WILL VS. TRUST
- A Will is a valuable legal document which directs who receives your property at your death and it appoints a personal representative to make certain that your wishes are carried out. If you have minor children, a Will enables you to appoint a guardian for their care. A will only takes effect on your death and affects only assets which are owned by you alone or which do not pass to others by the operation of law or by contract (i.e. joint tenancies and beneficiary designations).
If you die without a Will you are said to have died intestate and your property will be distributed to your heirs at law according to a statutory formula. In other words, the state will determine who receives your property at your death. These intestacy rules are inflexible and make no exceptions for those in unusual need. If you do not want your property distributed according to the state’s formula, it is crucial that you have a Will which clearly dictates how your property is to be distributed.
Trust. A Trust is a legal arrangement through which one person or institution, called a “Trustee,” holds legal title to property for the benefit of another person, called a “Beneficiary.” The Trustee is responsible for managing, investing and distributing the property in the Trust. The rules or instructions under which the Trustee operates are set out in the Trust instrument.
Wills Versus Trusts
- A TRUST PROTECTS PRIVACY
Probate is generally a court-supervised process that requires the filing of all probate documents with the local probate court. A Will that is admitted to probate becomes a part of the public court records that anyone can read. Probate records contain detailed information about the beneficiaries, your assets, and a breakdown of who is getting what and how and when they are getting it. A trust is generally a private family agreement. The terms of the trust and information about the assets are known only to those individuals involved with the Trust. A Trust does not involve court oversight. There is the possibility for mismanagement by a Trustee because of the lack of court supervision that otherwise applies to the probate of a Will. However, careful selection of Trustees and requiring regular and detailed accountings to the beneficiaries under the terms of the trust agreement can minimize the risk of Trustee mismanagement or malfeasance.
- A TRUST AVOIDS PROBATE
- Massachusetts does have an expedited or simplified form of probate for estates under $25,000 (not including the value of one vehicle). This expedited form of probate avoids many of the time delays and costs associated with the probate process. It is also important to note that probate can be avoided by other means as well. Any property jointly held or with a beneficiary designation passes free of probate by operation of law to the joint owner or beneficiary. For most married couples, there is generally no probate when the first spouse dies because their assets are usually jointly owned or have beneficiary designations. In some cases, the probate avoided by a living trust does not occur until the surviving spouse dies.
- In contrast, a Will must be allowed by a Probate Court before it takes effect. In the meantime, the estate assets are frozen and bills cannot be paid. Legal fees depend on the size of the estate and it generally takes at least one year to probate a will. This means that your beneficiaries typically must wait at least one year before receiving any distributions from your estate. The Personal Representative of your Will must provide detailed information to the Probate Court, including the names and addresses of your beneficiaries, the value of your assets in your estate, and the exact amount distributed to each beneficiary. All of this information is public and available to anyone who asks for it.
- With a Trust, your assets can be distributed directly to your beneficiaries after your death without time delays and without the need to obtain the approval of the Probate Court. Your Trust takes effect on the day that you sign it; it does not have to be “allowed” by the Probate Court after your death. The person named to take over as Trustee after your death can immediately take over the management of the trust assets, paying your final bills and funeral expenses, and then distributing the remaining funds to your beneficiaries as directed by you in the Trust Agreement.
- A TRUST CAN BE COST-EFFECTIVE
While establishing a Trust will add to the cost of establishing an estate plan, the additional expense can be a very cost effective investment. The probate process has built in expenses – court filing fees, publication notices, attorney and personal representative fees. The legal fee for setting up a Trust may often be a fraction of the cost of probating a Will or commencing Guardianship proceedings in Probate Court. A Trust can discourage attack by disgruntled heirs which often drags out the probate process and significantly increases probate costs. If you own property in another state, it eliminates the cost and delay of probate in that state.
- TRUSTS CAN REDUCE OR ELIMINATE ESTATE TAXES
Certain trusts can result in tax advantages both for the donor and the beneficiary. With properly drafted and funded Trusts, a married couple can pass on $2,000,000 free of Massachusetts estate taxes and $10,000,000 free of federal estate taxes on the death of the surviving spouse to their children and other beneficiaries (in 2014). With simple Wills, the couple can shelter only $1,000,000 from Massachusetts estate taxes. For many couples, tax planning trusts are usually unnecessary for federal estate tax purposes because current “portability” provisions of the federal exemption enable to couple to shelter up to $10,000,000 from federal estate taxes without funding Trusts. However, the federal estate tax laws frequently change and the federal exemption amount is subject to change. For couples who want to make full use of the Massachusetts’ estate tax exemption, to shelter up to $2,000,000, the use of estate tax planning trusts is necessary. With simple Wills, the couple’s children will have to pay the Commonwealth of Massachusetts any estate taxes due before distributions can be made from the surviving spouse’s estate. For example, if the estate is worth $2,000,000, the children will have to pay $100,000 in Massachusetts estate taxes.
- A TRUST ELIMINATES THE NEED FOR CONSERVATORSHIP
A properly drafted Trust includes instructions about the administration of the Trust in the event of your incapacity. If you become disabled or are unable to manage your assets, the person named by you as successor Trustee can immediately take over the management of the trust assets for your benefit, following your instructions in the Trust. This can be accomplished privately, without the need to obtain the permission of the Probate Court. A Will cannot accomplish this because the Will takes effect only after your death. Without a Trust, your family may have to commence Conservatorship proceedings in the Probate Court if you become incapacitated. Anyone may petition to be appointed as your Conservator and it may not be the person you would have wished. Like the allowance of a Will, Conservatorship proceedings are public proceedings, started by paperwork filed in the Probate Court and a notice in the local newspaper. After your Conservatorship is appointed, he or she must file yearly accountings, with detailed information about your assets, income, and expenses. Your Conservator must obtain the Court’s permission to sell real estate and undertake other routine tasks. Conservatorship proceedings are costly and time consuming.
Note that if you execute a properly drafted Durable Power of Attorney, you can avoid a court-appointed conservator for your financial affairs.
- A TRUST ALLOWS YOU TO RESTRICT HOW YOUR ESTATE IS MANAGED AND SPENT AFTER YOUR DEATH
A Trustcan provide for the care, support and education of your spouse, children, grandchildren and any other beneficiaries for several generations after your death. There are many reasons to continue the administration of your Trust after your death. You may want to provide for a second spouse, but ensure that your children by your first marriage will inherit a significant portion of your estate after your spouse’s death. Your children or grandchildren may be too young or financially immature to manage a large inheritance. You may have a child or grandchild with special needs or problems and the trust can preserve his or her share without jeopardizing his or her eligibility for public benefits. You can use a trust to protect the assets in the trust from a beneficiary’s current or future creditors, an ex-spouse, bankruptcy filing. or from a money judgment against your beneficiary. The trust can be made discretionary, such as providing that no distributions will be made if the beneficiary is addicted to alcohol or drugs, involved in a cult or under a specific age. Or that the assets in the trust can only be used for education or medical expenses, to put a down payment on a house, or to invest in a business. Whatever your reason, the Trust is the best way to provide future benefits for family members. A Will cannot accomplish this. After your Will is allowed, your Personal Representative is required by law to make distributions to your beneficiaries within twelve months from your date of death.
