Reach us at 857-302-3561.
The Law Office of Dale J. Tamburro
Make Reviewing Your Estate Plan One of Your New Year's Resolutions
The beginning of a new year is a good time to take a look at your estate plan to make sure it is up to date. Less than half of people actually have any estate planning documents in place and many of those people may have outdated documents. Documents that were created when your children were born may need updating 20, 30, or 40 years later, after your family and financial situation have changed entirely.
Estate planning is all about five essential documents. Here they are in order of importance:
1. The Durable Power of Attorney
The most important estate planning instrument for taking care of you and your family during life, as opposed to after death, is the durable power of attorney. This appoints one or more people you trust to step in and handle your finances and legal matters in the event of your incapacity, whether through illness, dementia, or an accident, and whether the incapacity is temporary or permanent. In the absence of a durable power of attorney, family members often must resort to going to court to be appointed conservator. This causes delay and expensive and unnecessary legal fees. It can also cause infighting by family members since you have not chosen who should step in.
While the concept of the durable power of attorney is simple – I appoint you as my agent for financial and legal matters in the event of incapacity – the devil, as always, is in the details. You have to make decisions about how many agents to appoint, whether to have alternates, whether to allow gifting, when the power of attorney should take effect, and whether to grant trust powers. Your attorney can help you with these details.
2. Health Care Proxy
Like the durable power of attorney, a health care agent steps in for you to make health care decisions when and if you become incapacitated. Unlike a durable power of attorney, it only takes effect when a doctor determines that you are unable to make decisions yourself and you can only appoint one individual to serve at a time. This is so that there will be a single point-person in dealing with medical professionals and no possibility of disagreement or stalemate between co-health care agents. You can and should name one or more alternates to the principal agent.
The main problem with health care proxies is that agents often have no idea or only a vague idea of what decision the patient would make in a particular circumstance. This can be addressed in one or more of these ways: a medical directive, a conversation between the potential patient and the agent, and a number of available workbooks (see below). A general medical directive can be included with the health care proxy that says either (1) pull the plug if I’m in a vegetative state or irreversible coma, (2) balance the potential benefit and discomfort of any proposed treatment, or (3) do whatever you can to keep me alive.
Part of the problem with giving guidance to one’s agent is that it’s hard to predict situations that may occur and treatments that may be available. A number of organizations have developed workbooks to provide more detailed guidance than simply “keep me alive at all costs” or “do nothing.” They include: The Consumer’s Toolkit from the American Bar Association and Five Wishes from Aging with Dignity.
3. HIPAA Release
In addition to a health care proxy, everyone needs a HIPAA release. The HIPAA law bars medical practitioners from releasing medical information to anyone, even to the spouse of a patient, without a release. You may well ask why a heath care proxy isn’t sufficient. There are a few answers: First, the health care proxy is “springing” in that it doesn’t get activated until or unless the patient is declared incapacitated. Second, while the health care proxy may only name one person at a time, you may well want a much broader group of people to communicate with medical providers. The agent may not always be available or may not be the first person on the scene.
All too often we have seen medical providers hide behind HIPAA to avoid having to deal with family members, sometimes to great harm to the patient. Especially in emergency situations, family members often have vital information about the patient, whether it’s the medications he is taking, allergies he may have, or his usual physical and mental health. HIPAA does not say that medical personnel cannot listen to this information, but it can be misconstrued in that fashion. It’s best to eliminate the whole issue by having a HIPAA release signed and available in case it’s ever needed.
4. Your Will
Your will says who will get your stuff when you die and who will be in charge of paying your bills, filing your tax returns, gathering your stuff and distributing it according to your instructions.
But here’s the irony: although the will gets all the recognition and there’s a whole set of laws governing the so-called “probate” process, these days most assets pass outside of probate. What the will says does not apply in many situations, including: joint accounts that pass to the other joint owners, retirement plans and life insurance policies that go to designated beneficiaries, and property in trust that passes to the beneficiaries named in the trust document. Only what you own in your own name alone passes under the will. In addition, while the will requires a lot of formality – two witnesses and a notary all signing at the same time – these other forms of passing on property usually require only the signature of the owner, or sometimes simply filling out a form online.
That said, wills are important in terms of distributing your tangible personal property – stuff you can touch, such as furniture, jewelry, tools, clothing, boats, and cars. Your will appoints your executor or personal representative who is in charge of carrying out your wishes. This can be very important in avoiding squabbling among children. And your will can be used to appoint guardians for minor children. A will permits you to make charitable or other specific bequests. Finally your will can serve as a failsafe in case other means of passing on property fail.
