Search Results for: personal asset trust

Estate Planning vs. Legacy Planning: Understanding the Difference

Estate planning includes a wide variety of potential activities. Not all of those activities are right for everyone who engages in estate planning. For example, someone with relatively few assets may want to find out more about trusts in order to avoid a court process called probate (which is required for a Will), and those with estates with large values may want to know about avoiding estate taxes. However, almost anyone can benefit from basic estate planning that uses powers of attorney, wills, healthcare directives and revocable trusts.

One decision you might want to make as you approach estate planning is whether you simply want to protect your assets and your interests or prepare to leave a legacy for others. You don’t need millions in the bank to consider your legacy; for example, real estate, like raw land or even a cottage on Cape Cod that is used by the family, can be a part of your legacy.

Understanding the difference between estate planning and legacy planning — and speaking to an attorney experienced in these matters — can help you make those choices.

What Is Estate Planning?

Estate planning in general refers to the process of protecting your assets and personal interests legally during your life and after you pass away.

Some common activities in estate planning include:

• Understanding what you have. Many people start with an inventory of assets. This provides a comprehensive list of what you have now — and potentially an understanding of how you might grow that wealth in the future.
• Deciding what you want to do with your assets now and in the future. Once you know what assets you have, you can work with an experienced estate planning attorney to determine how best to protect those assets and how to ensure your wishes for them are carried out even if you’re incapacitated or pass away.
• Setting legal structures in place to safeguard your assets and wishes. Estate planning often includes the use of trusts, wills, and other legal documents to ensure your wishes are carried out and that your assets are protected – from creditors, lawsuits, divorcing spouses or taxes.
• Making and implementing plans for the future. If asked, most people want to remain at home should some form of long term care be required. Some estate planning attorneys help with issues such as elder law, which can involve considerations such as long-term care like in-home care.

What Is Legacy Planning?

Legacy planning is a specific part of estate planning that considers what happens with your assets when you pass away. When you engage in legacy planning, you may take a more comprehensive approach to this than you would with general estate planning.

For example, with general estate planning, you may create a revocable trust that makes it easy for people to identify what assets you have and what you want done with them when you pass away and to help keep those assets out of probate.

However, with legacy planning, you consider in a holistic manner the legacy you want to leave behind along with your assets. With legacy planning you goal is to structure your affairs so that your values are transferred together with your assets.  The aim is for your estate to achieve goals and objectives that are important to you long after you have passed away.

Some common goals of legacy planning can include, but certainly aren’t limited to:

• Emphasizing the importance of certain family values, like education, home ownership, marriage, entrepreneurial endevors and business ownership.  These goals may be encouraged through the use of a Family Bank. A Family Bank (often in the form of a trust or a business entity) may be created to provide grants or loans to family members at favorable terms to encourage the continuation of valued activities (ie. education, home ownership, etc.). 
• Creating charitable foundations or trusts. You can set up a variety of legal structures that allow philanthropic efforts you care about now to continue even after you’re gone — and in your own name or the name of your family. You may even structure these entities in a way that encourages family involvement. 
• Safeguarding assets against taxes. 
  • Individuals with larger estates may have the opportunity to leave larger legacies. However, they also may have to consider the impact of estate taxes on what they leave to heirs. Proper legacy planning can help to reduce the impact of estate taxes – often over multiple generations.
  • Almost every family is impacted by income taxes. Proper legacy planning will structure the legacy you leave so that income taxes are minimized. This is done by through basis step-up techniques, like powers of appointment, and qualifying an inheritance for lower ordinary income tax rates through proper design of the legal structures best suited for your situation.
• Protecting assets against confiscation. Approximately, fifty perscent of all marriages in the United States end in divorce.  A proper legacy plan will protect your loved so that any inheritance you leave will not be subject to claims in a divorce.  In other cases, an heir may have a hig risk of being sued, so structuring the legacy to protect against lawsuits may be critical.  Finally, you may want to leave assets for loved ones, but you don’t trust their ability to manage the assets correctly. Creating trusts can help you protect assets against  mismanagement.
• Setting guidelines for how assets can be used. You may have a specific purpose in mind for how heirs should use assets. Legacy planning helps you put legal provisions in place to ensure those guidelines are followed.
• Supporting the growth of wealth now and in the future. By safeguarding your assets legally, you can protect them now and help increase the chance that wealth grows in the future.

What Are Some Possible Tools Used in Legacy Planning?

Many legal tools exist to help you protect your assets now, better build wealth for the future, and ensure your wishes are carried out regarding the use of your assets. The best way to understand what legal options might be right for your legacy planning is to talk to an experienced estate attorney.

However, here are a few options that might come up, depending on your situation:

• Trusts. You can use trusts to protect your assets now and once you pass away. They can help streamline the process of passing assets on to others, keep assets out of probate, and ensure your guidelines for asset use are followed.
• Family Limited Partnerships (FLPs). In some cases, it may make more sense for family members to own and manage assets, like an investment portfolio, together. In this case, an FLP might be a good decision for legacy planning. FLPs are also a great tool for sharing ownership of a startup company with children at an early stage, before growth or a buyout occurs. FLPs can provide strong protection from the divorce of or creditor claims against an owner.
• Limited Liabiltiy Companies (LLCs) and Corporations. Many times clients want their children, and eventually their grandchildren, to own real estate together. For example, many clients want their children to continue to use their Cape Cod home for family use and enjoyment. But what you are really doing is placing your children into a business relationship with each other.  Effectively, they are managing your home for the needs of multiple families. This requires capital contributions from each heir to pay property taxes, insurances and maintenance and repairs. This can best be structured through a business entity, like an LLC or Corporation, that sets out what the rules are for each co-owner.  
• Annual gift tax exclusions. You may be able to start creating a legacy by gifting assets to your loved ones before you pass away. Understanding the tax implications of doing so is important.  In order to build a legacy out of annual exclusion gifts, it is often best to use an Gifting Trust that allows for pooling of the annual gift and can be managed in a more controlled manor.

