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Estate Planning 101

During the webinar, guest speaker and Estate Planning Attorney David Guarino, Esq.

concentrates his practice on the overlap of tax and estate planning issues and frequently

includes the integration of special needs planning with traditional estate plans. David

also discusses the different types of documents, including your basic estate plan, durable

power of attorney, as well as health care proxy, and when each should be used.

In Brendan’s latest video, Estate Planning 101, he talks about the different types of documents and when to use them.

Watch the video below, or scroll down to read the transcript.

Topics Discussed:

  • Standard estate planning documents

  • Last will and testament

  • Durable power of attorney

  • Health-care proxy

  • Trusts

Video Transcript

Brendan Sheehan: All right, once again, thank you all for joining us. This is, as our emails and our Facebook posts have talked about, this is one of our monthly webinars that we're doing, and it's going to be on estate planning with Attorney David Guarino. We're going to be doing some other webinars throughout the coming months on things like year-end tax strategies and budgeting, divorce planning, which is going to be what we're going to be doing next month in October, health insurance, Medicare, improving your credit score and so on and so forth.

Brendan Sheehan: Today's webinar will feature Dave Guarino, as I had mentioned. Dave and I have been working together for about eight years now, and he's been practicing law for about 24 years, and has both a JD and a LLM designation, which is pretty much a Masters of Law and Taxation. David concentrates his practice on estate planning, but also builds in special needs planning, and Dave and I have done some workshops on special needs planning in the past around things like special needs, trust, guardianship etc.

Brendan Sheehan: During his webinar, Dave is going to talk about different types of estate plans. Your basic estate plan, which is kind of your will, power of attorney, healthcare proxy etc. And then the more complex stuff like trusts, when they should be used, when they shouldn't be used. Also, talk a little about estate tax planning. Estate tax planning doesn't really influence everyone because federally it doesn't impact anyone but the very wealthy people. Specifically in Massachusetts, Massachusetts actually does have an estate tax. It does hit people when they have over usually about two million dollars is when we start... well, one million to two million dollars is when you have to start thinking about it.

Brendan Sheehan: So we'll try to keep the presentation to about 30 to 45 minutes. We do have an ability for you to ask questions. At the bottom of the screen there is a Q & A button that you can click on. Feel free to ask questions during the workshop. I'll compile the questions and then I'll ask them to Dave and he'll take care of that. With that said, here is Dave. Actually before I do that, I do have to talk about the disclosures, which I just talked about a moment ago, but you couldn't hear me because I had the mute button on. So bottom line is just know that all this information is general in nature. Please don't act on it until you actually speak to someone like myself or Dave so that we can talk to you about your individual situation. With that said-

David Guarino: Great.

Brendan Sheehan: I'll turn you over to David.

David Guarino: Thanks Brendan. We're going to talk in two different concentrations today. One we'll talk about what standard documents are for adults in Massachusetts and then optional documents. That's really where the trust discussion will be. So, starting with standard documents; in Massachusetts we would create, for the typical adult male or adult female, a last will and testament, a Massachusetts healthcare proxy, and a durable power of attorney. Let's run through how those work.

Brendan Sheehan: You want me to take it?

David Guarino: Just show me how.

Brendan Sheehan: Okay. All right, I'll take care of it. [crosstalk 00:03:26]

David Guarino: How to-

Brendan Sheehan: Just say next slide.

David Guarino: Next slide please.

David Guarino: So starting with the last will and testament, To use a little bit of the jargon that Brendan doesn't like, the person that creates the will is called the testator. We'll just use that repeatedly as we talk about it rather than saying the person who creates the will, it is called testator for this discussion. The will is probably the simplest method to leave assets to your children beneficiary and often what you'll see in a simple will, will be something that says, as an example, "I leave the house to my brother and I leave my bank account to my sister, and I leave the rest to my nephew." And that will be delineated in the will about a disposition of property, and that's perfectly fine for what the will is for.

David Guarino: The things to keep in mind with that will is that this is a document that's effective at the testator's death. So in my example that I just gave, where my will says I leave my house to my brother and I'm still alive, my brother has no rights to the house. He has no ability to tell me that I need to fix the roof or I need to pay down the mortgage or he has any sort of protected interest in this. This is only effective upon my death. The will is something I can change for the rest of my lifetime, and it's not valid or it's not useful for disposing of property until I'm gone. We'll contrast that with power of attorney healthcare proxy in a few moments. The general concept is that the will is, "This is what I want. This is where I want it to go" and I have the ability to change those decisions. The testator has the ability to change those decisions as long as they're competent for the rest of their lifetime.