5. Revocable Trust
The documents listed above may be enough, but you may also want a revocable trust, sometimes called a "living" trust. A trust is a construct under which one or more people, the trustees, manage property or investments for the benefit of one or more people, the beneficiaries. In a revocable trust, typically at the start the same person acts as the creator of the trust, the grantor or donor, as trustee and as beneficiary. Not much changes in their lives after they set up the trust. But it avoids probate by naming successor beneficiaries after the initial beneficiary passes away. While probate is not the worst thing that can happen to people, avoiding it can save heirs time and trouble.
But more importantly, a trust is a terrific tool for intervening in the event of incapacity. Financial institutions that are resistant to accepting durable powers of attorney appear to be more comfortable with trusts when a successor trustee is named. But it works even better when a parent names one or more adult children as co-trustees. The parent then does not give up any rights or autonomy, but permits the child to begin participating in financial management. Even if the child does nothing, he or she can view accounts and step in immediately if a problem arises. This can be especially important in the event of dementia or scams. Seniors are the primary victims of scams and having a trusted family member with access to accounts can help identify scams and permit intervention to limit their effect.
In addition to probate avoidance and incapacity protection, trusts are infinitely flexible in terms of how they are drafted. They can state any number of specifics on who receives property when, for instance, permitting its distribution over time to children and grandchildren. The options and opportunities for creativity are limitless
As you can see, most of these documents are about life not death. Of course, they’re still about planning for an unwanted event – incapacity of some sort. It’s like insurance to make sure that you and your family are taken care of if an unfortunate accident occurs.
How to Increase the Chance That Your Power of Attorney Will Be Honored
Q. I have heard friends complain that theirA. I h parent’s financial power of attorney was not honored by their bank. Is there a way to avoid this?
DO LIVING TRUSTS NEED TO FILE THEIR OWN TAX RETURNS?
One of the many advantages of a living trust is its simplicity at tax time. Before 1981, a revocable living trust had to file its own tax return (Federal Form 1041) and apply for and use its own Taxpayer Identification Number (TIN). In 1981, however, the Internal Revenue Service issued new regulations that not only permit the creator (grantor) of a revocable living trust to use his or her own Social Security number and file Form 1040 only but also specifically encourage them to do so.
Prior to 1981 any trust was required to apply for and use its own TIN and report income on Form 1041. The IRS wisely figured out that while it was processing tens of thousands of Form 1041's for revocable living trusts, it wasn't bringing in any more revenue to the Treasury. These extra 1041's instead were costing the IRS more money to process so it eliminated the requirement.
In order to avoid the requirement for filing Form 1041 or obtaining a new TIN the trust must be what is called a "Grantor" trust. This means the creator of the trust is also the donor of the funds in trust and the recipient of all income generated by the trust. When you think about it this makes perfect sense. You create a revocable living trust, act as sole trustee, transfer your assets into the trust under your own Social Security number, manage the assets in the trust, and receive all income under the trust. Using Form 1040 is the only reasonable thing to do.
Occasionally you may find that a bank or other financial institution tells you that in order to put an asset owned by you that is held in their institution into your trust you must get a new TIN for the trust. The financial institution may tell you that this is "their policy." Not only is this not required, it is clearly wrong. The IRS requirements for tax returns and TIN's for grantor trusts are found in Internal Revenue Code Regulation sections 1.671-4 and 301.6109-1. If you run into this situation, ask the financial institution to look up these regulations so that you can use your own Social Security number.
(a) Portion of trust treated as owned by the grantor or another person. Except as otherwise provided in paragraph (b) of this section and § 1.671-5, items of income, deduction, and credit attributable to any portion of a trust that, under the provisions of subpart E (section 671 and following), part I, subchapter J, chapter 1 of the Internal Revenue Code, is treated as owned by the grantor or another person, are not reported by the trust on Form 1041, “U.S. Income Tax Return for Estates and Trusts,” but are shown on a separate statement to be attached to that form. Section 1.671-5 provides special reporting rules for widely held fixed investment trusts. Section 301.7701-4(e)(2) of this chapter provides guidance regarding the application of the reporting rules in this paragraph (a) to an environmental remediation trust.