To find out more about legacy planning and what options you have, reach out to the Law Offices of Boyd & Boyd, P.C., today by calling 508-444-9688.

If you reside in a state other than Massachusetts but own real estate or tangible personal property in the Commonwealth, your property here will probably be subject to the Massachusetts estate tax – unless you have sound planning advice and guidance from a Cape Cod estate planning lawyer.

A change of residency can often help you reduce the income tax liability you face as a Massachusetts resident. However, just because you are no longer a resident subject to the state income tax, non-residency does not necessarily mean you are no longer subject to the Massachusetts estate tax.

How does the estate tax in Massachusetts work if you are not a resident but you own real estate or tangible personal property in this state? Is there a way to avoid the estate tax? If you own property in Massachusetts but are not a resident, keep reading to learn the answers to these questions.

How Does the Massachusetts State Estate Tax Work?

The current Massachusetts estate tax exemption is $1 million. For an estate valued at less than $1 million upon the owner’s death, there is no estate tax. For an estate that is valued at or above $1 million, the tax must be paid before any assets may be transferred to the beneficiaries. As with any inheritance, debts and taxes must be paid before an heir may inherit.

However, the state’s estate tax applies to the full value of the estate, not merely to the part of the estate that exceeds the exemption amount. If an estate is worth $3 million, the entire estate – not just the $2 million above the exemption amount – is subject to the estate tax in Massachusetts.

If the value of your estate hovers around the $1 million figure, the wrong estate planning strategy could impose a crushing tax burden on your beneficiaries, but an astute Massachusetts estate planning lawyer can suggest several ways to keep the value of your estate below $1 million.

If your estate is subject to the estate tax in Massachusetts, how much will have to be paid to the state? It’s a complicated question, and the answer to that question is, “It depends.” However, as of 2022, the Massachusetts estate tax rate is a graduated rate that begins at 8% and works up to the highest rate of 16 percent.

How Does the Estate Tax in Massachusetts Apply to Non-Residents?

By statute (MGL ch 65C sec. 4), Massachusetts has the right to tax a resident of another state if they own real estate or tangible personal property located within the Commonwealth of Massachusetts.

Section 4. (a) A tax is hereby imposed on the transfer of a nonresident decedent’s real and tangible personal property having an actual situs in Massachusetts, if such property would have been included in the Massachusetts gross estate had the decedent been a resident.
(b) The tax imposed under subsection (a) shall be an amount which bears the same ratio to the tax that would be due if the decedent had been a resident as (i) the value of all real and tangible personal property, diminished by any mortgage or lien thereon, having an actual situs in Massachusetts, the transfer of which is subject to tax under said subsection (a) bears to (ii) the value of the decedent’s Massachusetts gross estate, diminished by any mortgage or lien or property included therein, determined as if he had been a resident.

Here’s how the Massachusetts estate tax applies to non-residents. Let’s say that you’re a resident of Florida, single, and you own a home in Dennis. Then, let’s say that your estate is valued at $3 million, and your Osterville home represents one-third of your estate because it’s worth $1 million.

If you were a resident of Massachusetts and if your entire estate were located here, your estate tax would amount to $182,000, but as a resident of Florida, your home in Massachusetts constitutes only one-third of your total estate.

You would thus pay one-third of the estate tax that a resident of Massachusetts would pay, or $60,667. If you would prefer not to pay over $60,000 to a state where you’re not a resident, a Cape Cod estate planning attorney can help you plan to avoid the estate tax in Massachusetts.

A Revocable Trust Will Not Protect Your Estate from the Massachusetts Estate Tax

Many of the people who own real estate or tangible personal property in Massachusetts have set up revocable living trusts. Transferring your Massachusetts assets into a revocable trust will avoid probate in Massachusetts, but it may not give those properties protection from the Massachusetts estate tax. Incidentally, the same is true for irrevocable Medicaid Planning Trusts (MPTs).

It’s true that a revocable living trust provides a number of advantages and lets your estate avoid the probate process, but any Massachusetts property that is owned by your revocable trust (and most MPTs) is still considered part of your taxable estate and remains subject to the estate tax in Massachusetts.

How Can Non-Residents Avoid the Massachusetts Estate Tax?

It is often best to keep things simple. For married couples, there is a very easy option. No sophisticated estate planning is needed. A properly drafted joint revocable trust may be used to eliminate the Massachusetts estate tax.

If you are using revocable trusts to avoid probate, your trust may be amended. Most married couples use separate trusts – one trust for one spouse and a second trust for the other. By amending and merging those separate trusts into one joint trust, it is possible to eliminate any Massachusetts estate tax liability. A Cape Cod estate planning lawyer can help you and your spouse establish a joint trust or help you merge your individual trusts into a joint trust.

