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Samuel Sayward & Baler
858 Washington Street, Suite 202
Dedham, MA 02026
Phone: (781) 461-1020
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News from
Samuel, Sayward & Baler LLC |
 | | Attorneys Suzanne Sayward, Maria Baler, and Steven Joshua Samuel |
Message from the Partners
Dear Friends and Clients,
With the holiday season approaching, we hope you are looking forward to some time off with family and friends.
In this issue we lead off with a column by Attorney Sayward that highlights important information about Special Needs Trusts. Individuals with disabilities often require day-to-day care and other services that are very costly. Qualifying for public benefits can be a way to pay for health care and other needs, however eligibility for some benefits is subject to strict income and asset limits. Special Needs Trusts are important tools that allow families to set aside assets for a disabled family member without affecting that person's eligibility for public benefits. Understanding the importance of these trusts can help you better plan for disabled family members to ensure they receive the care and support they need throughout their lives.
Attorney Baler writes about two important tax developments affecting estates and heirs of those who died in 2010 and 2011, one from the Internal Revenue Service and the other from the Massachusetts Department of Revenue. The rulings could affect the capital gain taxes paid by heirs when inherited assets are sold or the estate tax paid by family members when a surviving spouse dies. Although these developments do not affect everyone, if you are impacted it is important that you understand these changes and the effect they may have on your circumstances.
Attorney Steven Joshua Samuel writes about the importance of planning for long-term care and understanding the new insurance choices now available in Massachusetts. Having a well-thought-out plan in place can help ease the emotional and financial stress when a family is faced with providing care for a loved one.
We are also talking about the importance of estate planning, which was officially observed during National Estate Planning Week Oct. 17-23. Estate planning is one of the most overlooked areas of personal financial management. Without proper estate plans, families can be faced with sudden financial burden and unnecessary hardship. If you have not created an estate plan we hope you will make this a priority in the near future.
This issue marks two years of the SSB Newsletter! We are pleased that our readership is growing and encourage you to send us ideas for future articles. As always, please feel free to send us email addresses or forward this newsletter to friends and family members!
Wishing you a safe and enjoyable holiday season!
Steven Joshua Samuel
Suzanne Sayward
Maria Baler |
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Five Facts to Know About Special Needs Trusts
By Attorney Suzanne R. Sayward
Individuals with disabilities may require care that is not covered by health insurance and which can be very costly. In addition, a person with disabilities may not be able to earn a living to pay for such care. There are governmental benefits available to individuals with disabilities that provide support and medical care. Some of these governmental benefits programs are needs-based, meaning that in order to qualify for the benefits, the individual's income and assets must be below the program limit.
For parents who have a child with special needs and for individuals with disabilities, ensuring eligibility for governmental benefits is crucial. A Special Needs Trust, sometimes called a Supplemental Needs Trust, can be an excellent tool for parents of a special needs child and for people with disabilities to protect needs-based governmental benefits. Here are five facts to know about using a Special Needs Trust as part of your estate plan.
1. Supplemental Security Income (SSI) and Medicaid are needs-based governmental benefits. The SSI program makes monthly payments to eligible individuals for the purpose of providing funds for basic necessities such as food, shelter, and utilities. In order to be eligible for SSI, a person's income must be less than the monthly benefit amount. In addition to the income limitation, the SSI program imposes a limit on the amount of assets a beneficiary may have. An eligible recipient may not have more than $2,000 of countable resources. The amount of the monthly benefit will vary depending upon the individual's living arrangements and income. In 2011, the maximum federal SSI benefit for a single person is $674. Many states, including Massachusetts, supplement the federal benefit.
Medicaid is a state and federally funded program that pays for medical care for individuals whose income and assets fall within the program limits. For most types of Medicaid coverage, a person may not have more than $2,000 of countable assets.
2. Receipt of assets by an SSI or Medicaid beneficiary can cause a loss of those benefits. A person who is receiving SSI or Medicaid benefits will lose those benefits if her countable assets increase above $2,000. This makes it especially important for parents who have a child with disabilities to create an estate plan which will not jeopardize their child's access to benefits.
For example, if Mom has a $300,000 estate (home, bank accounts, etc.) and dies without a Will leaving three children, her estate will be divided equally among the children. If one of those children is disabled and receiving SSI, the receipt of $100,000 will cause him to lose his SSI and Medicaid benefits until the funds have been spent. If the child refuses to accept the inheritance, or if he gives the money to his siblings, he will be deemed to have made a disqualifying transfer and will be ineligible for public benefits until the disqualification period expires.
