What to do when the family has not talked about the future of the family business? Many closely held family businesses have begun to use mediators when planning how the business will be passed down to future generations. This is a process that can help to resolve issues that arise when passing on a business. The process is often handled in the following manner:
1) The mediator meets with the owner/operator of the business individually to determine what that person would like to see become of the company and to determine who are the potential heirs or successors;
2) The mediator or members of the team then meet individually with the potential heirs or successors to determine what interest these individuals have in the business; and
3) Lastly, there would be a meeting or a group of meetings at which the group would make decisions regarding the future of the business.
Through this process it often becomes evident that certain family members either are very interested in being involved in the business and want to take over or that they have no interest at all and have been working in the business out of a sense of duty. This will greatly assist the head of the family/business to make decisions and plan with his or her estate planning attorney, how to resolve competing interests through business succession planning and estate planning.
If you determine that this is the manner in which you would like to proceed, it is important that you contact a mediator with in depth knowledge of estate planning.
The tax legislation enacted in late 2010 has five significant components:
1) The federal estate tax exemption for individuals dying in 2011 and 2012, is $5 million with a federal estate tax rate of 35%. Beneficiaries who receive assets from individuals dying in 2011 and 2012 will receive a ‘step up” in bases to the fair market value of the asset at the date of death of the decease;
2) The legislation allows any exemption that remains unused at the death of the second spouse who dies in 2011 or 2012 to be used by the surviving spouse in addition to his or her own $5 million exemption. This is referred to as portability;
3) The federal gift tax exemption for taxable lifetime transfers in 2011 and 2012 is $5 million with a federal gift tax rate of 35%;
4) The generation skipping transfer (“GST”) tax exemption for transfers in 2011 and 2012 is $5 million with a GST tax rate of 35%; and
5) The estates of individuals dying in 2010 are presumed to have $5 million in federal exemption, an estate tax rate of 35% and a full step up in basis, however, executors have the option of electing to have no estate tax but having only a limited step up in basis.
But everyone needs to remember that Massachusetts has “decoupled” from the federal estate tax structure and any estate valued over $1 million dollars is taxable thus requiring state if not federal tax planning to be undertaken by estate planning attorneys in Massachusetts.
The question is often asked, why do I need a standby guardianship for my minor children? The children have two healthy parents and four healthy grandparents. If anything happens to me, my spouse will take care of the children and if anything happens to both my wife and me, their grandparents will step in and care for the children. Also, we have named a guardian for the children in our wills.
But what if you and your wife are injured in an accident and hospitalized or if one of you is away and the other is hospitalized? Who will have the legal authority to take care of the children, enroll them in school or make medical decisions? This is the reason for a standby guardianship. The document will tell the court that you have thought about who should be responsible for caring for your children if you are incapacitated and unable to care for the children for a period of time. The guardian will need to file the document with the court but this will keep your children from potentially having to spend even one night in foster care because no one has authority to care for them. The document is limited to the time you are incapacitated and does not mean that you are giving up any of your parental rights. You also have the ability to revoke it at any time.
Every parent, for their own peace of mind, should have a standby guardianship in place ready to be used if the situation occurs where neither parent is available to care for the minor children.
For most people creating a will doesn’t need to be a complicated process. Here are a few basics steps that must be taken when you’re creating a will with your estate planning lawyer. The first thing to think about is in relation to possessions. People typically remember to include large possessions like homes and bank accounts during estate planning, but often forget about smaller possessions like meaningful jewelry or artwork that should be named during the process.
Another thing to think about when creating a will, if you have children who are under the age of 18, is who will be their guardian. If a will doesn’t have a named guardian and something happens, a Massachusetts court will name whoever steps forward or whatever person or organization it deems best.
The third thing to think about is naming an executor of the will. The naming of an executor is imperative because this is the person who will close up everything after death and carry out the intentions of your will. This person should be not be an elderly sibling if avoidable.
Another thing to consider is if one of your beneficiaries has died or if you divorced or remarried, you may wish to update your existing will. It may also be important to create a living will if you wish to accept or refuse certain end of life care.
The full article is featured here.
In most instances, life insurance proceeds are income tax free to the beneficiary but are taxable to your estate if you owned the policy on your life or retained any “incidents of ownership” such as the right to change the beneficiaries or borrow against the policy. If this is the case, the life insurance proceeds will be included in your taxable estate. In Massachusetts, if your estate is over $1,000,000.00 you will pay a Massachusetts estate tax even if there is no federal estate tax due.
There is a way to avoid estate taxes, both state and federal, on life insurance and that is to have an irrevocable life insurance trust or ILIT own and hold the policy or policies. You would make periodic gifts to the trust to cover the cost of the premiums. If this is a whole life policy, it is possible that at some point the cash value could be used to pay the premiums but that is another topic. At the time of your death, the insurance proceeds will be paid to the trust and distributed in accordance with the trust terms. Your contributions to the trust (premiums) are subject to gift tax but may be structured so as to fall within the annual gift tax exclusion or lifetime exemption.
It is best to establish the trust and have the trust purchase the policy, but, if you have a policy that you would like to transfer to an ILIT, this can be done with the caveat that if you die within three years of transferring the policy to the ILIT, the proceeds will be “pulled” back into your estate with certain exceptions. It is best to speak with an estate planning attorney who will work with the life insurance company to insure that your policies are held in a manner that is beneficial to you and your beneficiaries.
