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Health Care Proxy 

Durable Power of Attorney 

Gifts in Massachusetts 

Deed with Life Estate 

Living Trusts 

Probating a Will 

Settling an Estate 

 

 

 

 HEALTH CARE PROXY

                   This article was prepared by the Estate Planning Council of Hampden County.  The council is a nonprofit organization of accountants, lawyers, life insurance underwriters, trust professionals and other financial service providers involved in planning, settlement and management of estates.

 

On December 18,1990, legislation was enacted in the Commonwealth of Massachusetts which allows a person to nominate and appoint another person to make medical decisions.  Not to be confused with a Durable Power of Attorney, this document is called a Health Care Proxy or Durable Power of Attorney for Health Care and allows the person to select another to have the authority to determine medical procedures, or the withholding of medical treatment.

 Various forms of this type of document have been reproduced and distributed to senior groups, physicians, and other medical institutions such as hospitals and nursing homes.  While most of the form documents are acceptable in most situations, there may be a specific issue that needs to be addressed in special circumstances.

It may be one’s desire to have the so-called  “living will language” included, which states that a person does not wish to be kept alive by heroic means.  If this is the case, the person establishing the Health Care Proxy (the Principal) should be sure to include language specifying his or her wishes as well as appointing the designated person to authorize or withhold treatment.

This case would occur normally only when the Principal is mentally or physically disabled and unable to make informed decisions on his or her behalf.  As long as the individual is competent, he or she retains the right to make his or her own health care decisions.

Recently, there have been many programs to educate the medical profession and related health care providers about Health Care Proxies.  These efforts should promote the use and acceptance of Health Care Proxies in medical decisions.  Any person who established a Health Care Proxy should forward a signed copy of the document to their physician and medical facility.  Medical providers will then have prior instructions as to the appropriate person who will make decisions in the unfortunate circumstance of incapacity.  The document itself is not usually a technically difficult or lengthy document, but must be signed in the presence of witnesses to make it effective.  Care should be taken to ensure that the document is properly prepared and signed so that its use in the future will be without any

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DURABLE POWER OF ATTORNEY

 

        This article was prepared by the Estate Planning Council of Hampden County.  The council if a nonprofit organization of accountants, lawyers, life insurance underwriter, trust professionals and other financial service providers involved in planning, settlement and management of estates.

 

Under Massachusetts Law, any competent person is authorized to establish a Durable Power of Attorney.  A Durable Power of Attorney is a document that allows another person, usually a spouse, parent, child or other close family member, to make decisions for the incapacitated person in the event of a physical or mental disability.  This may prove to be an extremely useful document when a person becomes incompetent or incapacitated and is unable to handle his or her own financial affairs.

However, a person may wish to have a Durable Power of Attorney effective only upon his or her becoming incapacitated so that it will not be used while the person creating this document is of legal competence. However, if the person creating the document only wants it to be used if there is future incapacity, due to the new HIPAA laws, it is necessary to add a phrase in the Power of Attorney allowing permission for medical records to be obtained. 

The major benefit of establishing a Durable Power of Attorney is that it may remain valid even after the person giving it becomes incompetent or incapacitated, which will alleviate the necessity of proceeding in the Probate Court with a guardianship or conservatorship.  The benefits of not requiring a probate hearing are: 1) the proceedings will be private and not open to the public; 2) there are not ongoing expenses once the Durable Power of Attorney is executed; and 3) the formalities of court requirements are unnecessary wherein a person is legally declared to be incompetent, which procedure saves both emotional trauma and cost of proceeding.

However, the Durable Power of Attorney must be signed and prepared prior to the disability.

The person who is appointed is called the attorney-in-fact and is usually authorized to handle all of the ordinary aspects of a person’s affairs including, but not limited to, real estate, bank accounts, taxes, insurance policies and tangible personal property.  In addition, the person may have the authority, if granted in the document, to make gifts, decline to take property from another person’s estate, and any other powers the person wishes to grant.