With a joint trust, at the death of the first spouse, the Massachusetts real estate may be allocated to an irrevocable portion of the trust (sometimes referred to as a credit shelter trust), as long as the net value of the real estate is less than $1 million. Because the irrevocable trust is built in a way that the surviving spouse can use the real estate but not “own” it under the tax code, the Massachusetts real estate will not be a part of the survivor’s estate at death. This effectively allows a widowed spouse to avoid the Massachusetts estate tax on Massachusetts real estate when the second spouse dies.

What if you are not married? Or what if my Massachusetts real estate is worth more than $1 million?

However, an out-of-state resident who owns property in this state may have several other practical alternatives for avoiding or reducing the Massachusetts estate tax. A Cape Cod estate planning attorney can help you determine which technique makes the most sense for you and your family.

Out-of-state residents who own investment real estate in this state may consider setting up a limited liability company, which is one strategy for avoiding the Massachusetts estate tax. When you transfer your real estate in Massachusetts into your LLC, the LLC becomes its legal owner. By statute, Massachusetts levies a tax on real or tangible personal property “owned” by a decedent and located in the Commonwealth.

Massachusetts does not subject the intangible personal property of a non-resident, including limited liability company membership shares, to its estate tax, so any of your properties that legally belong to your limited liability company would no longer be considered a part of your taxable estate.

But be warned: just creating an LLC and transferring your real estate to an LLC is not enough. Your LLC must have a legitimate business purpose, that includes generating some form of revenue. So your LLC will need to charge fair market rent on the real estate it owns to be legitimate. The trick is how to structure the rent so that it does not create taxable income in Massachusetts. There are many other considerations that your Massachusetts estate planning attorney can help with.

What Are Your Other Alternatives?

If you are an out-of-state resident who owns a home or other real estate in Massachusetts, another strategy for avoiding the Massachusetts estate tax is the creation of one of several types of irrevocable trusts.

Some examples of irrevocable trusts include:

(1) the sale of the Massachusetts real estate to a deceased spouse’s credit shelter trust (this preserves ones federal estate tax exemption but that this may have a capital gains tax consequence),

(2) the sale of the real estate to a Massachusetts Estate Tax Avoidance Trusts (this technique preserves your federal estate tax exemption and has no capital gains tax exposure), and

(3) transfers to a Qualified Personal Residence Trust (QPRT). A QPRT is a special type of irrevocable trust into which you give your primary or secondary home and reserve the right to use the home for a term or period of years. QPRTs use a portion of your federal estate tax exemption and do not expose you to capital gains taxes (but your heirs will receive your cost basis). QPRTs also have a risk of failure. If you die before the term ends, the real estate will be pulled back into your estate, thereby subjecting your estate to the estate tax you were trying to avoid.

These are just a few examples of the types of irrevocable trusts that may be used to eliminate the Massachusetts estate tax. Which technique will work best for you depends on your particular needs and circumstances.

What Is a Spousal Access Trust?

If you are married, a trust like a Spousal Access Trust allows you to give your Massachusetts real estate and tangible personal property to a trust for your spouse. And you can be sure that your spouse will greatly appreciate the gift!

A spousal access trust is an irrevocable trust prepared by one spouse for the other’s benefit. A spousal access trust is funded by gifts from the donor spouse while both spouses are still alive. It may be written in such a way that if your spouse dies before you, the assets owned by the trust may be transferred to an irrevocable trust for your benefit.

What Option Is Right For You?

Several other types of trusts – and several other estate planning approaches – may allow an out-of-state resident who owns tangible property or real estate in Massachusetts to reduce or avoid this state’s estate tax.

The option that’s best for you can only be determined by consulting a Massachusetts estate planning lawyer. Your estate planning lawyer will evaluate your assets and properties and recommend the best way for you to reduce or avoid having to pay the Massachusetts estate tax.

In November of 2022, the state’s constitution was amended to add a new tax. Article 44 of the Massachusetts Constitution was amended by adding the following paragraph at the end thereof:

To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation, all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes. In addition to the taxes on income otherwise authorized under this Article, there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes. To ensure that this additional tax continues to apply only to the commonwealth’s highest income taxpayers, this $1,000,000 (one million dollars) income level shall be adjusted annually to reflect any increases in the cost of living by the same method used for federal income tax brackets. This paragraph shall apply to all tax years beginning on or after January 1, 2023. (emphasis added)

This constitutional change means that every taxpayer, whether a person, corporation, or trust, will now have to pay an additional 4% on annual income that exceeds $1 million. As a result, Massachusetts ranks among the states with the highest income tax rates.

Millionaire’s Tax Avoidance Planning: Fortunately, for most taxpayers, the Massachusetts millionaire tax is completely avoidable with proper planning. There are several techniques available for individual taxpayers (or for married couples filing a joint return).