- A TRUST CAN PROTECT CHILDREN FROM PRIOR MARRIAGES, WHILE PROVIDING FOR YOUR SPOUSE
You can provide for both a surviving spouse and children from a previous marriage with a Trust that stays in effect during the lifetime of your spouse, with the Trustee spending the trust funds for your spouse as directed by you in the Trust Agreement. After your spouse’s death, the Trustee will distribute the remaining funds to your children. This cannot be accomplished with a Will. Your surviving spouse is free to make use of any distribution made to him or her under the terms of your Will (unless their share of the estate is distributed to a Trust.) The same is true of jointly owned assets or life insurance proceeds collected by your surviving spouse. Without a Trust, you cannot direct how your spouse can spend his or her inheritance or how it will be distributed after your spouse’s death. Even if you and your spouse draft Wills together, with the provisions of your spouse’s Will consistent with your wishes, your spouse can draft a new Will after your death, leaving the money inherited from you to a new spouse, his or her children by another marriage, or to a favorite charity.
- A TRUST CAN ENSURE THAT YOUR WISHES ARE CARRIED OUT AND ARE NOT SUBJECT TO PUBLIC ATTACK
Probate opens the possibility for challenges against the validity of the Will. It is easy for an unhappy beneficiary to hold up the allowance of a Will for months, even without hiring an attorney or having valid grounds to contest the validity of the Will. Many Personal Representatives give in and pay a settlement to an unhappy beneficiary to avoid a lengthy, costly and public Will contest. By contrast, it is very difficult for a Trust beneficiary to overturn an established Trust. If you are concerned that a child or other beneficiary is going to be unhappy with their inheritance, it is far safer to leave your estate to your beneficiaries under the provisions of an established Trust, rather than under the terms of a Will.
- A TRUST CAN PROTECT ASSETS FROM PUBLIC BENEFITS
A properly drafted trust can enable you to provide for the continuing care of a disabled spouse, child, relative or friend without jeopardizing his or her eligibility for public benefits. If a disabled beneficiary is left an outright gift, either by will or through the intestate laws, he or she would lose eligibility for many public benefits until the funds are spend down to the allowable limit. Under a well-drafted trust, the funds will not be considered to belong to the beneficiary in determining his or her eligibility for public benefits, such as, Supplemental Security Income (SSI), Medicaid, or public housing. Supplemental needs trusts can be used to protect personal injury settlements or judgments from jeopardizing government benefit eligibility. Most importantly, they can help parents coordinate their estate plans and provide peace of mind that their child will be provided for after they are gone.ping website
In Massachusetts, nursing home care can cost as much as $10,000 a month and the average nursing home stay is two years. Unfortunately, there are not very many options for covering nursing home costs. There are typically four options for paying for nursing homes:
About half of all nursing home patients pay for long term care from their own savings. Some may pay privately for care during their entire stay. Others may enter the nursing home covered by the Medicare program and pay privately when that coverage ends. Yet others pay out of their own pockets until they become eligible for Medicaid.
Medicare is an entitlement-based government health insurance program. Medicare will pay some nursing home costs for skilled nursing or rehabilitation services. To be covered, you must receive the services from a Medicare certified skilled nursing home after a qualifying hospital stay. This means that you must have been in a hospital for at least three days before entering the nursing home for rehabilitation. Medicare does not pay for long term custodial care.
Medicare covers 100% of the cost of rehabilitative care for up to the first 20 days. After day 20 and up to day 100, Medicare will pay 80% of the rehabilitative care and you will be responsible for paying a copay. However, Medicare Supplemental Insurance, such as Blue Cross Blue Shield, usually covers this copay. It is often called Medigap because it helps pay for gaps in Medicare coverage such as deductibles and co-insurances. Medicare Supplemental Insurance is a private insurance. Most plans will help pay for skilled nursing care but only when that care is covered by Medicare.
Medicare only pays a maximum of 100 days in each benefit period. A benefit period begins the day one goes to a hospital or skilled nursing facility and ends when the resident has not received any hospital or skilled nursing facility for 60 consecutive days. A person is not guaranteed the full 100 days of Medicare. It will stop paying the day the person is no longer considered a rehabilitation patient.
Medicaid is a state and federal program that will pay most nursing home costs for people with limited income and assets. Eligibility varies by state. In order to qualify for Medicaid coverage, a single individual cannot own more than $2,000 in “countable assets.” For a married couple, the applicant’s spouse living in the community is allowed to keep a total of $115,920.00 (2013 figure) in countable assets. This amount is adjusted every year for inflation and may be increased in certain circumstances as a result of an appeal.
Medicaid does not pay the entire cost of a person’s nursing home expense. The person must contribute an amount (“Patient Paid Amount”) based on his or her monthly income and then Medicaid pays the balance of the individual’s care costs. For a single individual, Patient Paid Amount is the individual’s total gross income minus $72.80 for personal needs, and any applicable health insurance premiums. For a married couple, the community spouse is allowed to keep all of his or her income and may also be allowed a portion of the institutionalized spouse’s income to help maintain his or her reasonable standard of living. After the Medicaid recipient’s death, the State is entitled to recover any amounts paid for the recipients care from his or her probate estate. This is known as estate recovery.
Long Term Care Insurance
Long term care insurance (LTCI) is a private insurance policy. The benefits and costs vary widely. It is designed to pay for custodial long-term care services required due to a chronic illness or a condition lasting a prolonged period of time. This type of insurance covers skilled care and, more importantly, custodial care or personal care – i.e., when a person needs assistance with certain daily activities such as bathing, dressing and eating. LTCI is not designed to cover acute care services or to be a substitute for Medicare, Medigap or senior HMO plans. Depending upon the policy, long-term care can be provided at home, in the community, in assisted living facilities or in nursing homes. Many LTCI policies cover a certain dollar amount per day for a specified period of time. For instance, a policy may provide a daily benefit level of $250 for three years of coverage. Other policies may give a “bucket” of money and coverage lasts until it is gone.
Long term care insurance can often allow a person to remain in their home far longer than without the insurance. It may help ensure that a spouse or other family member does not become impoverished by the cost of care. In addition, LTCI can protect all of the careful financial and estate planning that has been done by insuring that assets will not be depleted on long term care and can pass on to the next generation. The Medicaid regulations offer an incentive to those who purchase a LTCI policy. If you purchase a policy that meets certain specific minimum requirements (covers nursing and custodial care with adaily available benefit of at least $125 per day for a term of two years with a elimination period of no longer than 1 year) , Medicaid cannot place a lien on your home and cannot order you to sell your home in order to pay for nursing home costs.
FOR MORE INFORMATION PLEASE CONTACT MASSACHUSETTS ELDER ATTORNEY STEPHANIE KONNARSKI
The Law Office of Stephanie Konarski
36 North Bedford Street
East Bridgewater, MA 02333
Tel: (508) 350-0120
Fax: (508) 350-0121
Your parents protected and cared for you when you were young. As they age, there may come a time when they need you to protect and care for them. If an accident or illness leaves your parent or parents unable to handle their affairs, could you step in and handle their personal and legal affairs? Do you know enough about their wishes to make sure they get the sort of care they would want if they are no longer able to communicate their wishes? If you’ve answered no to these questions, then it is time to have “the talk” with your parents to ensure that their preferences are honored.
