Estate Planning Bits

Estate planning checklist: Trust-based planning and beneficiaries (Part 2)

Trust-based planning:

Depending upon your assets, intended beneficiaries, or your own situation, a trust might be a better option to accomplish your preferred distribution scheme than a will. A trust is a document with three major players: the person who creates it (you), the trustee (who could be you and/or others) and the beneficiaries (who could be you and/or others). It provides an instruction manual as to how you want your assets (and debt) addressed. It is especially useful if there are minor beneficiaries and you want to know that instructions are followed long-term, or where another needs some long-term financial assistance or management (such as a special or supplementary needs trust.)

 

Beneficiary Designations:

Confirm that beneficiary designations on your various accounts remain current and in line with your overall estate plan. Types of assets that frequently carry opportunities for beneficiary designations include: insurance, annuity, and retirement accounts, and/or some brokerage accounts (accounts that hold securities and other investments). The benefits to such designations are to completely avoid probate, and there may be some income tax advantages to naming a beneficiary directly, rather than your estate or trust. Keep in mind that the individuals or entities named on the beneficiary designation are the recipients where the assets will be paid. If your estate plan is premised on having assets go through your probate estate, and therefore directed to be distributed through your will, but the beneficiary designation is not changed to be consistent with that approach, your plan will be defeated. 

If you are divorced and intend for your ex-spouse to receive assets via a beneficiary designation that has not been changed since the divorce, revisit the designation. Under the MUPC, divorce effectively revokes certain beneficiary designations to a prior spouse. You may need to take affirmative steps to insure that the designation will be upheld by renewing it post-divorce.

 

Lisa L. Halbert, Esq. 

Image credit: Lars Plougmann

 

Estate planning checklist: assets and your will (Part 1)

Estate planning is not a static project to be finalized and then put on a shelf, never to be reviewed again. In truth, it is a never-ending process; one which requires periodic review in order to remain pertinent. At least every 5 years and upon major life events, pull out the documents and make sure they continue to be relevant. Further, periodic statutory changes dictate that your intentions will be best attained if documents are reviewed.

Over the next several weeks, we will explore some of the areas that might need your attention...

 

Part 1

 

Prepare a List of Assets:

At the core of any good estate plan is a list of all of your assets, with estimated values. Generally this will include bank accounts, securities, real estate, retirement funds, insurances (life or disability), annuities, business valuations, and tangible personal property, just to name a few. Identify whether each asset is owned in your name alone (and with or without a beneficiary designation); jointly with another; or whether it carries a beneficiary designation or is held in trust. This information informs an estate planning attorney as a beginning point. After your estate plan is fully developed, do not be surprised if assets are re-titled or change columns.

Consider having a last will and testament: 

A last will and testament controls only those assets that are held in your name alone, and without a designated beneficiary, at your time of death. These are the only assets that go through the probate process. Your will provides a road map as to who you would like to receive your probate assets. It can also provide for forgiveness of debt or allow someone temporary use of an asset (such as living in a home until X age, or Y event occurs). Generally, a will allows you to control and determine who inherits your estate at your death. 

Under the Massachusetts Uniform Probate Code, (MUPC) which went into effect March 31, 2012, the probate process has now been expedited and no longer requires as much court intervention or oversight, although court supervision is available where appropriate. 

If you pass away without a will, (referred to as dying “intestate”) state law will dictate how your assets get distributed. Historically, if you died intestate, survived by a spouse and children, your assets were allocated between them. Under the MUPC, if you die intestate and are survived by your spouse and children of both you and your spouse, (whether biological or adopted) then your spouse will receive your entire net estate, without any portion specifically allocated to the children of both you and your spouse. 

The MUPC also changes the title of the person appointed to oversee the administration of an estate to a personal representative (PR). Further, the MUPC provides a list of individuals who have priority to serve as your PR. At the top of the list is your spouse, and then a child (over the age of 18), etc.

 

Lisa L. Halbert, Esq.