• Change of Residency – moving to a state with lower income taxes. For many MA taxpayers, Florida is the preferred choice because there is no income tax, no estate tax and generally a lower cost of living. In order to avoid Massachusetts Income Tax (and the Millionaire’s Tax) you must be out of the Commonwealth for at least 183 days of the tax year. Remember that partial days in Massachusetts count as a full day. In order to change residency, at a minimum you must (1) get a driver’s license in your new state of residence, (2) register your car there and (3) register to vote in the new state.
• Use of Married Filing Separately – some married couples may avoid the tax by changing their filing status. By choosing “Married Filing Separately” married taxpayers may often bring the income below the $1 million threshold.
• NING Trusts – NING stands for Nevada Incomplete Non-Grantor Trust. This is a special type of irrevocable trust into which you may gift an income producing asset using Nevada law. The way the trust is set up the income from the trust owned assets escape MA income tax. The trust is taxed under Nevada law and Nevada has no state income tax on trust income. This is often a trust that is beneficial to someone who will be in the highest US tax bracket (37% in 2023 but will revert to 39.6% in 2026).
• Like Kind (1031) exchange – Used for investment real estate a like-kind exchange is essentially a swap of one real estate investment for another. Because of a specific provision in the Internal Revenue Code taxpayers who comply with the requirements of Section 1031 do not have to recognize any capital gain on the transaction.
• Qualified Personal Residence Trusts (QPRTs) – This type of irrevocable trust offers a way to transfer the home of a client at a discounted price. The client reserves the right to live in the property for a term of years. At the end of the term the ownership of the home transfers to an irrevocable asset protection trust usually for the benefit of one or more of the children.
• Domestic Asset Protection Trusts (DAPTs) – DAPTs are recognized in about 17 states in the US. By transferring assets that will create a large income event (like a business that is going to be sold, or a stock portfolio with large unrealized gains) to a DAPT the income caused by the sale of the asset can be moved to a state with a lower income tax, or no income tax at all.
• Entity Wrapping – By placing real estate or a business into an LLC that is organized in a state with lower or no income tax, then placing the first LLC into a second LLC organized in the same state as the first LLC, and then selling the first LLC (not the real estate or the business owned by the first LLC), the asset sold is the LLC organized in a state other than MA and therefore is not subject to the MA income tax. For example, if Mr. & Mrs. Jones owned a $2 million home in Osterville with a cost basis of $500,000, if they sold the real estate they would be subject to the millionaire’s tax. But if they first placed the home into a South Dakota LLC #1, then placed LLC#1 into South Dakota LLC #2 and then sold LLC#1 which owns the real estate, the income for the sale of LLC#1 belongs to LLC #2 and will be taxed in South Dakota, not Massachusetts. LLC#2 may distribute the proceeds in such a way that the income of Mr. & Mrs. Jones spread out over multiple years keeping the Jones’ income below $1 million. Because there are several options for taxation of LLCs, a client considering entity wrapping should consult with an advisor to be sure that the correct tax status for the LLCs is chosen.
• Charitable Remainder Trusts (CRTs): A CRT is a special type of Trust through which capital gains may be spread out over a period of years, thereby lowering the amount of income recognized in any given year. This may be used to eliminate the Massachusetts Millionaire’s Tax AND it can lower the US Capital Gains taxes on assets placed into the trust before a recognition event. Often dubbed a “Capital Gains Avoidance Trust” CRTs do not actually avoid capital gains, but instead they spread the capital gains and the tax thereon over a period of years – sometimes over the lifetime of the beneficiaries of the CRT – that is usually the person or persons setting up the trust. CRTs are often chosen because they can turn an income tax into a tax deduction. That is because CRTs include a charity to inherit whatever is left (if anything) after the death of the beneficiaries.
• Installment Notes: When selling real estate or a business most people will receive the full amount of the purchase at the closing. However, if you wanted to spread the recognition of capital gain out over a period of years you might chose to accept payment through an Installment Note. With a properly drafted Installment Note you pay tax on the income from the sale as you receive installment payments from the buyer. This approach has been used for many years to reduce the federal capital gains tax on the sale of real estate or the sale of a business. This approach has been used for many years to reduce the federal capital gains tax on the sale of real estate or the sale of a business. Additionally, after sale service software in US plays a vital role in maintaining customer satisfaction by streamlining post-purchase support, warranty management, and service requests. By delaying receipt of the proceeds from the sale the seller is also delaying the income tax liability. As long as the annual payments to the seller under the installment note keep the income (including the gain attributed to the payments from the sale) below $1 million no millionaire’s tax will be due. Many people set up the payments so that their income stays below the 20% US capital gains tax rate.

The Massachusetts millionaires tax may be avoided by C-Corporations and irrevocable trusts through many of the same techniques as individual taxpayers. In addition, C-Corps and trusts might employ income splitting techniques. For example, corporations might consider a spin-off of a division to reduce the income of the business to less than $1 million.

Irrevocable Trusts are normally treated as separate taxpayers, requiring a tax identification number (TIN), and special tax returns (US Form 1041 and MA Form 2). But when the terms of a trust require division into sub-trusts, each sub-trust can obtain a new TIN and file a separate income tax return. By creating sub-trusts for (1) individual beneficiaries or (2) marital deduction planning (in Massachusetts, we often use A-B-C planning) or (3) even to divide into shares for purposes of reducing the US Generation Skipping Transfer (GST) Tax, each sub-trust can file a separate income tax return, splitting the trust’s income into smaller pieces. By dividing trust income into small pieces, the Massachusetts Millionaire’s Tax can be avoided at the trust level.

