate Plan. Whatever the inheritance, it is now part of your estate. A sizable inheritance could push you into estate tax territory. Even if you aren’t in danger of estate taxes, you will still want to review your current plan to account for the inheritance assets.

In the final analysis, receipt of an inheritance is one of those lifetime events that calls for proper assessment and planning. You can learn more about the estate plan review process on our website. You also can learn more by attending a free Trust, Estate and Asset Protection workshop.

As budget debates continue to escalate, yet another estate planning tool has come under fire, reports The Wall Street Journal. If you’re interested in a “Dynasty Trust” you may want to act sooner rather than later.

The main objective of a Dynasty Trust is to continue for as long as possible, benefiting several succeeding generations. Usually, beneficiaries are allowed access to income only, so the trust’s principal assets remain intact to provide an income stream for future generations. Dynasty trusts have become increasingly popular since the 1986 tax overhaul and the current version of the “generation-skipping tax.” (GST). The GST imposes a levy that on transfer that skip one generation – such as those from grandparent to grandchild while the grandchild’s parent is still alive. You can avoid the GST, however, if your transfer skips more than one generation.

The Journal uses an example to illustrate:

Robert, a widower, has a net worth of $15 million and his heirs include children, grandchildren and great-grandchildren. If he leaves everything to his children and they in turn leave everything to theirs and so on, there could be an estate tax toll with each generation.

Robert would like to put his entire estate into a trust and skip layers of tax. But if he does, the generation-skipping tax kicks in and replaces the lost taxes—except for an exempted amount, which is currently $5 million per individual or $10 million per married couple. That $5 million can be pumped up using discounts, life insurance and other leveraging techniques.

Dynasty trusts push that generation-skipping tax exemption to the max, putting the exempted amount beyond the reach of estate taxes for the life of the trust. That, in turn, means the heirs don't have to "spend" their own exemptions on those assets.

Dynasty trusts are now allowed in 23 states and the District of Columbia. (You don’t have to live in a state to establish a trust there.)

When the Journal reports that Dynasty Trusts are under attack, they mean that the President’s budget proposal would remove the federal tax exemption after 90 years. So the trust can continue indefinitely, but the tax exemption cannot.

The Journal also suggests that the measure is unlikely to pass this year, but taxpayers should know that the idea is in play. As proposed, the change would apply to new trusts or additions of money to existing ones, but not to those already funded.

Bottom line: if you are considering setting up a Dynasty Trust, now is the time. You can take advantage of the current generous terms of the estate and gift tax – a $5 million individual exemption and top 35% rate, and lock in family wealth that may continue in perpetuity for your heirs.

For more information, check out our Estate Planning Strategies page, or attend a free Trust, Estate and Asset Protection Workshop.

Retaining control and dignity as the end of life approaches is an often overlooked aspect of comprehensive estate planning. Regardless the size or value of your “estate,” proper planning should address these difficult issues.

US News & World Report ran an article last week, How to Ensure Your Last Wishes Are Carried Out. As they outline, there are two primary ways to ensure your final wishes are followed: one is through legal documents, and the second is by communicating your wishes to those who may be involved in carrying them out should you become incapacitated.

As regards legal documents, you’ll need a power of attorney for healthcare, also known as a healthcare proxy. Your health care power of attorney allows you designate the person you want to be your health care decision-maker in the event you cannot make decisions for yourself.

You also may want to consider a Living Will. A Living Will is the document that helps guide the health care decisions made on your behalf. This is the document that allows you to spell out what types of medical care you would, or would not, want to receive in various situations.

The most important piece of advice? Make these decisions now, while you are able. Record them in valid legal documents, and communicate your wishes to those who may be carrying them out.

You can read more about Powers of Attorney and Health Care Documents (or Advance Directives) in the Estate Planning Strategies page on our website.

  For more information on crafting a legal plan to maintain control over your assets and life decisions, attend a free Estate Planning and Asset Protection Workshop.

Roth IRAs have become the darling of the financial media recently. Of course much of the chatter has been about using a Roth as part of your retirement planning strategy, and the superb conditions for Roth conversions. But what about the Roth IRA and your estate planning, what happens if you leave your Roth IRA to your estate? Marketplace Money guru for American Public Media, Chris Farrell, recently fielded the question.

“When it comes to estate planning, the Roth ranks among the best of the retirement savings plans,” says Farrell. Why? Unlike a traditional IRA, a Roth does not have “required minimum distributions” that force you to take money out during your lifetime. This means the money can remain in the account longer, and compound longer.

Because you can leave your money in the account without taking distributions, your Roth can be a powerful estate planning tool. Here are some of the major points to keep in mind:

1. The Roth has to have existed for at least five years before earnings can be withdrawn tax-free.
2. When you die, your Roth is considered part of your estate. If your spouse is the beneficiary, then the account is simply treated as belonging to him or her.
3. If your children are the beneficiaries, they will have to make some choices. They can elect to receive the entire sum by the end of the fifth year following your death – or they can receive distributions over their life expectancy (allowing the money to compound longer).