Easier said than done, right? The mere idea of having a talk with your aging parents about their finances and estate planning wishes is often uncomfortable. Will your parents think that you are just trying to take their money? Will they think you are trying to take control of their lives? Or that you are invading their privacy? As painful as it may be to initiate the conversation, such communication ahead of time is important to make sure you understand what they want and ensure that their wishes are followed, especially if they are unable to communicate at that time due to a stroke or debilitating illness. It also helps to avoid family confusion and reduce the guilt associated with not knowing whether you are doing what mom and/or dad wish.
So how do you begin a conversation with your parents about their future wishes? Ideally, you want to talk to your aging parents when they are healthy and of sound mind rather than waiting until an illness or other crisis happens when emotional stress levels are high. This way you have the time to build slowly and have a series of conversations about every facet of their life and health without panic or pressure. When having these discussions, it is important to remember that it is your parents’ lives you are discussing. It may be difficult or unsettling for them to share details of financial or end of life matters with you. Pride and privacy may also be a barrier. They may fear losing their independence. You should stress to your parents that it is important to learn their wishes so you can ensure that they have the type of life they want in the future. Remember that your parents’ autonomy and wishes need to be respected even if they differ from yours.
The following are some strategies on how to initiate the talk with your parents about their health and finances.
Use yourself as an ice breaker. You may want to ask your parents advice on your own estate planning matters. Or you can talk to them about what it was like for you to consider what would happen to you and your family in the event of your disability or death. If you are open about your own concerns and desires, it may make your parents feel more comfortable about being open with theirs.
Bring up a friend’s situation. Mentioning a friend’s recent health issues and how that affected them and their families can be a good introduction to asking your parents about whether they have health care proxies and powers of attorney in place so someone can carry out their medical and financial wishes if they are unable to do so. Or you could mention how difficult things were when a friend’s parent passed away because he or she didn’t have a Will and the family was fighting over things.
Rely on recent headlines. There are always news stories about aging boomers or the elderly. You can bring up the topic by discussing a newspaper article you read and ask them what they are doing about the specific topic.
Involve others. Your parents may simply be uncomfortable talking about these issues with their children. In this case, you could always ask a third person that your parents respect, such as a doctor, clergy, lawyer, close friend or other family member, to bring it up. Having the topic brought up by someone other than their children may make them more open to talking about it.
If they won’t talk, ask them to write down their wishes. Sometimes it is easier to say things in writing than it is to say out loud. If that is the case, ask your parents to jot down their thoughts about the planning they’ve done, where their important documents are kept and any wishes they would like you to know. You may then be able to ask them specific questions.
Once you’ve broken the ice with your parents, questions to ask them should include:
Who are the important professionals in your lives? Ask if your parents have worked with financial and legal professionals. If so, ask them for a list of their names, addresses and phone numbers. You also should ask for the names and numbers of your parents’ doctors and other health care professionals, in case end-of-life medical decisions need to be made.
Do you have a will? If you parents have a will, you will want to ask them how recently it was written, who will be the personal representative and where the original document is. If the will is more than five years old or if a major change in circumstances occurred, you will want to suggest that they review it to make sure their current wishes are represented.
Have you made any plans in the event you cannot take care of yourself? You should ask your parents whether they have a health care proxy, advance directive and power of attorney. A health care proxy gives someone the power to make health care decisions on your parent’s behalf in the event a doctor certifies that he or she lacks the capacity to make his or her own decisions. An advance directive describes your parent’s wishes with regard to end of life decision making. A durable power of attorney gives someone the power to make financial decisions on your parent’s behalf. If your parents have done these documents, you will want to ask them who they have named to handle their affairs if they can’t and where the documents are kept. You should also suggest that they review the documents to ensure that they reflect their current wishes.
When was the last time you checked your beneficiary designations? Make sure your parents have updated their designated beneficiaries on life insurance policies, pensions and investments to reflect their current wishes. Assets with designated beneficiaries trump any instructions your parents may have in their will.
What is your current financial situation? Ask your parents to do a list of their bank, brokerage, IRA, 401K and mutual fund accounts as well as their account numbers and any user names and passwords on the accounts. If they are uncomfortable giving you the information, have them put all the relevant information into a notebook that you would late be able to access if you need it. You will also want to know where to find the deed to their house, title to their car, tax returns and all loan documents.
What insurance do you have and where are the policies? Ask your parents about their health insurance, whether it is private or Medicare. Also ask them about their life insurance policies, auto, homeowner’s disability and long-term care policies so you know the coverage available and whom to contact to cancel.
What is your health condition? It is important to know about each parent’s health condition and any medications that they may be taking. Also ask for medical, dental and supplemental insurance information.
What if there comes a time and you cannot live alone? There may come a time when your parents are unable to live on their own. You should ask your parents whether they would wish to remain at home and obtain in-home elder care services or if they would prefer moving to an assisted living facility or other type of retirement facility, and if so, to any one in particular? If your parents’ wish to stay at home, you will need to explore whether the house is built for senior living and, if not, how to retrofit it.
What are your wishes as to medical interventions and end of life care? It is important to know what life support treatment means to your parents. You will want to ask them what type of life sustaining measures they would want in specific situations such as a terminal illness or persistent vegetative state. For example, would your parents wish to be revived if they become critically ill?
What preferences do you have as to funeral and burial? You will want to know what kind of funeral your parents may have in mind, assuming they want one, and where they want to be buried or cremated. If they have pre-planned their funeral or purchased their own headstone or gravesite, you will want to know where they keep those documents.ping website
We make many choices every day. We choose what we are going to do each day, what our career is going to be, where to go on vacation, when we plan to retire, etc. Many of us also choose how to dispose of our estates after we die. However, most of us avoid making decisions concerning the end of our life, maybe because it is uncomfortable to bring up, or we fear the reaction of others, or a belief that our family would know what to do so there is no need to discuss it.
Although end of life decisions are probably the most difficult decisions we make during our lifetimes, if we don’t make those decisions or at least share our thoughts about end of life care, we leave it to others to make those decisions for us at a time when we are most vulnerable and longing for dignity. Making end of life decisions ahead of time empowers us to determine how the end of our life will take place. Of course, that is to the extent that we can control how our life will end. Discussing our wishes not only gives us peace of mind that our wishes will be carried out but also provides our loved ones with guidance on how to make those difficult decisions on our behalf.
So how do you begin? The first step is to decide what your end of life wishes are. Some specific issues to consider include:
- Whom do you want to make decisions for you if you are not able to make your own?
- What medical treatments and care are acceptable to you in the event of a terminal illness? Are there some that you fear or that conflict with your spiritual or religious beliefs?
- Do you wish to be resuscitated if you stop breathing and/or your heart stops?
- Do you wish to have a respirator breath for you?
- Do you want to be fed through a tube if you cannot take food or fluid by the mouth?
- Do you want to be hospitalized or stay at home, or somewhere else, if you are seriously or terminally ill?
- If you were seriously or terminally ill, would you want medications to relieve pain, even if the drugs might hasten your death?
- Do you want to be kept alive as long as possible, even if that means being in an intensive care unit?
- Do you wish to donate organs and/or tissue?
- What kind of emotional and spiritual support would you like to have during the dying process? Would you want to have a minister, priest, or rabbi visit you?
- Do you want certain loved ones at your bedside in your final hours or do you want to hear any special music, poems or prayers?