Because capital gain income will unexpectedly push families into the Massachusetts Millionaires Tax, it is critical that trusts be written to take advantage of a “step-up in cost basis” whenever possible – not just when the donors pass away. There are techniques through which a step-up may be obtained when a beneficiary dies. This technique, called the Optimal Basis Increase Trust (OBIT) provisions, may be added to trusts that are multi-generational or dynasty trusts. Visit our OBIT provisions page to learn more.

If you think you may be subject to the Millionaire’s Tax in Massachusetts, it is critical that you meet with a qualified tax advisor, like Boyd & Boyd, P.C., as soon as possible. Which, if any, of the above-mentioned techniques may be right for you can only be determined after your advisor understands your particular needs. The above list is not exhaustive either. There may be other approaches that better fit your needs. The bottom line is that avoiding the Millionaire’s tax requires professional assistance. Seek out help as soon as you realize your income might exceed $1 million.

Look for more information about the Massachusetts Millionaire’s tax coming soon to our website, boydandboydpc.com, our YouTube Channel and our Facebook, Instagram, and LinkedIn pages.

 

What Are Your Estate Planning Goals?

When you prepare an estate plan with the guidance of a Cape Cod estate planning attorney, what are your goals? What is important for your estate plan to address? What documents will you and your estate planning attorney need to prepare?

Your estate plan should address five common goals. If you’ll keep reading this brief discussion of estate planning goals, each of these goals will be discussed:

1. testamentary disposition
2. incapacity care planning
3. probate avoidance
4. asset protection
5. tax avoidance

Goal #1: Testamentary Disposition – Passing Your Wealth to Your Loved Ones

Testamentary disposition is how you pass your wealth – in other words, the disposition of your assets and property – to one or more beneficiaries after your death, as spelled out (usually) by your trust document.

Historically, a last will and testament was commonly used for this purpose, but in recent decades, the use of revocable trusts has grown due to the advantages these trusts offer. The “contract to plan” is a newer estate planning tool that many married couples are now using as a supplement to their trust.

How Does a Contract to Plan Work?

A contract to plan is a legal document – usually prepared for a married couple – in which the spouses in effect say to one another, “I promise to give everything to you, you promise to give everything to me, and we both promise to give everything to our agreed-upon beneficiaries.”

Why is this important? If your spouse remarries after your death, whatever he or she inherited from you could go, upon your spouse’s death, to your spouse’s new spouse and not to your children or other chosen beneficiaries.

What Are Your Other Tools for Testamentary Disposition?

Many people use joint property, where your half of a home or bank account, for example, passes to the co-owner automatically upon your death. For several reasons, you shouldn’t use joint property for testamentary disposition, except perhaps for passing a car or a checking account to your spouse.

Beneficiary designations pass bank accounts, retirement accounts, annuities, and life insurance benefits to your designated beneficiary. A beneficiary designation overrides an estate planning document, like a last will and testament. Unfortunately, use of many beneficiary designations result in the need for conservatorships, unanticipated taxes, or the loss of asset protection. So beneficiary designations should be only a few types of assets and with the advice of an experienced Cape Cod estate planning attorney.

What Do Revocable Trusts Provide?

Revocable trusts are a popular and practical estate planning tool because, along with providing for testamentary disposition, a properly structured revocable trust:

1.  allows you to manage and enjoy your property and assets
2.  can protect your beneficiaries’ inheritance from a divorce
3.  allows your spouse or other beneficiaries to avoid probate
4.  can reduce or eliminate several types of taxes
5.  may be amended or revoked at any time while you are alive

A Cape Cod estate planning lawyer will offer you sound advice regarding your testamentary disposition. Depending on your needs, that lawyer can help you prepare a last will and testament, a contract to plan, and a revocable trust.

Goal #2: How Do You Plan for Incapacity Care?

How will your assets be managed and your medical decisions made if you can’t make those choices yourself? Several legal tools are available for incapacity care planning:

1.  If an adult is incapacitated, a concerned party may submit a Petition for Guardianship to the court, which may name a guardian to make the incapacitated person’s medical decisions. Guardianship requires a costly, time-consuming legal proceeding.
2.  A better option is preparing, in advance, a health care proxy. It’s a legal document that names someone you have chosen to act as your proxy to make medical decisions on your behalf. It may include your instructions regarding medical treatment and end-of-life care.
3.  A MOLST (Massachusetts Order for Life-Sustaining Treatment) may be prepared with your doctor to establish your wishes regarding life-sustaining treatment and end-of-life care. When you both sign it, it becomes a legally binding order in your medical record.

Incapacity Care for Financial Affairs

Who manages your financial affairs if you’re incapacitated? If you don’t plan in advance, a conservator will need to be appointed. The person who will be your conservator will be appointed by a court, and if there’s a dispute among your family and loved ones, that court proceeding could be lengthy, arduous, and expensive. You can and should nominate who you wish to have appointed as your conservator, but it is better to prepare two documents before there is an incapacity – a durable power of attorney and a revocable trust. With these documents, most people will never need the costly process of a conservatorship.

The solution is to prepare, in advance, a durable power of attorney, a legal document that lets you name the person who will make your financial decisions for assets you own in your name alone (like retirement plans) if you cannot make those decisions yourself. Most other assets should be owned by a revocable trust and not be governed by a durable power of attorney.