(b) A trust all of which is treated as owned by one or more grantors or other persons
(1) In general. In the case of a trust all of which is treated as owned by one or more grantors or other persons, and which is not described in paragraph (b)(6) or (7) of this section, the trustee may, but is not required to, report by one of the methods described in this paragraph (b) rather than by the method described in paragraph (a) of this section. A trustee may not report, however, pursuant to paragraph (b)(2)(i)(A) of this section unless the grantor or other person treated as the owner of the trust provides to the trustee a complete Form W-9 or acceptable substitute Form W-9 signed under penalties of perjury. See section 3406 and the regulations thereunder for the information to include on, and the manner of executing, the Form W-9, depending upon the type of reportable payments made.
(2) A trust all of which is treated as owned by one grantor or by one other person
(i) In general. In the case of a trust all of which is treated as owned by one grantor or one other person, the trustee reporting under this paragraph (b) must either—
(A) Furnish the name and taxpayer identification number (TIN) of the grantor or other person treated as the owner of the trust, and the address of the trust, to all payors during the taxable year, and comply with the additional requirements described in paragraph (b)(2)(ii) of this section; or
(B) Furnish the name, TIN, and address of the trust to all payors during the taxable year, and comply with the additional requirements described in paragraph (b)(2)(iii) of this section.
2) A trust that is treated as owned by one or more persons pursuant to sections 671 through 678
(i) Obtaining a taxpayer identification number
(A) General rule. Unless the exception in paragraph (a)(2)(i)(B) of this section applies, a trust that is treated as owned by one or more persons under sections 671 through 678 must obtain a taxpayer identification number as provided in paragraph (d)(2) of this section.
(B) Exception for a trust all of which is treated as owned by one grantor or one other person and that reports under § 1.671-4(b)(2)(i)(A) of this chapter. A trust that is treated as owned by one grantor or one other person under sections 671 through 678 need not obtain a taxpayer identification number, provided the trust reports pursuant to § 1.671-4(b)(2)(i)(A) of this chapter. The trustee must obtain a taxpayer identification number as provided in paragraph (d)(2) of this section for the first taxable year that the trust is no longer owned by one grantor or one other person or for the first taxable year that the trust does not report pursuant to § 1.671-4(b)(2)(i)(A) of this chapter.
(ii) Obligations of persons who make payments to certain trusts. Any payor that is required to file an information return with respect to payments of income or proceeds to a trust must show the name and taxpayer identification number that the trustee has furnished to the payor on the return. Regardless of whether the trustee furnishes to the payor the name and taxpayer identification number of the grantor or other person treated as an owner of the trust, or the name and taxpayer identification number of the trust, the payor must furnish a statement to recipients to the trustee of the trust, rather than to the grantor or other person treated as the owner of the trust. Under these circumstances, the payor satisfies the obligation to show the name and taxpayer identification number of the payee on the information return and to furnish a statement to recipients to the person whose taxpayer identification number is required to be shown on the form.
Essential Questions You Have to Ask Your Aging Parents
Think the birds and bees is the most awkward chat you'll ever have with Mom and Dad? Think again. Adulthood brings other uncomfortable conversations: wills, long-term care, and end-of-life issues. Here's how to these handle delicate subjects with care.
The Big Question: Do You Have a Will?
A will determines the future of not only money and property but also pets and even token mementos. When someone dies without a will, her estate is divided in probate court, where a judge decides who gets the assets. This can cost thousands of dollars and take months. Even if the deceased told a loved one her wishes before she died, a verbal statement won't hold up in court. The judge will base his ruling on laws and legal precedents of the state."
How to Bring It Up
"I don't want to upset you, but if something happened to you, I would want to know that your wishes were being honored. Do you have a will?"
While You're at It, Ask…
On Their Living Situation…
The Big Question: Have You Thought About Long-Term-Care Insurance?
Most long-term assisted-living or nursing-home expenses are not covered by Medicare.. And long-term care, which includes anything from extended home assistance to a nursing home, is very costly.
How to Bring It Up
"I read about how much assisted living can cost, and I was stunned. I would want you to have the best care if it ever came to that. Have you looked into insurance?"
While You're at It, Ask…
On Their Health…
The Big Question: Do You Have Advance Health-Care Directives?
Advance health-care directives can include a living will (which gives written instructions on the degree of life-sustaining measures that should be taken), a health proxy in Massachusetts by Statute (which appoints another party to make health-related decisions in the event that a person is unable to do so), and a HIPPA release (a document that allows another person access to someone's medical records, which is useful for insurance claims). It's difficult to make decisions in a crisis, and memories about conversations differ.
How to Bring It Up
"If you were ever on life support, I would be really torn up and not in the best frame of mind to make a decision. I know we talked about how you feel, but I think it would give both of us some relief if you put it in writing."
While You're at It, Ask…