- What are your wishes with regard to funeral, memorial service, burial and/or cremation?
Once you have made these decisions, the next step is making your wishes known. If you should suffer a terminal illness or if you lose consciousness or the ability to communicate, you may have trouble discussing your choices with those who will need to make decisions on your behalf. An Advance Directive is a written statement of your wishes for end of life care. It is also known as a living will. The Advance Directive is used to express your feelings about the withholding or withdrawal of life-sustaining treatment that prolongs the process of dying, such as artificial feeding, mechanical ventilators, resuscitation, defibrillation, blood transfusions, antibiotics, dialysis and other invasive procedures. The Advance Directive may state your intent that extraordinary measures not be used to sustain your life if there is no chance of returning to health; or it may state your intent that all available measures be administered. You can also state that you wish to receive only palliative or comfort care, which is designed to manage terminal symptoms, including pain.
For example, a properly drafted advance directive will let your loved ones know what “life-support treatment” means to you. It will allow you to choose different levels of life support depending on specific situations. You may want certain life support treatment such as tube feeding if you have suffered a stroke and not presently able to eat but are expected to recover with a reasonable quality of life. On the other hand, you may chose not to have such treatment if you are in a coma with no hope of recovery or where you are suffering permanent and severe brain damage and not expected to recover. You can set strict limitations on what kind of life support can be used even if that means you will die if you do not have the treatment. And you may also choose to have pain medication even if the use of such medication may hasten your death.
You can also appoint an “agent” to be your Health Care Proxy or surrogate should you become incapacitated. Your Health Care Agent would have authority over all decisions regarding your healthcare but only after a doctor certifies that you are incapable of making or communicating those decisions yourself. Your Health Care Agent may make decisions concerning the use or terminating the use of life sustaining systems as well as the right to insist on receiving, rather than refusing, treatment. You agent has a duty to make the same health care decisions you would make if you were able to make your own decisions. If your wishes are unknown, your agent has a duty to make a decision that is in your best interest. It is a good idea to talk with the person you want to name as your agent before appointing them. If you feel strongly about limiting life support treatment at the end of your life, and if your proposed agent doesn’t agree with your position and makes it clear that they will not honor your last wishes, you may need to ask another family member or friend to be your agent. It is a good idea to find out how your doctor feels, as well, because if he or she doesn’t agree with your wishes, you might decide to change your doctor before a conflict arises.
In short, the Advance Directive provides valuable evidence of your intent if you cannot speak and can provide your health care agent with some guidance as to what your feelings are about these sensitive matters. This instrument is especially important if you do not have a person to appoint as your health care agent or if the person you have is unavailable. In many families, serious conflicts may arise when family members are called upon to decide what a loved one would prefer. Sometimes family members disagree over how much or what life support should be used. Sometimes a family member’s ideas are inconsistent with your wishes. Having an Advance Directive makes your wishes clear and will allow you to die with dignity. Without it, a court could be required to determine your wishes regarding withholding or withdrawing life-prolonging treatment.
Noting your wishes in a legal document, however, will not do much good if those who must make decisions for you don’t know they exist. You will want to make sure your doctors, health care agents and other family members have a copy of your Advance Directive and Health Care Proxy. It is also important to begin a serious, heartfelt, and ongoing dialog concerning your values and wishes about life, incapacity, and death with your family and those close to you whom you trust before your documents must be invoked and decisions carried out on your behalf. These wishes and values may well change over time, and certainly will be influenced by changes in your health and that of your relatives as well as developments in medicine.
Beginning the conversation with loved ones about your values and beliefs, and your hopes and fears about the end of your life is often the most difficult part. There is no right time or right way to start a discussion about your wishes. However, having the conversation may save your loved ones a great deal of heartache. Once you get past the initial discomfort, family members often find themselves relieved to have the issues out in the open. If the time comes that you cannot make your own decisions, your loved ones are often spared the guilt and anxiety of trying a make difficult life-support decisions without previous guidance and during a very stressful time.
What is the best way to start talking about end of life decisions? Often the subject can be brought up through the use of indirect topics. A news story may provide a good opening. For example, you could start by saying something like “Remember Terry Shiavo, the woman who was in a coma for years and the family fought over whether to remove her from life support? I would never want that to happen to me. If the doctors tell you that there is no hope for my recovery, I want you to let me go.” Or you may talk about a friend or family member who had problems when she lost a loved one because the loved one had not expressed his or her wishes. You can say, “Remember when my friend Sarah’s mother died. She had to decide whether to take her mother off life support and she didn’t know what to do. It really bothered her and she had a lot of guilt over whether she made the right decisions. I don’t want you to go through that.” There are many books and movies that deal with end of life which you can use as a springboard for your own discussion for end of life. Or sometimes it is easier to blame your doctor or attorney for the necessity of the conversation. “My attorney advised me to execute this Health Care Proxy and Advance Directive. Can you help me fill it out?”
Once you have started the conversation, you may find that your loved ones are relieved that such decisions are taken out of their hands and that they have a clear understanding about the treatments and procedures you do or do not want. They may have wanted to ask you about your wishes but just didn’t know how to start the conversation. Many family members often feel relieved knowing that they are carrying out your wishes and not making decisions on their own.
By facing end-of-life issues before the end of life comes, you will help your loved one and yourself, as well as other family members, approach impending death with grace, courage, and in peace.
For more information CONTACT MASSACHUSETS ELDER LAW SPECIALIST ATTORNEY STEPHANIE KONARSKI or call direct: Tel: (508) 350-0120ping website
New Year Resolutions are popular this time of year. Many of us resolve to lose weight, to start exercising, to become a better you. This year, why not add review your estate planning documents, including your Will, Trust, Power of Attorney and Health Care Proxy, to your list of resolutions. If you don’t have an estate plan, now is a good time to resolve to get it done.
It is recommended that your estate planning documents be reviewed at least every 3-5 years to make sure they still comply with your wishes. As you get yourself in order, ask yourself the following questions:
Does your estate plan accurately reflect your wishes for how and whom you would like your property distributed?
If you’ve experienced a major life event since you wrote your will such as a significant change in your financial circumstances, a change in your marital status, the death of a family member or designated beneficiary, a decline in your or a beneficiary’s health, the birth of a child, or the mere passage of time, you should review your estate plan to ensure it still reflects your wishes. For example, if you married or divorced since you last did your estate plan, fiduciaries and beneficiaries named in your documents should be reviewed.
Any number of changes may suggest the appropriateness of reviewing your overall estate plan. While documents that you signed years ago do not become invalid or stale merely due to the passage of time, they can become inconsistent with your current wishes.
Has there been a significant change in your net worth?
If you recently won the lottery or received a large inheritance, you will need to reevaluate your plan to determine whether your estate is taxable for both state and federal purposes. If so, you will likely want to revise your plan to minimize these taxes. On the other hand, if your estate has declined in value, you should review your plan to insure that it still makes sense in light of your lower net worth.
Are your assets held and titled in a manner that coordinates with your estate plan?
You want to make sure that all new assets are accounted for and included in your estate plan. If you acquired a new business or real estate, you should revise your plan to reflect how those assets will be disposed. Coordinating the title of your assets is especially important for those whose plans are structured to take advantage of the Massachusetts or federal estate tax exemption amounts. Otherwise, your advance planning could be for naught.