If you’ve established and funded a revocable trust, your designated successor trustee will manage the assets owned by the trust if you become incapacitated, while the person who holds your durable power of attorney will manage the property and assets that are in your name alone and do not belong to your trust. For most families who use a trust, the appointment of a successor trustee (the person who will manage the trust to take care of you if you are incapacitated), is one of the most important decisions you make when designing your estate plan.

Goal #3: Why is Probate Avoidance an Important Goal?

Probate is a legal process that delays the transfer of your wealth to your beneficiaries and takes a considerable percentage of that wealth. In Massachusetts, probate takes a minimum of one year, and probate typically “costs” about five percent of the probated assets.

Your estate will have to pay attorneys’ fees, accountants’ costs, appraisal fees, filing fees, and other expenses. Moreover, because it’s a legal proceeding, probate is public, and anyone can learn the details of your financial affairs.

Can you avoid the delays, the costs, and the public nature of probate? The key is having as few assets as possible in your name alone. As mentioned previously, joint property should usually be avoided, but assets owned by a trust and assets with beneficiary designations are not probated.

Goal #4: How Can Estate Planning Protect Your Assets?

Speaking frankly, persons with wealth are the “deep pockets” who are the likeliest targets for lawsuits, and even if an attorney successfully defends you against a lawsuit, it’s going to cost you substantial time and resources.

Proper estate planning protects your assets from lawsuits for as long as you are alive, and upon your death, it protects your assets for your beneficiaries. Once again, the key is having as few assets as possible in your name alone.

If your assets are owned, for example, by an irrevocable trust or a limited liability company (LLC), you can still have access to them for your use and enjoyment, but when irrevocable trusts and LLCs are set up correctly, they can provide protection from the claims of creditors, and in some cases, those who would sue may be discouraged from acting against you. Before a lawsuit happens, ask a Cape Cod estate planning attorney to help you determine which asset protection tools you need.

Can You Protect Your Assets for Your Beneficiaries?

Most trusts handle testamentary disposition in a similar way as wills do – by giving an inheritance to the heir. All of your assets—your “deep pockets”—are transferred directly to your beneficiaries. How can you protect your assets for your beneficiaries?

The key concept is to remember to leave things “for” your loved ones and not give an inheritance “to” your loved ones. Trusts can be established to continue after your death. With the right kind of asset protection language added to your trust, you can specify that each heir may act as the trustee of his or her inheritance. Then, once your loved one inherits, they may use your trust to own whatever they wish to invest in. Additionally, if they need money from your trust, it may be distributed out of trust for medical needs, educational needs, or the standard of living needs of your loved ones or their descendants. A Cape Cod estate planning lawyer will know what clauses and provisions you will need to include in the trust document.

Goal #5: Can Planning Reduce Your Estate’s Taxes?

Upon your death, your probate estate becomes a legal taxpayer. Any income, like interest, dividends or capital gains, that your estate generates while the probate process is pending is considered taxable income. Currently, probate estates hit the highest income tax bracket at a very low level of income – several hundreds of thousands of dollars under the personal tax brackets. This results in an inheritance being significantly reduced by high income taxes.

A trust may be written in a way that reduces taxes on the income (interest, dividends and capital gains) earned after your passing. The trick is to make the trust income taxed at the personal income brackets of the beneficiaries. The trust document must be carefully drafted, or the assets owned by the trust will be subject to income taxes for whatever income the trust generates.

The trust document must specify that income created by the trust belongs to the beneficiary and not by the trust. With the correct provisions in the trust document, a beneficiary will pay significantly less income tax than the estate would pay without the right language.

Can Estate Planning Reduce or Avoid Estate Taxes?

The federal estate tax exemption (for 2023) is $12,920,000, but Massachusetts levies a tax on estates worth more than $1 million. If your estate’s value is at or above the $1 million exemption figure, an inadequate estate plan could leave your beneficiaries with an estate tax burden that may be avoidable.

For married couples, a revocable trust can protect your assets from the Massachusetts estate tax. A revocable trust may be created in a way that passes up to $2 million without a Massachusetts estate tax liability.

If you are single with an estate of more than $1 million, or married with an estate of more than $2 million, an estate plan may be designed to reduce or even eliminate the estate tax. A Massachusetts estate planning lawyer will know how to best avoid an estate tax on your estate.

Should You Have Your Estate Plan Reviewed?

A Massachusetts estate planning attorney can help you prepare a comprehensive estate plan that meets all five common goals of estate planning. If you already have an estate plan in place, ask an estate planning attorney to review it to ensure that it still meets your goals and your needs.

What is the right way to leave your individual retirement account (IRA), 401(k), 403(b) or other qualified plan? Many people choose the wrong way. Do not be one of them. Instead, with help from a Cape Cod estate planning attorney, name an IRA Inheritance Trust™ as your IRA’s beneficiary.

If you’ll keep reading, you will learn about the advantages that an IRA Inheritance Trust™ provides.

Neglecting to name the right beneficiary for your individual retirement account can be a quite costly mistake. When you don’t designate a beneficiary, your retirement plan goes directly to your personal (probate) estate at the time of your death, and this can create a sizable tax burden.

You shouldn’t transfer your individual retirement account into a trust while you are still alive, but you can designate an IRA Inheritance Trust™ as the beneficiary of your IRA to provide asset protection for the retirement plan and allow for the longest stretch-out allowed by law.

How Does an IRA Inheritance Trust™ Work?

