If you have an estate plan (which you should), when was the last time you looked at it? Chances are it got stuck on a shelf or in a drawer and forgotten about. However, as we all change over time so do our estate planning needs. Without an occasional update to your estate plan your plan may not be able to act for you how you want it to when you need it. The following matters are worth consideration when determining if your estate plan should be reviewed for potential updates. Please contact the Heritage Law Center to discuss any questions or concerns you may have.
1. Have you updated your estate planning documents to avoid a potential Massachusetts estate tax of $200,000?
Currently, the Massachusetts estate tax exemption amount is $1,000,000, while the federal exemption amount is $5,000,000. As a result, without including tax planning as part of your estate plan a potential Massachusetts estate tax of $200,000 could be payable upon the first spouse’s death. This tax may force an unwanted sale of assets after the first spouse passes away. The $1,000,000 mark is hit a lot faster than most of us realize when you take into account real estate and life insurance (the payout amount counts!). With the right plan, you can avoid this heavy tax burden entirely.
2. Are your estate planning documents designed to protect your children and grandchildren’s inheritance from potential creditors and divorce?
Parents and grandparents may have cause to regret having made outright gifts to their children if a child subsequently divorces and the ex-spouse is awarded an interest in the gifted property by a court, or when the property is taken pursuant to a legal judgment against the child. Also, with no trust mechanism in place, children may inherit large sums of money at early ages, before they are mature enough to handle the responsibility. These problems can be avoided by using trusts which are specifically designed to provide distributions to children or grandchildren on an “as needed” basis and subject to a Trustee’s discretion. These trusts may be structured to give the child significant control over the assets and the right to remove and replace Trustees.
3. Do you own your life insurance policies in a separate life insurance trust that shelters the proceeds from estate tax?
For estate tax purposes, your estate will include proceeds from life insurance policies owned by you, even if your estate is not the designated beneficiary of the death benefit. This may cause the insurance proceeds to be taxed at an estate tax rate of approximately 50 percent. By placing the insurance policy in a properly drafted and maintained insurance trust, your estate can avoid this tax, effectively doubling the value of the insurance.
4. Do you have the power to remove any trustee of your spouse’s trust after his or her death? Do your children have the power remove the trustees after you and your spouse pass away?
Many trusts are structured to appoint an independent trustee to serve. This requires the surviving spouse and/or children to deal with a trustee that may or may not be responsive to their needs. Existing trusts should be reviewed to ensure that a surviving spouse and/or children have the power to remove and replace an independent trustee.
5. Are your parents or grandparents leaving your inheritance to you in trust or outright?
Receiving your inheritance outright may increase the estate tax payable by your family. In addition, the property will be subject to potential loss to creditors and spouses. On the other hand, an inheritance in trust will likely avoid unnecessary estate taxes and take advantage of the asset protection provided by such a trust.
6. Are your real estate holdings held in trust to avoid costly probate expenses?
Titling of primary residences, investment property and vacation homes is an important component of a comprehensive estate plan. Absent proper planning, real estate is subject to probate in the state in which it is located. In addition, if you own real estate outside of your home state, your estate may need to go through expensive, public and time-consuming probate in that state before the real estate may be transferred to the intended beneficiaries. Multiple probate proceedings can be avoided by transferring these assets to a trust during your lifetime.