Have you had or adopted a new child since you last did your Will?
If you or a beneficiary has had or adopted a child, you should review your plan to insure that the new child is included. You will also want to include an appointment of a Guardian for your minor children. This allows you to decide who you want to care for your children should you pass away. Without a Guardian appointed in your Will, a judge will decide where your children will live and who will care for them. If you have children, you may also want to consider trust provisions which allow you to decide how an inheritance is to be used for the benefit of your beneficiaries (i.e, for medical and educational purposes) and at what age a beneficiary is entitled to outright distribution of your assets.
Have there been any significant changes in your life or the lives of your beneficiaries or fiduciaries?
Significant changes in your own life and in the lives of your beneficiaries or fiduciaries may require changes in your estate plan. Does a beneficiary have creditor issues. If you or a beneficiary becomes seriously ill or disabled, you may wish to revise your estate plan to accommodate the increased need of that individual. This is especially true if a beneficiary has special needs and receives government benefits. You will want to consider a Special Needs Trust to protect assets for the disabled beneficiary without disqualifying him or her from receiving government benefits. As you and your spouse age, you may also want to consider the financial ramifications in the event that you or your spouse may require long-term nursing home care. You may want to update your estate plan to insure that some portion of your assets is protected from nursing home spending.
It is also important to routinely revisit the people you’ve named as a fiduciary. As time passes, the people you name as guardian or appointed to execute your estate or make decisions for your health or financial affairs may no longer be appropriate. If a beneficiary or fiduciary moves away or you lose touch with them, you may want to reevaluate your plan to insure that your property is still going where you want it to go and that the fiduciaries you named are still the best choice. Or, if a beneficiary or fiduciary named in your estate plan has died or has become incapacitated, then you should considering updating your plan to remove that person’s name and/or insure that replacements are appointed.
Are my life insurance policies and other accounts up-to-date?
Review the beneficiaries for your life insurance policies and other accounts. Contact your insurance company, retirement plan coordinator and/or your financial institution and request a copy of the beneficiary designation for each of your accounts. Insurance proceeds and assets with a beneficiary designation pass outside of your will so you should ensure that the beneficiaries are correct. For example, if you designate your spouse as your beneficiary and later divorce, your former spouse may receive the proceeds from your life insurance policy even if you remarry. Or you may have purchased a life insurance policy in 1975, naming your now-deceased spouse as primary beneficiary and your brother as contingent beneficiary. Since that time, you have had three children but have not re-visited the beneficiary designation on that life insurance policy. Your children will not receive the proceeds from your policy. You may also need to name a contingent beneficiary so that if your designated beneficiary predeceases you, you can avoid a probate court proceeding.
Have I moved since my documents were executed?
It is important to keep in mind that there are laws in each state that govern how your estate plan documents should be drafted, updated, and executed, which if not followed properly could invalidate your estate planning documents. When you relocate to a new state, you ought to review your estate planning documents to ensure they are legal in your new state. In addition, different states have different estate taxes and you may need to revise your documents to account for the different tax structure.
It is very easy to let the years pass and create unintentional inconsistencies within your estate plan. If you have answered yes to any of the questions above, it may be a good idea to embrace the season and make the necessary changes to your documents. Then you can relax and enjoy the new year knowing that you successfully crossed off at least one of your resolutions.
For more information on Estate Planning and Elder law contact The Law Office of Stephanie Konarski or Call us at (508) 350-0120ping website
The Veterans Administration’s “Aid and Attendance Program” can be a valuable tool in assisting veteran’s and their spouses or widows pay for in-home care, assisted living or nursing home costs. However, this special monthly benefit is largely overlooked by many families with veterans or their surviving spouses. Many veterans believe that they are only entitled to benefits if they were actually wounded or disabled while they were serving in the armed forces. Few realize that the Aid and Attendance (A&A) pension exists for wartime veterans and/or surviving spouses who are 65 or older or permanently and completely disabled.
A&A is a non-service connected disability pension. It is not dependent upon service related injuries and is paid in addition to a veteran’s basic pension. A&A benefits are tax free and are not countable as income or an asset for Community Medicaid, so that a veteran can receive the pension and still also be eligible for Community Medicaid. If the veteran is in a nursing home and receiving Medicaid, he or she will be allowed to keep $72.80 per month from his or her monthly income for personal needs. If that veteran is receiving A&A benefits, the VA refuses to pay the full pension benefit and will only pay $90 a month which the veteran will be allowed to keep for the monthly personal needs allowance.
Under the A&A program, a veteran is eligible for up to $1,732 per month and a married couple is eligible for up to $2,054 per month. A surviving spouse is eligible for up to $1,113 per month. Aid and Attendance benefits are also available to veteran’s who are still independent but have an ill spouse where the spouse’s medical expenses deplete their combined monthly income.
Eligible individuals must file an application for the pension with the Veterans Administration (VA). Aid and Attendance benefits are paid to those applicants who:
- Are eligible for a VA basic pension. To be eligible for a basic pension, the applicant must be a wartime veteran who has limited or no income and who is at least 65 years old or, if under 65, is permanently and completely disabled. There are also “death pensions” which are needs based for a surviving spouse of a deceased wartime veteran who has not remarried.
- Meet service requirements. A Veteran may be eligible if he or she were discharged from a branch of the United States Armed Forces under conditions that were not dishonorable and served at least one day(did not have to be served in combat) during certain wartime periods and had 90 days of continuous military service. If the veteran entered active duty after September 7, 1980, he or she generally must have served at least 24 months or the full period for which called to active duty.
- Meet certain disability requirements. Veteran’s, spouses of veterans or surviving spouse may be eligible for A&A benefits if they need the aid of another person in order to perform activities of daily living, such as bathing, feeding, dressing, toileting, transporting, etc.; the applicant is bedridden; the applicant is in a nursing home due to mental or physical incapacity; or the applicant is legally blind.
- Meet income limitations. A veteran household cannot have countable income exceeding the Maximum Allowable Pension Rate (MAPR) for that veteran’s pension income category. Countable income means income received by the applicant and his or her dependents. It includes earnings, social security, disability and retirements payments, interest and dividends, etc. The VA will exclude any income that the law allows. Public benefits, like SSI, are not counted as part of the applicant’s countable income. In addition, the VA allows the applicant to deduct their unreimbursed medical expenses (meaning costs that are not paid by insurance, by contributions from the family or from other sources), including, but not limited to, health insurance premiums, assisted living costs, home care and adult day care costs, skilling nursing home costs, private caretaker, medical supplies and prescriptions, from the applicant’s countable income. If the applicant spends all of their countable income on unreimbursed medical expenses, they should be entitled to the maximum monthly income. If the applicant spends a portion of their income on unreimbursed medical expenses, they will receive a pension income that is equal to the difference between the MAPR and the countable income adjusted for unreimbursed medical expenses.
- Meet asset limitations. A veteran’s net worth also effects eligibility. VA pensions are a need-based benefit. Generally, the veteran household assets, including bank accounts, retirement benefits, CDs, stocks, bonds, etc., cannot exceed $80,000. However, this figure is not an actual test. The asset test is a subjective decision made by the veterans service representative. Any level of assets could potentially block the award. The service representative is encouraged to analyze the veteran’s household needs for maintenance and weigh those needs against assets that can be converted to cash and whether the income from the cash will cover the difference in the household income and the cost of medical care over the care recipient’s remaining lifespan.