Estate planning is one of the things that everyone knows they should do, but many people continue to put off until it is too late. Without a will, you forfeit the right to specify how your assets are passed down. In such cases, the state decides how your property will be distributed.
Many individuals think that because they are married and own their property jointly, they don’t need a will. If you and your spouse, however, die in an accident or at the same time, it will remain unclear who will receive your assets and property, and if you have children, who will become their guardian.
Some companies advertise a DIY will, but if you create a will on your own that has even minor errors, it can be disallowed. The creation of a basic will is not expensive, and most Massachusetts estate planning attorneys will not charge for a consultation. A will needs to be precise and executed in accordance with the laws of your jurisdiction. An estate planning attorney can help make sure that the will accurately and effectively passes your assets down to the beneficiaries of your choice.
The full article is featured here.
When the deadline to file Massachusetts state taxes and federal taxes begins to loom, many people overlook many deductions that could earn them a higher refund. The most overlooked deductions, according to the Boston Globe article, are child care expenses. In order to qualify both spouses have to work; if they do, they can claim the costs of before- and after-school programs. Overnight or sleepover camps, however, won’t apply. The second most overlooked deduction is care for an elder parent, which can be claimed if the parent qualifies as a dependent. To find out if you’re eligible for a deduction for a child or parent, it is advisable that you contact a massachusetts estate planning lawyer. Additionally, certain medical and dental care expenses may also be deducted if they exceed 7.5 percent of your adjusted gross income.
Another commonly overlooked deduction is the entire amount of your motor vehicle excise taxes, which can be claimed if you itemize your taxes on your federal return. Some interest is even deductible including mortgage interest and investment interest expenses limited to the amount of your investment income. Losses such as casualty and theft losses can also be deducted when they result from such things as insolvency of the bank, fire, and storm damage.
Some of the other commonly overlooked deductions that people miss when they are rushing to finish their taxes are rent paid up to 50%, IRA contributions, energy efficient home improvements, contributions to Health Savings Accounts, alimony, moving expenses, self employed deductions, charitable contributions, and teachers’ classroom expenses.
What is “decoupling” in the estate tax sense? At one time Massachusetts and the federal estate tax ran in tandem, but no more. Beginning on January 1, 2003, at time when the federal estate tax exemption increased, Massachusetts decided that it did not wish to lose revenue so they set their own exemption amount As of January 2011, a Massachusetts resident or one with property valued over $1,000,000, less certain expenses, will pay a Massachusetts estate taxes, whereas there is no federal estate tax until the value of the estate is more than $5,000,000 less expenses. As a result, Massachusetts residents or non residents who own property in the Commonwealth may owe a Massachusetts estate tax even though there is no federal estate tax liability.
Estate planners must be aware of the “decoupling” and draft trusts that will protect as much of the estate as possible or in the event that there will be an estate tax that it is minimized and not due until the death of the second spouse to die. Gifting is an option that should be considered when estate planners and their clients are looking to minimize the Massachusetts estate tax consequences. The redistribution of assets amongst spouses must also be closely scrutinized to ensure estate taxes payable to the Commonwealth are kept to a minimum and paid upon the death of the second spouse to die. Proper advice from a qualified estate planning attorney is essential under these rules to avoid Massachusetts residents paying extra estate taxes.
The number of Americans over 65 who are divorced has radically increased in the last 15 years and elder law attorneys believe that asset preservation is the main cause. There is another way to preserve assets, however, and that’s to carry out proper estate planning. An experienced estate planning attorney can help couples properly plan for the costs and decisions involved in a long term care situation and can reduce the need for divorce.
Please check out our Fields and Dennis Blog to read more about elder divorce and estate planning.
Now that we’ve established the basics of special needs trusts, let’s talk about creating one. Creating a special needs trust (SNT), to ensure a disabled or mentally ill person’s assets are protected, can become complicated. Law states the trust cannot be retracted once it is set in place, so it is important to discuss your SNT with an estate planning attorney who can help write it. Either the recipient or a third party can establish a trust. This person is known as the settlor, they are responsible for signing the trust as well as providing the funds for it. The settlor is also responsible for deciding how the trust will be dispersed. There are several options, usually in a special needs trust; it is at the beneficiary’s discretion, as long as it doesn’t interfere with government qualifications for Medicaid.
When to make a special needs trust and for whom also poses several difficulties. One problem arises if a family does not feel it will need the assistance of Medicare, and therefore will just set up a regular trust fund for the beneficiary. However, assets placed into a special needs trust are “non-countable,” meaning if any litigation or creditors should sue the disabled person, the special needs trust could not be drained of its value. Another problem is bestowing the money to family members on behalf of the disabled person. The major problem with this is that the money is not legally protected for the benefit of the intended person. For example the money may be lost in divorce, bankruptcy, taxes, or inheritance if the recipient passes away before the disabled person does.
The easiest way to start is with a letter of intent. The letter will outline what the trustee is leaving to the beneficiary at the time of the trustee’s death. It should outline financial details as well as personal information such as medical history and social habits. Also it should list anything the trust should not be used for. Early planning of a special needs trust will ensure it is done right.