Trusts are excellent estate planning tools for protecting and preserving personal wealth and passing that wealth to the next generation. Qualified retirement accounts (IRAs, 401(k)s, 403(b), and Roth IRAs) allow you to save for retirement while allowing your savings to grow income tax deferred (or income tax free in a Roth). If you don’t use all of the savings in your qualified retirement plan you may eventually transfer those assets to heirs as beneficiaries.

When you designate a trust as the beneficiary of a qualified retirement account, like an individual retirement account (IRA), the trust inherits that IRA at the time of your death. Then the IRA is maintained as a separate account (an inherited IRA) that is an asset of the trust. This can be done for any qualified retirement plan, like Roth IRAs, 401(k)s and 403(b)s.

The IRA Inheritance Trust™ has been reviewed and accepted by the IRS as complying with all its regulatory requirements, as a tool for protecting inherited qualified retirement account funds. An IRA Inheritance Trust™ protects your beneficiaries from divorces, creditors, lawsuits, and estate taxes at the death of the beneficiaries.

Additionally, an IRA Inheritance Trust™ “stretches out” the required minimum distributions (RMDs) over the maximum term allowed for each separate beneficiary (typically this is ten years, but may be longer).

How Does an IRA Inheritance Trust™ Help You Avoid Risks?

If your beneficiary directly inherits your retirement account, there are potential disadvantages and risks. Instead of leaving your IRA, 401(k), or 403(b) retirement account funds directly to your children, create an IRA Inheritance Trust™ and make that trust the beneficiary.

You will need the guidance and insights of a Massachusetts estate planning attorney who is familiar with inherited IRAs.

What are the risks when beneficiaries directly inherit retirement account funds? Retirement accounts are protected from your creditors, but when the funds transfer to an individual beneficiary, that protection ceases. A direct inheritance from an IRA has no protection from divorces, lawsuits, creditors, or bankruptcy experienced by the beneficiary.

In fact, those threats could erode most if not all of the wealth you’ve labored to earn and leave to your loved ones, but by preparing an IRA Inheritance Trust™ with help from a Massachusetts IRA Inheritance TrustTM attorney, your beneficiaries may access their funds without those risks.

What Other Advantages Does an IRA Inheritance Trust™ Provide?

Because an inherited qualified retirement account that names an IRA Inheritance Trust™ as beneficiary is not considered an asset belonging to your beneficiary, it is protected from divorces, lawsuits, creditors, or a bankruptcy of that beneficiary.

Additionally, by naming a trust that allows for the longest deferral allowed by law, your individual retirement account funds will continue to grow tax-deferred and to compound over time.

Someone who inherits an individual retirement account has a right to larger distributions and may even withdraw the entire balance of the IRA as soon as it is inherited. On the other hand, when an IRA Inheritance Trust™ is the beneficiary, it is designed to encourage, but not force, a beneficiary of the trust to defer distributions.

What Can You Include in Your IRA Inheritance Trust™?

You may include provisions for special needs beneficiaries (for example, for someone receiving needs based government benefits, like SSI or Medicaid). Your Successor Trustee will decide when and how funds in your individual retirement account will be distributed. This lets you protect your beneficiaries and maximize their “stretch-out” benefits.

How Will an Estate Planning Attorney Help?

Anyone with retirement accounts currently worth at or above $150,000 should learn more about an IRA Inheritance Trust™. Especially if you are concerned about what may happen to your wealth after you’re gone, schedule a consultation with a Cape Cod estate planning attorney to learn more about establishing an IRA Inheritance Trust™ – or to begin the process.

Once your IRA Inheritance Trust™ has been prepared, you should review it with your attorney at least every three years. You may also need to update your trust immediately if you divorce, remarry, have a child, sustain a long-term or permanent disability, or suffer a death in the family.

Here’s another reason why your trust needs to be regularly updated. The laws that govern trusts are frequently changed. There were changes in 2019 and more changes are imminent. Changes in the law can affect the provisions of your trust, so those changes cannot be ignored or overlooked.

Have You Prepared Your Estate Plan?

An IRA Inheritance Trust™ is only one part of a comprehensive estate plan. If you do not already have a comprehensive estate plan in place, now is the time to begin the estate planning process. It can’t be done in haste, and you will need an attorney’s guidance and advice.

If you have a family, own a business, own significant assets, or if others count on you, your estate plan assures that your finances and assets will be handled properly after your death.

Without the right estate plan, there is no way to guarantee that your instructions will be followed after your death or that your assets will be distributed according to your wishes. Your estate plan also leaves instructions for your loved ones if you become incapacitated while you are still alive.

When Should You Schedule a Consultation?

After reviewing your assets, properties, liabilities, and your current financial situation, a Cape Cod estate planning lawyer can recommend a specific, comprehensive estate plan that will protect your assets – and more importantly, protect your loved ones – for many years to come.

A good estate planning lawyer will ensure that your estate plan is easy to understand, that nothing has been overlooked, and that you have the time and information you need to consider and review your estate planning options and make informed estate planning decisions.

Whether you need to prepare an IRA Inheritance Trust™, begin the estate planning process, update your estate plan, or if you simply need to learn more, make the call – right away – and schedule a consultation with a Massachusetts estate planning lawyer.