A person working under a Durable Power of Attorney may not make a new will or instrument for the principal.

Prior to executing a Durable Power of Attorney, one must be sure that the person he or she is naming to be in charge of the affairs was carefully selected and that this person is both responsible and trustworthy. 

Until the person granting the Durable Power of Attorney becomes incapacitated, the Durable Power of Attorney may be revoked, amended or changed in any way.  However, once incapacity has been established, the Durable Power of Attorney becomes irrevocable and may not be changed.

While the Durable Power of Attorney is an attempt to alleviate problems noted above, there are some banks, insurance companies and taxing authorities that require their own specific Durable Power of Attorney to be signed.   If this is the case, at the time of the execution of a Durable Power of Attorney, one should consider having the necessary additional documents signed so as to insure that the proposed use of Durable Power of Attorney will be in effect if and when needed.  Also, some institutions require that the Durable Power of Attorney be a relatively recent document (i.e. not ten years old).  It makes sense to review your Durable Power of Attorney periodically and if possible, to redo them so that there is a current date on this valuable document.

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GIFTS IN MASSACHUSETTS

         This article was prepared by the Estate Planning Council of Hampden County.  The council is a nonprofit organization of accountants, lawyers, life insurance underwriters, trust professionals and other financial service providers involved in planning ,settlement and management of estates.

The decision to make a gift to an individual (non charity) is one that must be decided only after considerable thought.  If it is truly the intent of a person to make a gift and thus a delivery of the asset (stock, cash, life insurance, real estate, or any other asset having value), then the process of giving something away shall be considered a gift.  Prior to that time, it must be decided as to whether or not the person giving the gift ( who is called the Donor) can afford to part with this property irrevocably and not accept anything in return for the gift.  If in fact there is any type of incident of ownership retained by the Donor over the property, the transfer may not be considered to be truly a gift.

There is currently no gift tax in Massachusetts, although the giving of a gift of more than $11,000.00 per Donor (for each Donee) per year may cause a Federal gift tax return to be due.  There is no Federal gift tax due on the gift until such time as the total value of the gift exceeds $1,000,000.00 per Donor over the Donor’s lifetime.  There used to be a three year rule both federally and in Massachusetts stating that if the Donor died within three years of making the gift, then the value of the gift would come back into the estate for estate tax purposes.  However, this rule has been changed federally and applies principally to life insurance and annuities. Massachusetts, however, has retained this rule, which states that if a person dies within three years of making a gift of over $11,000.00 in any one year to any individual, the full value of the gift would be includable in the estate.  If the gift is less than or equal to $11,000.00 per year, however, then the gift will not be included.  It is important to realize that the sum of all gifts in any one year is the value for the annual gift, not specifically a gift of a sum at one particular point in time.  For instance, if a parent makes a gift to a child of $11,000.00 during the year, and if there were anniversary, birthday or holiday gifts given during the year, the total value would be in excess of  $11,000.00,thus possibly casing a Federal gift tax return to be filed as well as triggering the three year rule in Massachusetts.

For income tax purposes, the amount that a person gives to an individual is not deductible on the income tax return and it is likewise not reportable as income on the recipient’s income tax return.  However, both donors and recipients should make sure that when a gift is being contemplated, all income would be taxable, be it dividend, interest, or rental income.  Therefore, care must be taken to revise estimated tax payments as they may become due to ensure that there will not be a penalty for underpayment of estimated taxes.

Many times, gifts are made for tax reasons to shift the asset and the income to the younger generation.  In making a gift, it is important to remember that once the gift is made, it may not be taken back for any reason, and therefore substantial consideration should be given as to whether the person making the gift may afford to part with the asset.

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DEED WITH LIFE ESTATE

This article was prepared by the Estate Planning Council of Hampden County.  The council is a nonprofit organization of accountants, lawyers, life insurance underwriters, trust professionals and other financial service providers involved in planning, settlement and management of estates.