Image credit: Rowena of the Rants under Creative Commons license

 

Reverse mortgage: Are you up to speed on the advantages and the new regulations for 2014?

A reverse mortgage is similar to a regular mortgage, except that the bank is advancing funds to you either in a lump sum, on an annuity basis, or possibly merely on a credit basis, which means that you can withdraw funds as desired up to the allowed maximum. The loan does not have to be paid back unless your clients dies or lives out of the house for at least six months, possibly in a long term care facility. As long as at least one spouse lives in the home, no payments need to be made, nor does the house have to be sold.

In most cases, your assets and income are not considered for a loan to be approved or denied, as the bank is merely funding it based on the equity in your house. Also, in most cases, the funds received from a reverse mortgage do not adversely affect your eligibility for any governmental benefits, since it is not construed to be income, but rather, merely the withdrawal of equity from their home.

Many of my clients have already transferred their houses to their children and reserved a life estate. In these cases, provided that they (the homeowners) are at least 62 years or older, many banks will consider providing them with a reverse mortgage, but their children will have to sign off on the mortgage also. If this is a concern for your client’s kids, they could deed the house back to you, but this may trigger an additional 5-year waiting period, in the event that you wish to re-transfer the property to your children in order to protect the asset from long term care expenses.

 

Be aware of new regs in 2014

Created by the Consumer Financial Protection Bureau, one of the most important new regulations that go into effect Jan. 1, 2014 prohibit banks from approving mortgages for anyone whose debt-to-income ratio is higher than 43%. This means that borrowers' total debt liability, including housing, should not be more than 43%of their income. A qualified mortgage is one that would be qualified for resale on the secondary mortgage market.

The other new rule requires banks to limit the fees for originating mortgages to no more than 3 percent of the loan amount. (This could discourage many institutions from pursuing loans for lower-priced houses.)

While the Ability-to-Repay rules will now apply to most mortgage loans, they exclude certain types of loans, such as home equity lines of credit, timeshare plans and reverse mortgages.

Until the new rules became effective, almost any homeowners who had equity in a home could qualify for a reverse mortgage. However, starting January 13, 2014, there will be new underwriting standards for new applications to ensure that borrowers have the ability to continue paying taxes and insurance on an ongoing basis. Additionally, homeowners will only be able to draw 60 percent of the available principal limit, unless there are mandatory obligations, such as mortgage payoffs or liens. (A credit card debt is NOT considered a mandatory obligation.)

 

Conclusion

Prior to obtaining a reverse mortgage, the federal government requires that you be counseled as to its pros and cons. This counseling is free, and you may obtain information from the AARP Reverse Mortgage Education Program or by calling 800.209.8085. You may also wish to contact an elder law attorney who is also skilled in advising clients as to the benefits and detriments of obtaining a reverse mortgage.

 

Hyman G. Darling, Esq.

Image credit: Moyan_Brenn under Creative Commons license

Important considerations when choosing agents under a durable power of attorney and health care proxy

Choosing people (agents) to make your medical and financial decisions under a health care proxy and durable power of attorney are important considerations. It is imperative to choose someone you trust and someone who knows you well enough to be able to “stand in your shoes” and make decisions that you would make. Remember, your agent should be making decisions based upon how you would act, not how they would act personally.

When contemplating agents, a potential pitfall is to name two or three people to act together. The potential for disagreement is a significant consideration when more than one agent is appointed. In the event that you nominate more than one person to serve at a time, you will want to provide language that will expedite resolutions among quarrelling agents. It is also important to note that you do not need to nominate the same agent under your health care proxy and durable power of attorney. If you trust multiple people, you will want to nominate one or two successor agents for each document in case your first choice is unable or unwilling to act.

In an effort to make your agents feel more comfortable and to ensure that your wishes are followed, you will want to provide them with some written guidelines, particularly about potentially difficult decisions such as life-sustaining treatments, organ donation and disposition of your remains.

Todd C. Ratner, Esq.

Image credit: Michael 1952 under Creative Commons license