3. A parent can leave assets in trust for the benefit of a child who receives SSI and Medicaid. If you are the parent of a child with disabilities, you do not have to disinherit your child to protect her SSI and Medicaid benefits. You can create a Special Needs Trust to receive that child's share of your estate at your death. The terms of the Trust will direct the Trustee to use the income and assets in the Trust in ways that would supplement the benefits that are provided by the governmental programs. Examples of additional items that could be paid for with Trust monies include haircuts, salon services, massage and other alternate therapies, dental work, transportation expenses, cable television, internet, the expenses of purchasing and owning a pet, movies, concerts, etc.
The small stipend provided by SSI is not sufficient, and is not intended, to pay for expenses beyond the necessities of life. As a parent, you want to enrich your child's life to the greatest extent possible. Funding a Special Needs Trust to support your child with these extras when you are no longer around to do so is an excellent way to ensure your child has the opportunity to live as full and robust a life as possible.
4. A Special Needs Trust funded with assets owned by the person with disabilities is a 'self-settled' Special Needs Trust. A Special Needs Trust created by a parent for the benefit of a child, or created by anyone other than the disabled person, is sometimes called a Third Party Trust. A Trust created by someone who is receiving needs-based governmental benefits is a Self-Settled Trust. A Self-Settled Special Needs Trust is used when a person who is receiving needs-based governmental benefits receives assets that will cause her to lose those benefits. This can occur, for example, if the individual inherits assets directly or is awarded monies in a lawsuit.
For example, say Martin is hit by a car while he is crossing the street in the crosswalk, rendering him totally and permanently disabled and in need of 24-hour care. Martin successfully sues the driver for $1 million. While $1 million is a lot of money, it is not enough to pay for Martin's care costs, which average $120,000 per year. If Martin has to spend his funds on his care, they will be depleted in less than 10 years. Martin can transfer his $1 million to a Self-Settled Special Needs Trust which meets the statutory requirements and thereafter he will be eligible for SSI and Medicaid. These programs will provide Martin with basic medical care and a small monthly stipend to pay for basics. The funds in the Trust will be used to provide Martin with those items not otherwise available to him such as massage therapy, dental work and movie tickets.
5. A self-settled Special Needs Trust must include a pay-back provision; a third party Special Needs Trust need not include a pay-back provision. The major difference between a Third Party Special Needs Trust and a Self-Settled Special Needs Trust is that a Self-Settled Trust must include a pay-back provision. That means upon the death of the Trust beneficiary, the assets remaining in the Trust must first be used to reimburse the state for all benefits paid on behalf of the Medicaid recipient. Only after the state is satisfied in full can the assets remaining in the Trust be distributed to family members.
For people who have a family member receiving needs-based governmental benefits, doing advance planning by creating a Third Party Special Needs Trust means their disabled child or grandchild will be taken care of during the child's lifetime. Advance planning will also ensure that funds remaining after the death of the beneficiary will be paid to family members rather than to the Commonwealth of Massachusetts. |
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Two Important Tax Developments Related to 2010 and 2011 Estates
By Attorney Maria C. Baler
Two recent rulings by the Internal Revenue Service and the Massachusetts Department of Revenue have important implications for estates and heirs of those who died in 2010 and 2011.
Portability of Federal Estate Tax Exemption
The 2010 Tax Relief Act enacted in December 2010 introduced the concept of portability of the federal estate tax exemption amount. The "exemption" is the amount each person is permitted to leave free of federal estate tax at his or her death. The federal estate tax exemption for 2011 is $5 million. Before January 2011, if a person did not fully utilize his federal estate tax exemption amount it was lost at his death. Under the new law, any federal exemption that remains unused upon the death of a married person who dies in 2011 and 2012 is generally available for use by the surviving spouse at his or her death.
In a Notice issued on September 29, 2011, the IRS confirmed that the unused exemption of the first spouse to die is only available to the estate of the second spouse if a federal estate tax return is filed in a timely matter by the estate of the first spouse to die. The estate tax return must be filed, or extended, no later than nine months from the date of the first spouse's death in order to preserve the unused federal estate tax exemption for the surviving spouse.
It is possible these portability provisions will extend beyond 2012, however under current law they are only in effect for deaths in 2011 and 2012. If you are the surviving spouse of someone who dies in 2011 or 2012, it is important to consider carefully whether a federal estate tax return should be filed to preserve your deceased spouse's unused exemption amount for use at your death. If you have questions about this, please call Jen Harlow at 781/461-1020 to schedule a meeting with an attorney to discuss how this may impact you.