        A home is often a person's single largest asset.  Parents commonly wish to transfer their home to a child with the understanding that they will keep the right to use, occupy and enjoy the premises for as long as they wish. This retained interest is called a life estate. The interest transferred, often to children, is referred to as a future interest or remainder interest in the property.

        However simple this transaction may appear, many issues need to be resolved prior to the transfer to avoid tax and other pitfalls that could result from poor planning. 

        To complete the transfer, a deed from the grantor to the grantee must be recorded with the appropriate Registry of Deeds.  Once the deed is recorded, the grantor/parents are not able to sell, mortgage, refinance or in any way encumber the property without the consent of the children.  Likewise, the children may not transfer or sell the property without the signatures and consent of the parents.

        There are several benefits to this type of transfer. 

        The property avoids probate upon the death of the life tenant. The holder of the remainder interest becomes the full owner of the property automatically, with no court involvement.

        The value of the real estate is in the taxable estate of the parent for estate tax purposes, but this normally works to the advantage of the remainder interests.  The children receive a step­up in basis in the value of the real estate, meaning they inherit the property at the date of death value not the value attributable to the parent at the date of the transfer.  Note that the value of the real estate added to the deceased parent's other assets may cause an estate tax to be due. 

        In Massachusetts, an estate tax lien attaches to a decedent's real estate automatically at death.  The lien is released by filing an Estate Tax Return within nine months of death or filing an affidavit.  This step, a mere formality if there is no estate tax due, is necessary to clear title to the property for the succeeding owners.

        Transferring a remainder interest to the children triggers the waiting period for Medicaid eligibility, but has some benefits to an elder transferor concerned about long term care.  The rules and regulations of the Office of Medicaid are complex – but suffice it to say that this transfer will "start the clock ticking" on the Medicaid ineligibility period, which may be up to five (5) years for a transfer to a trust.

        Following the disqualification period, a portion of the property would not be considered owned by a Medicaid applicant. The Commonwealth will place a lien on the life estate portion, but the lien expires at the parent's death.  In addition, if the property is sold during the life tenant's lifetime, the Commonwealth's reimbursement would be limited to the value of the life estate. 

        By contrast, if the property were wholly owned by the Medicaid recipient, the entire value would be subject to claim if sold during the person's lifetime or in the probate estate at death.

        An elder who retains the life estate also will be entitled to an abatement for real estate taxes if he or she otherwise qualifies for the abatement with the city or town. 

        Naturally, whenever there is a benefit there is also a downside.  If the remainderperson/child dies, becomes disabled, gets divorced, or incurs significant debts or liabilities,  the interest may be attached by creditors or pass to undesirable parties.  Also, if the property is sold during the life tenant's lifetime, there may be a capital gains tax assessed against the child who does not reside in the home.  The life tenant/parent would usually be entitled to the exclusion from tax on capital gain earned on the sale of a principal residence. 

        This article is far from a comprehensive explanation of the life estate deed, but is intended to shed light on this technique to transfer real estate to the next generation.  As always, it is advisable to consult a professional with expertise in legal and tax matters prior to making the final decision to transfer the real estate. 

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LIVING TRUSTS

This article was prepared by the Estate Planning Council of Hampden County.  The council is a nonprofit organization of accountants, lawyers, life insurance underwriters, trust professionals and other financial service providers involved in planning, settlement and management of estates.

        One of the most publicized areas of estate planning is the area of Living Trusts.  They are also known as Revocable Trusts, Dry Trusts, Unfunded Trusts, or Intervivos Trusts.  A  Trust is simply a separate document established during one’s lifetime which may hold assets including real estate, stocks, bonds, cash, or other tangible or intangible assets either during one’s life or at death.  A Living Trust need not be funded during life, but funding the trust during life is typically recommended in order to obtain the maximum utilization of the trust.  A person creating a trust (grantor) will name who the beneficiary and trustee will be in the document.  The grantor may choose to be the beneficiary of the trust during his or her lifetime.  Upon the grantor’s death, the spouse and/or children, a charity, or others may be named as the remainder beneficiaries.  The grantor may serve as a trustee, if he or she so chooses.  Otherwise a close and trustworthy friend, a family member or a financial institution may be named as Trustee.  It is permissible to designate co-trustees and/or alternate trustees.