Massachusetts levies an estate tax on estates worth more than $1 million. Who must pay the Massachusetts estate tax? Can that tax be reduced or avoided with proper estate planning and sound advice from a Cape Cod estate planning attorney? Keep reading for the answers.

Here’s how the Massachusetts estate tax works. The estate tax exemption is $1 million. If your estate is under $1 million at the time of your death, no state estate tax is owed. If your estate is over $1 million, an estate tax must be paid before your assets can be distributed to your heirs.

However, the Massachusetts estate tax applies to the entire estate and not just to the amount exceeding the exemption figure. Thus, if your estate is valued at $1.5 million, the tax applies to the entire $1.5 million and not just to the $500,000 over the exemption figure.

Will Your Estate Have to Pay the Massachusetts Estate Tax?

The federal estate tax exemption (for 2022) is $12,060,000, but with a state estate tax exemption of only $1 million, many people who own homes in Massachusetts should consult an estate planning attorney about reducing their estate tax burden or avoiding the state estate tax entirely.

The median price of a single-family home in the Boston area rose to $811,000 in 2021, making the exemption “a middle-class tax burden if you own real estate in the Commonwealth,” Eileen McAnneny of the Massachusetts Taxpayers Foundation told the Boston Globe.

If your estate’s value is close to or over the $1 million exemption figure, an inadequate estate plan could leave your estate with a devastating tax burden. A Cape Cod estate planning lawyer may be able to help you keep your estate’s value below the $1 million exemption figure.

How Is the Massachusetts Estate Tax Paid?

If the estate of a Massachusetts resident is worth over $1 million at the time of that person’s death, or if an out-of-state resident owns real estate or personal property located in the Commonwealth of Massachusetts with a total estate size, regardless of where it is located, of more than $1 million, the executor of the estate must file a Massachusetts estate tax return.

Your taxable estate in Massachusetts includes your real estate holdings, the vehicles you own, business interests, proceeds from any life insurance policies you own, your bank, investment, and retirement accounts, and any property you hold in a revocable living trust.

Typically, if you and your spouse co-own property or assets in Massachusetts, only your share is included in your taxable estate. If you co-own your residence in Massachusetts with your spouse, for instance, only half of the value of the residence is counted as part of your taxable estate. But if you there is a non-spouse co-owner then the entire value of the co-owned asset will be included in the estate of the estate of each co-owner at death.

If you’ve been named as the executor of an estate, you may need professional help to prepare the Massachusetts estate tax return. Don’t hesitate to contact a Massachusetts estate planning lawyer for help with the estate tax return or any other matter regarding the administration of an estate.

Are You an Out-of-State Resident With a Home in Massachusetts?

Unless you take the right steps, if you own any real estate or tangible property in Massachusetts, you may have to pay the state’s estate tax, even if you are an out-of-state resident. However, with the right estate planning, out-of-state residents may be able to avoid the Massachusetts estate tax.

You can avoid the estate tax in Massachusetts if you do not own any tangible property in the state in your own name. However, as mentioned above, transferring a property in Massachusetts into a revocable living trust does not remove that property from your taxable estate.

A living trust offers considerable benefits and allows you to avoid probate, but property that you move into a living trust remains subject to the Massachusetts estate tax. Nevertheless, out-of-state residents may have options for reducing or eliminating their Massachusetts estate taxes.

Consider a Joint Trust for Reducing or Eliminating the State Estate Tax

A joint trust is one option. A couple may choose to establish a joint trust to shield real estate in Massachusetts from the state’s estate tax. By setting up a joint or “A/B/C” trust, a couple can avoid or reduce the Massachusetts estate taxes that would be due upon the second spouse’s death.

Merging your trusts has the added benefit of giving the trustee of your new joint trust additional investment options because your trustee will be managing and investing a larger sum of capital.

Some trusts give a trustee the authority to consolidate or merge the trust, or a trust may spell out a somewhat restrictive provision regarding mergers. In either case, let a Massachusetts estate planning lawyer advise you and handle the merger of your separate trusts into a single joint trust.

What Are the Other Options for Reducing or Eliminating the State Estate Tax?

Establishing an irrevocable trust is a second option. While a revocable trust does not shield your properties in this state from the Massachusetts estate tax, an irrevocable trust does. Prepared properly, an irrevocable trust can provide you and your family with substantial estate tax savings.

A third option for out-of-state residents who seek to avoid the Massachusetts estate tax is starting up a limited liability company (LLC) and transferring ownership of your Massachusetts property to the LLC. Legally, LLC shares are intangible property not subject to the state’s estate tax.

A number of types of trusts – and several other estate planning strategies – may allow out-of-state residents with Massachusetts properties to reduce or avoid entirely the state estate tax. A Cape Cod estate planning attorney can review your options and help you make the best choices.

When Should You Start Planning Your Estate?

The future can’t be predicted, but when it comes to protecting your estate and your loved ones, you need to be prepared for whatever the future may bring. Now is the time to start planning your estate, but good estate planning can’t be done in haste or under pressure.

A Cape Cod estate planning lawyer can prepare a last will and testament, set up a limited liability company, or create the revocable or irrevocable trust that works best for you. Helping you prepare effectively and adequately for the future is your estate planning lawyer’s job and goal.

Your attorney will ensure that your estate planning documents are easy to understand, that nothing has been overlooked, and that your plan is updated as your needs and circumstances – and as the laws governing estates and taxes – change in the future.