Estate Planning FAQ

What is Estate Planning?
Estate planning is a process involving the counsel of professional advisors who are familiar with your goals and concerns, your assets and how they are owned, and your family structure. It can involve the services of a variety of professionals, including your lawyer, accountant, financial planner, life insurance advisor, banker and broker. Estate planning covers the transfer of property at death as well as a variety of other personal matters and may or may not involve tax planning. The core document most often associated with this process is your will, which specifies the distribution of your property at the time of your death.
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What are the essential Estate Planning documents every family should know about?

• Wills
• Health Care Proxy
• Power of Attorney
• Deeds with Life Estates and Realty Trusts
• Revocable and Irrevocable Trusts
• Gift Giving Plans
• Asset Protection plans
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Why bother with estate planning if I’m leaving everything to my kids?
Without proper estate planning documentation, your wishes may not be carried out after your death and costly court proceedings can result when disagreements arise over how your property should be disbursed.  Estate planning documents generally include a will, power of attorney, healthcare proxy, and medical directive.  A properly prepared estate plan not only ensures your security and provides for your loved ones, it makes sure that your health care is managed in the way you choose. 
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 What is a Will?
A will provides for the distribution of property owned by you at the time of your death in the manner you choose. Your will cannot, however, govern the disposition of properties that pass outside your probate estate (such as certain joint property, life insurance, retirement plans, and employee death benefits) unless they are payable to your estate. Wills can be of various degrees of complexity and can be utilized to achieve a wide range of family and tax objectives. If a will provides for the outright distribution of assets, it is sometimes characterized as a simple will. If the will establishes one or more trusts, it is often called a testamentary trust will. Alternatively, the will may leave probate assets to a preexisting inter vivos trust (created in your lifetime), in which case it is called a pour over will. In either case, the purpose of the trust arrangement (as opposed to outright distribution) is to ensure continued property management and creditor protection for the surviving family members, to provide for charities, and to minimize taxes.

Aside from providing for the intended disposition of your property to spouse, children etc., there are a number of other important objectives that may be accomplished in your will.

• You may designate a guardian for your minor child or children if you have survived the other parent and, by judicious use of an inter vivos trust and appointment of a trustee, eliminate the need for bonds and supervision by the court regarding the care of each minor child's estate.
• You may designate an executor of your estate in your will and eliminate the need for a bond; in some states the designation of an independent executor will eliminate the need for court supervision of the settlement of your estate.
• You may choose to acknowledge or otherwise provide for a child (e.g., stepchild, godchild, etc.) in whom you have an interest, an elderly parent, or other individuals.
• If you are acting as custodian for the assets of a child or grandchild under the Uniform Gift (or Transfers) to Minors Act, you may designate your successor custodian and avoid the expense of a court appointment.

Good planning can also enhance your support of religious, educational, and other charitable causes.
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 What is Probate?
Probate is a process that takes place when someone dies with property in their name alone. Joint accounts and property held by husband and wife as tenants by the entirety are not probate property. Joint property and property held as tenants by the entirety passes to the remaining co-owner(s) immediately upon the death of a co-owner.  Tenancy in common means that the property is held in equal shares and passes to the individual's estate upon death with all tenants in common having equal rights. A person dies "testate" with a will and "intestate" without a will. A will should be filed within 30 days of the date of death but is often filed much later without penalty. An individual named as Executor under the will must be appointed by the Probate Court in the county where the deceased resided.  If a person dies intestate with property, the property passes by the state law of intestacy upon a petition to the Probate Court appointing an Administrator. Intestate property first passes 50% to a surviving spouse and 50% to children, and if no children, all to the spouse, or if no spouse, to the children equally. If no spouse or children, then it passes to the next level of heirs starting with parents, then siblings, then nieces and nephews, etc.
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What are my Federal Estate Tax obligations?

The federal and state government may levy estate taxes of the last to die of a husband and wife or from the estate of an unmarried individual.  There is a 100% tax exemption for bequests between spouses, but when the surviving spouse eventually dies, a higher, graduated tax may be owed on the entire estate. Proper planning is required to avoid this outcome.

The Federal estate, gift, and generation-skipping transfer (GST) taxes form a transfer tax system that was formerly "unified" but that has been separate since 2003.  Estate taxes are assessed at one's death, and gift taxes are assessed at the time a gift is made or transferred during one's lifetime.  The GST tax exists in order to make sure property does not skip a generation without a transfer tax.  While the Federal gift tax exemption is $1,000,000, unlimited marital and charitable deductions may be made from this exemption.  The Federal Estate and GST tax exemption will be valued as of the year of death of the individual, as follows:

• 2009                 $3,500,000.00
• 2010                   Unlimited
• 2011                  $1,000,000.00
  

The current estate "exemption" for Massachusetts is $1,000,000.  There is no Massachusetts gift tax.  There is much confusion about "tax-free" gifts.  A change in federal law allows each person to now make a tax free gift of $13,000 (with small cost of living increase each year) to each appropriate individual, every year.  A married couple can make joint gifts of up to $26,000 to each individual every year.  If a person or couple is not concerned about estate taxes, then gifts in excess of $13,000 (or $26,000 for a couple) per person may be given with no adverse consequences to the donor or donee, up to the lifetime exemption amount which is currently $1,000,000.  A qualified accountant, or a Certified Public Accountant (CPA), can advise you as to whether a gift tax return should be filed and can provide you with filing instructions.