        The typical provisions of a trust would allow the funds to be used during the lifetime of the grantor  for his or her own benefit,  even if  the grantor becomes mentally or physically disabled.  At a future date upon his or her death, the trust may terminate and be paid to his or her spouse or remain in trust for his or her spouse, children, relatives, charities and in whatever proportions and amounts so desired

One of the principal benefits of a Revocable Living Trust is that it alleviates the need to probate the assets owned by the trust so long as assets are transferred to the trust prior to the grantor’s death. 

        Upon the death of the grantor, the funds may remain in trust to or for the named beneficiaries and avoid the necessity of passing through the Probate Court.  Benefits of avoiding probate may include reduced administration expenses and fees and less time needed to complete the estate administration process.   In addition,  the assets and terms of the trust remain private and do not become a public record at death. 

        It is important to note that the Living Trust is not a part of the Will, but a separate document which must be established during one’s lifetime This trust may also provide certain tax benefits after the death of the original grantor which may ultimately preserve more of the assets for beneficiaries.  This trust is an important planning tool to be used in conjunction with a Will and Power of Attorney.

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PROBATING A WILL

This article was prepared by the Estate Planning Council of Hampden County.  The council is a nonprofit organization of accountants, lawyers, life insurance underwriters, trust professionals and other financial service providers involved in planning, settlement and management of estates.

        The purpose of this article is to summarize the legal and practical requirements to probate a Will in Massachusetts.

        All Wills must be filed in the Probate Court within 30 days of date of death, and although this rule is infrequently enforced, it is good procedure to file the documents as soon as possible to facilitate probate of the estate.

        The first document to be filed after the Will is a Petition for Probate of Will.  The Petition names the person requesting appointment as executor.  This person usually, but not always, is named in the Will.  The Petition also lists the decedent's heirs-at-law and next-of-kin even if they are not named as beneficiaries in the Will.  These individuals are established under law as those who would receive funds from the estate if the decedent died without a Will.

        Another form to be filed with the Petition is a Bond, in which the executor promises to administer the estate according to the terms of the Will and law.  A breach of this duty exposes the executor to liability on his or her bond, or personally, for any loss in value to the estate.  In some cases, the court may require the executor to obtain a corporate surety bond to cover potential losses. 

        Most recent Wills include a provision called a Self­proving Affidavit, which eliminates the need for the witnesses to vouch for the Will in court.  However, unless all interested parties assent to the Will, a Military Affidavit must be filed verifying the military status of the heirs-at-law. 

        After these documents and a death certificate are filed, the court issues a document called a Citation giving notice to creditors and other interested parties that they may file objections to the Will or Petition within a stated time period.  The Citation is also published in the newspaper in the city or town where the decedent last resided. 

        Assuming that the prescribed date passes with no objection on record, the Petition is presented to the court for allowance, at which time the probate judge issues a decree appointing the executor and allowing the Will.

        The court also issues a blank Inventory form which must be completed listing the assets owned by the decedent's estate.  The executor must gather and secure all the assets and complete the Inventory for the court.  Simultaneously, the executor also initiates preparation of the estate tax return, which if necessary is due within 9 months from date of death.  This 9-month period is usually when the house, stocks, bonds, etc., are liquidated and converted to cash or held "in kind" for distribution to the beneficiaries of the estate.  The executor also must compile a list of bills to be paid, to pay all justifiable and enforceable debts and to promptly pay the persons or charities that are beneficiaries of the estate. 

        Under current law, the estate may not be closed earlier than one year from the date of death to allow creditors to file claims against the estate for payment of debts challenged by the executor.