Personal goods, such as the primary home, furniture, household belongings and a vehicle used for the care of the applicant, are exempt from net worth. Under current rule, assets may be transferred to meet the eligibility requirements. However, if the assets are transferred to someone to satisfy the asset test, great care should be given to the impact on possible future Medicaid needs. Although the VA does not have a look-back period when it assesses assets, Medicaid does. Aid and Attendance eligibility planning should be conducted very cautiously because of its implications on eventual Medicaid eligibility for the veteran or his or her spouse. VA pension benefits and Medicaid often have very conflicting eligibility rules and transferring assets for the purpose of VA pension benefits may cause an ineligibility period for Medicaid if the applicant has to apply for Medicaid benefits within 5 years.
This article is intended to be a brief explanation of the Veterans Administration’s “Aid and Attendance” program. Before submitting an application for this pension, you should speak with a qualified elder law attorney.ping website
Creating a Testamentary Special Needs Trust (TSNT) is often a good tool to utilize when planning for Medicaid for a spouse or other loved one. A TSNT is a trust created under your Last Will and Testament. Under current rules, funds contained in a properly drafted testamentary trust generally do not count as assets of a person receiving public benefits. Funds held in a TSNT are treated as available to a Medicaid applicant only to the extent that the Trustee has an obligation to pay for the applicant’s support. If payments are solely at the Trustee’s discretion, the assets are considered unavailable. This rule does not apply to revocable living trusts. Assets held in a revocable living trust are considered countable to the Medicaid applicant. Thus, a TSNT can provide an important mechanism for community spouses to leave funds for their surviving institutionalized spouse that can be used to pay for services that are not covered by Medicaid without jeopardizing that spouse’s eligibility for benefits.
For example, suppose Wife is in the nursing home and receiving Medicaid benefits. Husband predeceases Wife leaving an estate worth $250,000. If Husband dies intestate (without a Will) or with the typical “I Love You” Will leaving all assets to the spouse if surviving, Wife will inherit Husband’s estate. Since the Medicaid asset limits are $2,000 for an individual, Wife will no longer qualify for Medicaid benefits. Wife will have to spend down those funds on her nursing home costs until she is under $2,000 in assets.
However, if Husband had created a Will with a TSNT for the benefit of his wife, her Medicaid benefits would be protected and there would be a source of funds available for her additional needs not covered by Medicaid. These may include extra therapy, special equipment, clothing, hearing aids, eyeglasses, dental expenses, transportation services, evaluation by medical specialists or others, legal fees, visits by family members or companions, bed hold at the nursing home, etc. When Wife passes, any funds remaining in the TSNT will pass by the terms of the Husband’s Will, to his children or other named beneficiaries. Medicaid is not entitled to any of the funds held in the TSNT.
The information provided above has been a general summary regarding Testamentary Special Needs Trusts for Medicaid planning. As with any planning for Medicaid, there are many pitfalls and traps for the unwary that must be assessed on a case by case basis. To determine whether Testamentary Special Needs Trust would be a helpful planning tool for you or a loved one, you should consult an elder law attorney.ping website
For many low-to-medium-income seniors, nursing homes are often thought of as the only option for long term care services. This may be true for some senior because their needs may be too great to be cared for at home. However, MassHealth offers several programs to seniors who can be safely and adequately cared for outside of a nursing home. These alternative programs provide some assistance with the cost of care in the home or “in the community.”
Many of the Community MassHealth programs can successfully meet the special needs of seniors to help improve his or her quality of life at home and allow the senior to be able to live in the comfort of his or her own home. These programs may provide assistance with personal care and medication assistance, housekeeping, home health care, adult day care, meal preparation, laundry, transportation, nursing home care and other services. However, the assistance provided is supplemental as opposed to the comprehensive coverage for nursing home care and there are a variety of different programs available depending upon the senior’s needs. The following is a brief summary of some of the community programs available.
Home and Community Based Service Waiver
The Home and Community Based Service (HCBS) Waiver allows certain individuals to live at home and still get MassHealth benefits. The program provides health care and support services to frail elders, people with intellectual disabilities, young children with autism spectrum disorders and adults with traumatic brain injuries to help them live safely in their communities and to prevent or delay institutionalization in a nursing home or intermediate care facility. The services offered under the Waiver must cost no more than the alternative institutional level of care.
The “Frail Elders” Home and Community Based Service Waiver program is a program for low-income Massachusetts residents who qualify for nursing facility or other institutional care but want to live at home. The services available under the Waiver program may include personal care services, housekeeping and chore services, laundry, home health aide, skilled nursing, companion services, supportive day program, home delivered meals, grocery shopping, transportation, wander response system, respite care, environmental accessibility adaptation and transitional assistance.
Eligibility for the Frail Elders Waiver program depends on the age, location, functional ability and financial status of the senior. Applicants must be a minimum of 60 years of age or meet disability criteria under age 65, require basic care services based upon medical need, be at risk for nursing home care, and meet the waiver’s income and asset limitations. For individuals, the 2013 Frail Elders countable income limit is $2,130 and the asset limit is $2,000. For couples, the income and assets of the healthy spouse are not counted in determining eligibility. Assets of the ill spouse can be transferred to the healthy spouse without penalty. If your income or assets are too high, you can meet a deductible or spend down your assets to qualify. In order to obtain benefits, a MassHealth application must be completed along with setting up a frail elder screening with an ASAP (Aging Services Access Point).
Community Choice Program
The Community Choices Program offers the frailest seniors additional support. This program is designed to offer more care-intensive services to seniors who are at imminent risk for nursing facility placement. This program is only available for individuals 65 and over or 60 and disabled. To be eligible for the Community Choices Program, the individual must already be enrolled in The Home and Community Based Waiver Program and be clinically eligible for nursing facility services.
Program for All-Inclusive Care for the Elderly
The Program for All-Inclusive Care for the Elderly (PACE) provides comprehensive health care services that enables eligible seniors to continue living at home as long as possible. This program provides valuable community based care and services to seniors who otherwise need nursing home level of care. Services can be provided at home, an adult day health center, and/or inpatient facilities.
In order to be eligible for PACE, applicants must be at least 55 years of age, live in a PACE service area, must be certified as eligible for nursing home care by the state (must require help with two “activities of daily living” and at least one “skilled nursing” need), and must have the ability to safely remain in the community with the additional medical and support services offered by PACE. The PACE recipient must also agree to receive all services through the managed care program. The PACE program becomes the sole source of health care services for eligible enrollees.
Care and services include: primary medical care, home health care, adult day health, rehabilitation services, nursing services, hospital care, restorative therapies, personal care and supportive services, nutritional counseling, recreational therapy, meals, transportation, medications, podiatry, optometry, dental, social services, and anything else the program determines is medically necessary to improve and maintain the participant’s overall health. Services are available 24 hours a day, 7 days a week, 365 days a year. If the time comes when nursing home placement is necessary, PACE would pay for the nursing home costs and would continue to supervise the member’s care, so long as the member resides in a PACE facility.