Carryover Basis in Massachusetts for Estates of 2010 Decedents
A draft Directive issued by the Massachusetts Department of Revenue (DOR) on October 11, 2011, creates some confusion as to whether the heirs of Massachusetts residents who died in 2010 receive a stepped-up tax basis in inherited assets.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made changes to the tax basis of property acquired from a deceased person. EGTRRA provided that estates of those who died before 2010, or in 2011 or thereafter, and are subject to federal estate tax, inherited property would have a "stepped-up" basis. A "stepped up" basis refers to the tax basis of an asset that is increased, or "stepped up" at the owner's death to an amount equal to the value of the property on the date of the deceased person's death. However, for decedents who died in 2010, there would be no federal estate tax regardless of the value of the estate, and property inherited from a deceased person would have a "carryover" basis. A "carryover basis" means the tax basis of the deceased person in the inherited asset would be "carried over" to the heirs who inherit the property, rather than being "stepped up" to the value of the asset at the date of death.
For example, assume your Uncle Stan purchased 100 shares of stock for $1.00/share, and that stock appreciated to a value of $10/share at the time of his death. If you inherited that stock from Uncle Stan when he died and received a "stepped-up" basis, you would own the stock with a basis of $10/share, and this would be the basis from which any gain or loss on a future sale of the stock would be computed. On the other hand, if you inherited that stock with a "carry over" basis, you would own the stock with Uncle Stan's basis of $1/share, and this lower basis is the value from which your gain or loss would be calculated.
EGTRRA's new "carryover basis" provisions also permitted the executor of the estate to increase the carryover basis of selected assets in a 2010 estate by allocating up to $1,300,000 in basis to assets in the estate, and an additional basis increase of up to $3,000,000 for certain property passing to a spouse.
The Tax Relief Act of 2010, passed in December 2010, retroactively reinstates the federal estate tax for estates of decedents who died in 2010 and reinstitutes "stepped-up" basis for property acquired from decedents who died in 2010. However, the Act allows the executor of the estate of a decedent who died in 2010 to elect out of the federal estate tax and the "stepped-up" basis treatment for 2010 and instead use the "carryover" basis provided for by EGTRRA. This decision will typically be required only by estates valued at more than $5 million.
Because Massachusetts estate tax law is based on the January 1, 2005 Internal Revenue Code, and because the 2005 Code, incorporating the provisions of EGTRRA, required "carryover" basis for property received from a decedent who died in 2010, the DOR in its draft Directive is interpreting Massachusetts law to provide that for estates of those who die in 2010 there is no step-up in basis for inherited assets, and the "carryover" basis rules will apply.
Unlike federal law, "carryover" basis is mandatory in Massachusetts and is not an election made by the executor of a decedent's estate. Like federal law, the carryover basis can be increased by an aggregate amount of up to $1,300,000, applicable to any estate, and an additional basis increase of up to $3,000,000 for qualified spousal property. It is unclear at this point how this allocation of basis will be made for Massachusetts purposes, and whether it can be applied to all types of assets.
Although the DOR's Directive is in draft form and is based on its interpretation of Massachusetts law, it is unlikely to change without action by the legislature. If you are the executor or the heir of an estate of an individual who died in 2010, you should be aware of and follow the resolution of this issue. If you have questions regarding this issue, please call Jen Harlow at 781/461-1020 to schedule a meeting with an attorney to discuss how this may impact you. |
Key Questions and Answers About Long-Term Care and New Insurance Choices
By: Steven Joshua Samuel JD, MBA, AIF®
With the aging of the baby boomer generation, planning for long-term care illness has become of increasing concern. U.S. Department of Health and Human Services statistics show that 70 percent of people over 65 will require some long-term care services, primarily for one to five years of care. In 2010, the national average annual costs of long-term care were $ 40,428 for assisted living, $78,840 for private room nursing home and $1,135 per week for one eight-hour home care aid shift. Furthermore, long-term care costs in Massachusetts are higher than the national averages. Many questions arise when a family member needs long term care. Having a plan already in place may ease the emotional and financial stress on the rest of the family. We have provided answers to the most frequently asked questions when it comes to key planning issues. The good news is there are some new insurance alternatives that give families added flexibility in planning ahead.
What costs are covered by government programs?
Medicare covers medical care costs for illness or injury and provides very little for custodial care. Medicaid, the joint federal and state welfare program, pays for nursing home care but only after almost all of your own money has been spent. Although Medicaid pays for some home care services for people who have very little income or assets, finding and paying for caregivers with Medicaid funds is extremely difficult. Consequently, government programs do not effectively cover the really burdensome long-term care costs for middle class families, which have to be paid by either personal money or long-term care insurance.