As you can see, there are some powerful estate planning strategies available, and some of your long-term goals could be met utilizing a Roth IRA. Attend a free seminar if you’d like to discuss how a Roth IRA could be used to help meet your estate planning goals.

What should the best 401(k) plans do for you? And is yours the best it could be?

According to a recent study conducted by MetLife – the Qualified Retirement Plan Barometer – your 401(k) plan is probably falling short, because most plans simply don’t do all that a 401(k) plan ought to do. According to The Wall Street Journal’s MarketWatch, many plan sponsors aren’t offering important plan features that could greatly enhance your retirement savings plan.

What features are lacking? Primarily “help tools” and services. Studies show that plan participants who use the “help” tools and services provided by their employers tend to outperform participants who did not use these tools. In other words, if your employer doesn’t offer online calculators, one-on-one financial counseling, seminars and workshops – ask for them. If your employer does offer those tools, be sure to use them.

If you (or your employer) are looking for objective, qualified educational presentations on retirement and estate planning, please contact our office. We are happy to work with you to schedule workshops, whether on-site or at a convenient off-site location. For more information, contact Katy, our Client Services and Education Coordinator at 781-237-2815.  Or sign up for a free Trust, Estate and Asset Protection Workshop in Wellesley.

It has been a long and uncertain year for anybody interested in the future of the estate tax, filled with a few ups, a few downs, and a lot of speculation.  But after the recent passage of the new bipartisan tax bill all of the confusion and speculation is finally at an end, and it’s very close to what we anticipated.  The bill is good news for most taxpayers; the Wall Street Journal says there are “many winners, a few losers,” and according to the New York Times “Almost no one will have to worry about paying the estate tax under the tax legislation just approved by Congress.” That is except for those subject to Massachusetts estate taxes who do not make adjustments. For what to do to review Massachusetts estate plans please read on.

Here is a brief overview of what you can expect in 2011:

New Estate Tax Exemptions and Rates: The new bill sets the estate tax exemption at $5 million per individual ($10 million per married couple), with amounts over the exemption taxed at a 35% rate.  This is opposed to the $3.5 million exemption and 45% rate some lawmakers were hoping for.

Tax Election Option for 2010 Estates: As mentioned in a previous post, this is one of the biggest parts of the new bill. There may have been no estate tax in 2010, but there was also no “step up in basis,” meaning that heirs selling inherited assets were taxed based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death, as is usually the case.  This led to a higher tax paid on the assets if and when they were sold, in spite of the lack of estate tax. Tax election gives 2010 estates the choice of whether to use 2010 or 2011 tax rules—a happy option for 2010 heirs.

Estate, Gift, and Generation-Skipping Taxes: In recent years these three levies have had varying exemption levels, making gift giving and succession planning and challenging exercise at best. The unification of all three makes tax planning and giving gifts to grandchildren much easier than it used to be.

Individual Income and Payroll Taxes: The new bill wasn’t just about estate taxes; it also extends the Bush-era income tax rates; this is good news as it prevents a rise for nearly all taxpayers.

How Long Will It Last? We’re all glad that the waiting is over and we finally know what to expect, but the new law is only effective through 2012, at which point the provisions will “sunset.” (That is  estates above $1 million will be taxed.) This new tax package sets our minds at ease now, but the estate tax issue is far from over.  It looks as if we may have to revisit the issue in 2012-2013.

With the threat of high estate taxes out of the way does any reason remain to create (or update) your estate plan? Absolutely!

Estate planning is about more than just planning for taxes, it’s about taking control of your assets and choosing how your estate will be distributed.  Divorce, second marriages, planning for college, charitable gifts—these are just a few of the reasons why estate planning is essential regardless of the state of the estate tax.

Massachusetts Residents however, remain subject to Massachusetts estate taxes on amounts above one million dollars. Regardless of the federal estate tax increased exemption for the next two years, Massachusetts will assess an estate tax on all estates above $1 million. However a married couple many times will only get one exempt amount to split, unless they take the necessary steps to ensure their estate plan is up to date and funded correctly so they will be eligible to receive the $2 million combined exemption, as there is NO PORTABILITY in Massachusetts.

Also, Massachusetts clients and taxpayers need to watch out for estate plans created based on maximum federal applicable exclusion planning, common for many estate plans prior to 2003. Now with the $5 million federal exempt amount, there could be a COMPLETELY AVOIDABLE Massachusetts estate tax triggered at the first death. The cost to your souse and family could be as much as $400,000 in unnecessary estate taxes.

WHAT TO DO…if you have an existing estate plan, have it reviewed by a qualified tax and estate planning attorney so you make sure you, your spouse and your family are protected from unnecessary taxes now and in the future. It may also be helpful for you to have an ongoing review process to make sure that future changes in the law, finances and family circumstances will be taken into consideration in your life and estate planning.

At the very least, the recent fluctuation of the law means that you’ll want to call our office and make an appointment to have your existing plan reviewed and updated to ensure you don’t have any outdated clauses that could negatively affect your heirs.