PACE accepts Medicare, Medicaid, and private payment. In order to be eligible, participants cannot have more than $2,000 in countable assets. The income limit is three times the federal SSI benefit amount. In 2013, the federal SSI benefit amount is $710. For participant’s with monthly income of $2,130 or less, there is no monthly spenddown and they can keep the entire $2,130. For participants whose income exceeds $2,130 per month, there is a monthly spend-down to $542 to establish eligibility. Participants with monthly income over $4,039 would pay privately, while participants with income below $4,039 would apply for Medicaid in order to keep the $542 monthly. Private pay participants are only charged the monthly premium Medicaid would pay, or $3,497 per month.
In the PACE program there is never a deductible or copayment for any drug, service or care approved by the PACE team. PACE providers assume full financial risk for participants’ care without limits on amount, duration, or scope of services a participant may need.
Home Care Program
Home care services are “ala carte” services for seniors who require some level of car but do not need full managed care. Services may include medical assistance, Adult Day Health Services, personal care services, homemaker services, laundry, transportation, companion services, meal preparation, food shopping, chores and other services. The program also offers respite services to the caregiver.
Home care services can be paid privately but those with lower incomes can get services that are partially subsidized through the Executive Office of Elder Affairs (EOEA) or fully by MassHealth. To be eligible for the EOEA subsidized Home Care Program, the individual must be 60 years of age or older and not residing in a nursing home or assisted living facility. He or she must meet income limits and show the need for support services. The individual also must not be receiving services from an all-inclusive program such as Adult Family Care, Group Adult Foster Care or PACE. Respite services are available to caregivers when the above-conditions are met and the caregiver is not paid for services, the respite services are not requested primarily so the caregiver can work, the respite services replace services the caregiver usually performs, the caregiver is experiencing stress or an emergency situation and the caregiver is either a family member or unrelated to the senior but living in the same household.
Case managers from local Aging Services Access Points (ASAPs) must assess each senior’s need for services, develop a personal care plan, arrange for services, and monitor the program. The maximum annual gross income for the program is $24,838 for a single individual and $35.145 for a couple. Depending on income, there may be a monthly co-payment for services, ranging from $9-$130 for individuals with incomes that range from $10,924-$24,837 and from $17-$140 for couples with incomes that range from $14,646-$35,144.
Enhanced Community Options Program (ECOP)
The Enhanced Community Options Program (ECOP) is a program of home care for frail seniors who are medically eligible for nursing facility care but want to live at home. ECOP provides a higher level of service than the EOEA Home Care program. ECOP members get two to three times the services of EOEA Home Care.
To be eligible, the applicants must demonstrate that they are medically eligible for nursing facility care. He or she must need at least one skilled nursing or therapist service daily (for example, an IV, feeding tube, oxygen, sterile dressings, catheters, skilled-nursing evaluation, physical therapy, speech therapy, occupational therapy) OR he or she must need a nursing service at least 3 times per week, plus two other services. Other services can be assistance with Activities of Daily Living (ADL), or additional nursing services. Activities of Daily Living services include help bathing, dressing, toileting, getting in or out of a bed or chair, walking (or moving a wheelchair), or eating.
Seniors do not have to be eligible for MassHealth to take part in the ECOP program.
Caregiver Homes is a fairly new care alternative program that allows a senior to hire a live-in caregiver, either a certain family member, friend or other individual, to provide services to the senior at home. Caregiver Homes works in a partnership with the PACE programs as well as the EOEA Home Care program.
Under this program, a senior’s spouse, parent or legal guardian is ineligible to be paid as a caregiver. However, a child or children can be paid caregivers. To be eligible for this program, the senior must meet the financial requirements of MassHealth and require assistance with at least three Activities of Daily Living. The caregiver provides around-the-clock, at home care for the senior. This program provides up to $18,000 per year toward the cost of care for a live-in caregiver. The program also provides full support, training and supervision to the caregiver.
Personal Care Attendant (PCA) Program
The PCA is funded by MassHealth and helps seniors live independently at home. The PCA program gives each eligible MassHealth member funds to hire a personal care attendant to help with Activities of Daily Living. PCA workers currently received $12.48 per hour effective July 1, 2012. This program is different than the other programs because the senior becomes the employer and is in charge of hiring, firing, training and supervising the PCA. However, the senior is not responsible for payroll and taxes. An outside agency is hired to handle the timesheets and paychecks.
A PCA can be a family member, but cannot be someone who is legally responsible for the applicant, such as a guardian, parent of a minor or a spouse. To be eligible, the applicant must be enrolled in MassHealth and must require “hands on” assistance with at least two activities of daily living (such as eating, dressing, toileting, bathing, or transferring). The personal care services must be medically necessary and the applicant must have prior authorization from MassHealth. The local Aging Service Access Point (“ASAP”) will make a recommendation to MassHealth as to the needs of the applicant and the number of hours that the applicant should be approved for.
Group Adult Foster Care (GAFC) and SSI-G
Group Adult Foster Care (GAFC) is a MassHealth program that pays for personal care services for eligible seniors and adults with disabilities who live in GAFC-approved housing. Housing may be a GAFC assisted living residence or other GAFC housing. GAFC is designed to keep seniors who are at risk of institutionalization at a nursing facility in the community.
To qualify for GAFC, residents must be at least 60 years of age, eligible for MassHealth and need help with at least one Activity of Daily Living. The applicant will also need clinical approval from an Aging Service Access Point (ASAP). Qualified individuals will receive an individual care plan developed by a registered nurse and case manager, ongoing monitoring of needs, personal care services in the home each day, medication management, 24-hour access to services and, with prior approval, adult day health services or home health aide services.
There is no cost for GAFC for MassHealth clients who meet the eligibility requirements. However, GAFC only pays for the cost of personal care services and medication management when the individual lives in approved housing. It does not pay housing costs, such as room and board or support services like housekeeping. If the senior is not getting any other type of rental assistance, he or she may be eligible for the Supplement Security Income in the “group living” category (SSI-G) to help pay these costs.
SSI-G is a special Supplemental Security Income benefit for people in assisted living. SSI-G covers the room and board or rent portion of assisted living costs. To obtain SSI-G, the applicant must reside in a certified assisted living facility, be eligible for or participate in GAFC, have countable unearned (fixed) income less than $1,164 per month (2012) and assets under $2,000 a month. Although an individual or couple must be eligible for GAFC in order to be eligible for SSI-G, SSI-G is not required for GAFC eligibility.
This article is not intended to be a complete list of all the programs available.
For more information CONTACT THE LAW OFFICE OF STEPHANIE KONARSKI, MASSACHUSETTS ESTATE LAWYERping website
As the nation grazed the edge of the fiscal cliff, legislation was passed that, among other things, permanently extends the reduced Bush-era income tax rates for lower and middle income taxpayers, allows the top rates on earned income and investment income to rise for wealthier households, permanently “patches” the individual alternative minimum tax, and increases the estate and gift tax rate for high-value estates.
Below is a brief summary of the American Taxpayer Relief Act of 2012.
Income Tax Rates:
The top income tax bracket rises to 39.6% (from 35%) for individuals with taxable income in excess of $400.000 and for married couples in excess of $450,000. For those who make less than those thresholds, the American Taxpayer Relief Act of 2012 permanently extends the Bush-era tax rates (10%, 15%, 25%, 28%, 33%, and 35%).