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What is a Health Care Proxy?
Since December 18, 1990, individuals in Massachusetts can complete binding Health Care Proxies.  The purpose is to permit you to designate in advance who will make your health care decisions should you become incapacitated or unable to make your own health care decisions. The Agent, or person you appoint, must be 18 years of age or older and will be permitted to make a wide range of medical decisions on your behalf if you are unable to make or communicate your wishes.
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What are the differences between a Health Care Proxy and Living Will?
A Living Will is a legal document that specifies in advance any life-sustaining measures a person refuses to undergo if there is no reasonable expectation of recovery.  Typically, a person may refuse the use of feeding tubes, respirators and cardiac resuscitation.  The Living Will makes an incapacitated individual's treatment preferences known in a set of limited and specific circumstances.  It serves as a guide in medical decisions but is NOT legally enforceable.  The Health Care Proxy is not limited to a specific set of circumstances but allows an Agent the flexibility to make treatment decisions in a wide range of situations.  For these reasons, the Health Care Proxy is the recommended method for medical decision making in the event of incapacity.
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Who will make medical decisions if no Health Care Proxy exists?

If you become unable to make or communicate treatment decisions to health care providers and you do not have a proxy or agent, then decisions will often be made by a court appointed guardian, who is usually a close family member.  The guardianship process is a slower and more costly process than if a health care proxy is in place because the guardianship requires court intervention.  More importantly, treatment decisions made by a guardian and health care professionals may not reflect your values and beliefs.  In sum, the health care proxy assists in having your treatment preferences carried out in the most efficient manner possible and your wishes being implemented.

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What is Durable Power of Attorney?
In certain situations individuals may authorize another person or persons to legally act on their behalf in handling their property.  When accomplished through a written legal document, a Power of Attorney is created.  The person creating the power, the Principal, specifies in the legal document the specific authority they want the other person, the Attorney in Fact, to possess.  "Durable" means that the Power of Attorney will remain in effect even if the Principal becomes incompetent.  A Power of Attorney can be revoked by a competent principal at any time.
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What can a Durable Power of Attorney do?
An Attorney in Fact (the person acting on behalf of the Principal) will only have those powers specifically granted to him or her by the Principal.  The Principal can authorize the Attorney in Fact to complete a broad range of activities, including signing checks, making investment decisions, entering into contracts, making gifts, creating trusts, and transferring property.  The Principal can grant to the Attorney in Fact the power to do most things the Principal could have done for him or herself.  This is a very powerful estate planning tool and should be granted with discretion and care.
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What is the difference between Durable and Non-Durable Power of Attorney?
The regular, or non-durable, Power of Attorney, is effective immediately, but automatically terminates when the Principal becomes incompetent.  If incompetency does occur, perhaps the time when a Power of Attorney is most necessary, in order to manage the incompetent individual's estate, that individual's family would need to seek the appointment of a guardian or conservator from the Probate Court.  Alternatively, if a Durable Power of Attorney exists, the power of the Attorney-in-Fact to act on the Principal's behalf continues even after the Principal becomes incompetent.
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What is the difference between a Springing and Present Durable Power of Attorney?
In Massachusetts, Durable Powers of Attorney are governed by statute.  There are two basic forms a Durable Power of Attorney can take: (1) a present Durable Power of Attorney; and (2) a "springing" Durable Power of Attorney.  A present Durable Power of Attorney authorizes the Attorney in Fact to act for the Principal as soon as it is executed.  A springing Durable Power of Attorney becomes effective only upon the incapacity or incompetency of the Principal.
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Why would anyone give such sweeping authority as Power of Attorney to another person?
One answer is convenience. If you are buying or selling assets and do not wish to appear in person to close the transaction, you may take advantage of a power of attorney. Another important reason to use power of attorney is to prepare for situations when you may not be able to act on your own behalf due to absence or incapacity. Such a disability may be temporary (e.g., due to travel, accident, or illness) or it may be permanent. If you do not have a power of attorney and become unable to manage your personal or business affairs, it may become necessary for a court to appoint one or more people to act for you. People appointed in this manner are referred to as guardians, conservators, or committees, depending upon your local state law. If a court proceeding, sometimes known as intervention, is needed, than you may not have the ability to choose the person who will act for you. With A power of attorney, you choose who will act and define their authority and its limits, if any.
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Why do I need Health Directives?
The purpose of Living Wills and Healthcare Proxies is to allow you to express your preferences concerning medical treatment at the end of your life. By expressing such preferences in a written legal document, you are ensuring that your preferences are made known. Physicians prefer these documents because they provide a written expression from you as to your medical care and designate for the physician the person he or she should consult concerning unanswered medical questions. Rather than the physician having to obtain a consensus answer from your family as to your treatment, the physician knows your preferences and knows who you want to provide decisions when you cannot do so. These documents provide your expressed wishes, rather than making the family guess your desires. Making your wishes known in advance prevents family members from making such choices at what is likely one of the most stressful times in their lives. Further, providing such information and designating a health care proxy means that the physician knows whose direction is to be followed in the event your family disagrees as to what medical treatment you would want.
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Do I need an attorney if I can download estate planning documents off the internet?
Estate Planning is a complex process with many important factors to consider and issues to resolve to ensure your assets and property are protected now and in the future.  Each individual’s needs and circumstances are different, and cookie-cutter legal forms cannot assess your estate planning requirements and modify the documents accordingly to meet your specific goals.  Our attorneys have the expertise to guide you through this process and provide peace-of-mind by ensuring you and your family are properly protected.
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