        If the estate is taxable (more than $950,000 in assets for Massachusetts purposes and $1,500,000 for federal purposes in 2005), the estate also may not be closed until the executor receives Closing Letters from the applicable taxing authorities. The executor must keep the estate open and hold sufficient assets to pay any additional taxes which may be due. 

        In the case of a non-taxable estate, the executor may distribute a portion of the assets to beneficiaries prior to the one-year waiting period provided that all debts and expenses are resolved.

        After the one-year anniversary has passed, the executor will file a First and Final Account of all income received, payments made, and amounts distributed to the beneficiaries.  The probate is closed when the court issues a judgment allowing the Account.

        As this article illustrates, the probate process does not merely entail the filing of papers but also substantial technical, tax related and procedural responsibilities.  An executor should be carefully chosen therefore to be sure that he or she is ready, willing and able to attend to the duties at hand. 

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SETTLING AN ESTATE

This Article was prepared by the Estate Planning Council of Hampden County.  The council is a nonprofit organization of accountants, lawyers, life insurance underwriters, trust professionals and other financial service providers involved in planning, settlement and management of estates.

PROBATE PROCESS:

        Legally, “probate” means to prove a will.  As actually used, it also includes the administrative process of settling an estate.  There are state laws and procedures that govern estate administration.

        Probate serves several important functions in protecting an estate:

  •   Establish the validity of the will

  • Settle claims of creditors and pay debts

  •   Pay any taxes owed

  • Distribute your property to heirs and beneficiaries according to your will, or by state law if there is no will

        If you die intestate (without a valid will), your estate is distributed according to state intestate law.  In this case, the court grants letters of administration to an administrator, who handles the estate settlement.  You have no choice in who will receive your property or who will be the administrator.  State law and the court makes these decisions.

        You control your own estate plan when you leave a valid will.  You can name an executor to handle the estate settlement in your will.  When your will is presented to probate, the court will grant letters testamentary  to your designated executor.

        Letters of administration and letters testamentary are documents that attest to the fact that the personal representative of the estate is acting with court approval.  They give the estate’s representative the legal right to buy and sell property and conduct other business on behalf of the estate.

        Admitting a will to probate is usually a routine matter.  Once the will is located, it is presented, with any necessary documentation, to the probate court in the county where the decedent legally lived.  If there is no will, notice must be given to all interested persons (relatives, heirs, creditors) of the decedent’s death.  This permits anyone who might have a claim against the estate the opportunity to object to probate.

        Those named in a will are given notice that the will has been filed in probate.  If probate is not contested, the court grants letters testamentary, and the process of estate settlement can begin.  If the will is contested, the burden of proving that the testator (decedent) was incompetent or under undue influence when the will was signed is the responsibility of those contesting it.

 

SETTLING AND DISTRIBUTING YOUR ESTATE:

        After the executor or administrator has been appointed, he or she will:

  •          Arrange for immediate needs of survivors;

  •         Assemble, inventory and, where necessary, appraise the property belonging to the estate;

  •          Safeguard estate property during estate settlement;

  •          Manage both personal and business interests during estate settlement;

  •          Pay estate debts, taxes and funeral and burial expenses;

  •          Account to the probate court for the administration of the estate;

  •          Distribute the proceeds of net estate to the rightful heirs and beneficiaries;

  •          Close the estate by preparing and filing with the probate court a final account of its settlement.

        The executor or administrator is entitled to receive reasonable compensation for settling the estate.  Fees vary from state to state.
        When preparing your will, it is important to consider all of the duties that will be carried out by the executor.   Knowing these responsibilities can help you make the best choice for the estate and your heirs.

        The laws and procedures governing estate administration require understanding the legal requirements for settling an estate.  It is important to work with an attorney versed in this area to avoid costly and time-consuming complications.

        The information presented in this article is not intended as legal advice and is for educational purposes only.

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If you have any questions, you can e-mail them to the Estate Planning Council of Hampden County at admin@estateplan-hc.org.


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