Capital Gains and Dividends:
The top income tax bracket for capital gains and dividends rises to 20% (from 15% in 2012) for individuals with taxable income in excess of $400,000 and for married couples in excess of $450,000. * For those individuals at the lower income levels, the top tax rate on these investment earnings remains at 15 percent. Those in the 10 and 15 percent brackets would owe no capital gains taxes.
*This new tax bracket is in addition to the 3.8% Obamacare tax on passive income for taxpayers who have taxable income over $250,000 so that the new top rate will be 23.8% on passive income.
Alternative Minimum Tax:
The Act solves (at least in theory) the Alternative Minimum Tax (AMT) problem by permanently indexing the AMT exemption amounts for inflation. The AMT is an alternative method of calculating tax, which was created to effectively create a minimum tax for some taxpayers. Prior to the Act, Congress was required to patch the tax every year to reflect changes in inflation. The AMT exemption amount for 2012 is $50,600 for individuals and $78,750 for married couples.
A phase out of itemized deductions applies for 2013 for individuals who have an adjusted gross income of $250,000, and married couples with an adjusted gross income of $300,000.
Estate, Generation Skipping and Gift Taxes:
The Act makes permanent the $5 million exemption amounts (indexed for inflation) for the estate tax, the gift tax, and the generation-skipping transfer tax–the same exemptions that were in effect for 2011 and 2012. The top tax rate, however, is increased to 40% (up from 35%) beginning in 2013.
The Act also permanently extends the “portability” provision in effect for 2011 and 2012 that allows the executor of a deceased individual’s estate to transfer any unused exemption amount to the individual’s surviving spouse.
Every American will see less money in his or her paycheck in 2013. The cut to employee’s portions of the Social Security Payroll Tax expired on January 1, 2013 and was not addressed by the American Taxpayer Relief Act of 2012. Payroll taxes were allowed to increase from 4.2% to 6.2% and high income individuals will also be subject to a new 0.9% Medicare tax on earned income.
Section 179 Expensing:
The increased Section 179 deduction limits applicable to small business will be extended through 2013. Section 179 permits business to deduct the full purchase price of qualifying equipment and/or software purchased or financed during a tax year instead of depreciating such qualifying equipment and/or software over a period of years.
Individual Tax Extenders:
Various individual tax cuts will be extended, including deductions for state and local sales taxes, qualified tuition expenses, and mortgage insurance premiums. The Child Tax Credit and the Earned Income Tax Credit have also been extended through 2017.
Business Tax Extenders:
In addition to section 179 expensing, various business tax cuts will be extended, including the research and work opportunity credits.
This brief overview of some important considerations associated with the American Taxpayer Relief Act of 2012 is by no means comprehensive. Always seek the advice of a competent professional when making important legal decisions.ping website
A Q-TIP Trust is a method used to minimize estate taxes payable by a married couple. It is designed to allow both spouses to utilize their federal and state estate tax exemptions under current tax laws. Here is how the Q-TIP trust works.
When the first spouse dies, the estate is divided into three parts:
- One part, an amount up to the Massachusetts estate tax exemption allowed by law, is placed in a “credit shelter” trust. In 2011, this amount is $1,000,000. The assets placed in the credit shelter trust escapes estate taxation.
- One part, an amount up to the difference between the state estate tax exemption and the federal estate tax exemption is placed in a “marital trust.” For 2011 and 2012, the federal estate tax exemption is $5,000,000. However, this amount is scheduled to drop significantly in 2013 if Congress does not address the federal estate tax laws.
There is no tax paid in the estate of the first spouse to die because of the unlimited marital deduction. However, such property is includible in the surviving spouse’s subsequent estate for estate tax purposes. On the death of the surviving spouse, any assets remaining in the marital trust is subject only to Massachusetts estate tax and not federal estate tax.
- Any remaining assets in excess of the federal estate exemption amount may be passed directly to the surviving spouse or placed in another marital trust and held for the benefit of the spouse. In either case, because of the unlimited marital deduction, this portion also escapes estate taxation, regardless of its value, on the death of the first spouse. Any assets remaining in the marital trust or includible in the surviving spouse’s subsequent estate will be subject to both Massachusetts and federal estate taxes.
CREDIT SHELTER TRUST
The surviving spouse may receive income for life from the credit shelter trust. The trust is usually established so that the principal that was deposited in the trust at the first death is retained for later passage to heirs when the surviving spouse dies. In addition to receiving income, the surviving spouse may be given liberal rights in the trust that allow her or him to:
- Serve as the sole trustee of the trust during his or her survivorship years.
- Withdraw principal for purposes of health, education, support and maintenance.
- Exercise a limited power of appointment over the trust principal, i.e., spouses may be able to appoint the principal to anyone except themselves, their estates, their creditors, or the creditors of their estates.
- Withdraw annually the greater of $5,000 or 5% of the principal.
The surviving spouse, however, need not be given any control over, or rights to, trust principal. The fact that the trust can be drawn so as to give the surviving spouse literally no control or rights to the trust principal means that the decedent spouse may lock in his or her desired remainder beneficiaries under the terms of the trust. Thus, the surviving spouse can be barred from diverting away the first decedent’s trust property to a spouse in a later marriage, children from a subsequent marriage, or the children of a later spouse.
The trustee or the surviving spouse may also have discretion to provide income and/or principal for persons in addition to the spouse, such as the children or others designated in the agreement. There are also a wide variety of arrangements for disposition of the credit shelter trust upon the death of the surviving spouse. When the second spouse dies, the credit shelter trust may terminate or continue. All assets remaining in the trust at the second death are either distributed outright to the heirs, or held in trust for the benefit of the heirs if the trust agreement so specifies. This latter arrangement is especially beneficial when the heirs are minor children or persons who have not demonstrated financial responsibility.
Despite the right to income and principal, the credit shelter trust is not included in the surviving spouse’s gross estate at death. The assets remaining in the credit shelter trust pass estate tax free to the final beneficiaries. This may provide a significant windfall to the final beneficiaries if the surviving spouse does not need to use the assets from the credit shelter trust and they continue to grow in value during the surviving spouse’s remaining lifetime.
Upon the death of the first spouse, the surviving spouse is entitled to all income generated by the funds in the marital trust(s). The surviving spouse may withdraw principal for his or her health, education, maintenance and support. He or she may also request the greater of $5,000 or 5% of the value of the principal annually.
The marital trust is less flexible than the credit shelter trust. The assets in the marital trust cannot be distributed to anyone other than the surviving spouse during his or her life. In addition, the surviving spouse is required to receive all the income of the marital trust. Upon the death of the surviving spouse, any undistributed income passes to his or her estate, and the remaining principal is added to the credit shelter trust.
When the surviving spouse later dies, the assets remaining in the marital trust(s) will be taxed as part of the surviving spouse’s estate. Thus, the estate tax on the marital trust(s) is merely deferred until after the surviving spouse dies. The balance of the marital trust(s) that remain after estate taxes are paid will pass to the final beneficiaries.
The surviving spouse will also still have his or her own estate tax exemptions. The surviving spouse’s separate assets will pass estate tax free to the final beneficiaries up to the Massachusetts and Federal estate tax exemption amounts. Anything over the applicable exemption amounts will be taxed.
To minimize estate taxes on the estate of the surviving spouse, the funds from the marital trust(s) should be used before using principal from the credit shelter trust.