What location for care do most people choose?
Most people prefer to remain in their own homes and most who start receiving care in their own homes are able to remain there. Coverage for long-term care in assisted living facilities, nursing homes, and in the insured person's home are offered in most currently available long-term care insurance policies.
How much insurance coverage is enough?
For people who can afford insurance, the decision of how much of it is needed is usually made in consultation with an experienced professional. Key considerations include family and personal health history, as well as the local costs of care and affordability of annual premium. Seventy percent of recent buyers of long-term care coverage purchased between three and five years of benefits; 8.5 percent bought two years or less and 21.5 percent purchased six years or longer.
New choices in Long Term Care insurance: Linked Life-Long Term Care Insurance Policies
Paying annual premiums to provide insurance for long-term care that may not be necessary is one reason some middle class consumers with considerable resources still have not acquired LTC insurance. New choices have become available to address this concern. One new choice is a policy that combines a death benefit and long-term care insurance, with all benefits income tax free; and, if long-term care is not needed, a refund of the premium is distributed. Here's one example:
A retired woman, age 65, is married and in average ("standard" in insurance industry language) health and has not purchased long-term care insurance because of the annual premium. To address the possibility of long-term care needs, she has set aside $100,000 among her retirement investment holdings. In consultation with her financial advisor, she realizes that the amount set aside will cover little more than one year of care.
If instead she repositions the $100,000 into a "linked life-long term care policy," offered by one of several financially solid insurance companies, she would have these benefits:
- $600,000 available to pay for long-term care costs (six times what she had without the policy);
- $200,000 death benefit if she does not have a long-term care need; and, $20,000 in death benefits even if she uses all the long-term care fund money described above;
- both the death benefit and long-term care moneys are income tax free;
- If she changes her mind about wanting the policy, the premium is refunded minus only loans she has taken and benefits which were paid to her.
Other versions of linked life-long term care policies are available with slightly different features. They are worth investigating, as always, in consultation with a qualified financial advisor.
Helpful consumer resources used in this article:
Department of Health & Human Services, National Clearinghouse for Long-Term Care Information, September, 2008, www.longtermcare.gov<http://www.longtermcare.gov>.
Life Plans Long Term Care Market Summary: Cost of Care Update 2010, www.LincolnFinancial.com<http://www.LincolnFinancial.com>.
American Association of Long Term Care Insurance, 2010 LTCI Sourcebook. |
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National Estate Planning Awareness Week
By Attorney Maria C. Baler
Did you know that October 17-23 was National Estate Planning Awareness Week? In 2008, the National Association of Estate Planners and Councils (NAEPC) worked with Congress to pass a resolution proclaiming the third week in October as National Estate Planning Awareness Week. The resolution noted that "Many Americans are unaware that lack of estate planning and financial illiteracy may cause their assets to be disposed of to unintended parties by default through the complex process of probate."
Are you aware of the importance of estate planning? If you are a regular reader of this newsletter we hope that you are! However, estate planning is one of the most overlooked areas of personal financial management. More than 120 million Americans do not have proper estate plans to protect themselves or their families in the event of sickness, accident, or death. This costs many families wasted dollars and unnecessary hardship that can be minimized with proper planning.
Estate planning is a thoughtful process and not merely a single legal transaction. Our firm is dedicated to building relationships with our clients and maintaining contact with our clients on a regular basis so we can assist in adapting their estate plans as changes occur, both in the law and in our clients' lives. If you have friends or family members who have not created an estate plan for their family, give them this article and tell them it's time to take the first step. If we can assist, please tell them to give us a call |
Staff Update
We are pleased to announce that our long-time paralegal Janine Cronin welcomed a baby girl, Natalie Teresa Cronin, on September 10, 2011. Heartfelt congratulations to the Cronin family!
Attorney Sayward has once again been named a Super Lawyer by Super Lawyers magazine, which recognizes attorneys in each state who receive the highest point totals - as chosen by their peers and through independent research. This is the second consecutive year that Attorney Sayward has received this recognition. Super Lawyer magazine is published in all 50 states and reaches more than 13 million readers. Congratulations Attorney Sayward!
In September, Attorneys Sayward and Baler attended a seminar at Suffolk University Law School on Estate Administration under the Massachusetts Uniform Probate Code. Extensive changes have been made to estate administration procedures in Massachusetts, which will take effect in January 2012. To stay updated on these changes, Attorneys Sayward and Baler will also be participating in a series of webinars offered by the Massachusetts Bar Association during the fall and winter. More on the Uniform Probate Code in our January issue!
To read our columns visit www.ssbllc.com and click on Articles. |
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