David Guarino: At death, a will has to go through the probate process. We'll talk about probate a couple of times as we're talking about trust and the rest of the other planning options. Probate in Massachusetts is essentially a process where, after the testator dies, somebody has to go take his will to the probate court to get that will allowed by the probate court. Typically, what the probate court is looking for is that the testator was competent when he signed, and usually has followed the Massachusetts formalities for signing the will. Which would be, you have a notary and you have two witnesses. Until the probate court looks at the will and says, "We allow this will." The brother, in my example, still has no right to say, "I want my house or I have an interest in the house." Or the sister can't go to the bank and say, "My brother left me this bank account. I want it." Without the probate court approval, the probate process, then the will is not effective until the probate court has signed off on it.

David Guarino: Typically, that's not a huge hurdle in Massachusetts. Especially if you have two witnesses and a notary. There are sometimes when the will has flaws in it or there are some questions about the capacity of the testator, but in general, the will is allowed and it's allowed fairly quickly by the probate court. At that point, the will is effective and the sister gets her cash, the brother gets his house, and the nephew gets everything else.

Brendan Sheehan: So just to be clear on that Dave

David Guarino: Sure

Brendan Sheehan: One of the things that I hear a lot from clients is, "If I have a will then I'm all set" Right, and I know we're going to get into that. Some people, a will is really all they need, but for most people, they need other documents than just that. As it pertains to a will, how long does ... so a person passes away. They have their will and there are things that are going to be given over, let's say it's the house.

David Guarino: Mm-hmm (affirmative)

Brendan Sheehan: The house is given to someone else because the will says the house is going to this person. How long would it actually take for that person to actually get the house?

David Guarino: In-

Brendan Sheehan: If you went through all the steps of the process.

David Guarino: Going through the probate process in Massachusetts isn't nearly as onerous as it is in other states.

Brendan Sheehan: Okay.

David Guarino: And, so that would be done in pretty short order if there aren't creditors making claims, and there aren't issues with the will, or the brother isn't coming back and saying, "I should get the house and the cash" or something that would delay the process. In Massachusetts, the probate process is quick, and it's even quicker now than it was say 10 years ago or six or eight years ago before they changed the probate rules in Massachusetts. When you hear all those discussions about, "We need to avoid probate", I think that those generally flow from other states where probate process is significantly more burdensome than it is in Massachusetts, and significantly more expensive than it is in Massachusetts.

Brendan Sheehan: So I think from this workshop, probably have folks from Massachusetts, New York, Florida, Texas, California.

David Guarino: Okay

Brendan Sheehan: Any of those that you- [crosstalk 00:08:06]

David Guarino: So I started practice in California.

Brendan Sheehan: Yeah, okay.

David Guarino: It was very much standard practice to make sure that you had your property in a trust.

Brendan Sheehan: Mm-hmm (affirmative)

David Guarino: Because the probate process, at least when I was practicing out there, essentially said that, "Even if all you have is one bank account, the lawyer gets a statutory fee based on the value of what is in the probate estate." So if that bank account held $10,000 or two million dollars, the work to get that account as a beneficiary, in my example my sister, is the same, but the fee that I get paid as the lawyer is dependent upon how big is the bank account. A client who had a two million dollar account in their own name is the windfall for the lawyer.

Brendan Sheehan: Yeah. Okay. So a person passes away January first, when do you think that house would be available?

David Guarino: Let's not use the house as a bad example because the other parts.

Brendan Sheehan: Okay. Sorry.

David Guarino: But the bank account-

Brendan Sheehan: Bank account.

David Guarino: You could expect that to be done in months at the worst.

Brendan Sheehan: One month?

David Guarino: And maybe even less if you really expedite the process.

Brendan Sheehan: Okay.

David Guarino: So it's much quicker, again, in Massachusetts after they streamlined rules.

Brendan Sheehan: Okay.

David Guarino: The reason I'm hesitating on that is because you can technically get the asset to the beneficiary, including the bank account, pretty quickly. But what you're worried about is you gave the sister the bank account then three months later the creditors come and say, "He owed us a bill. You have to get the money back from the sister."

Brendan Sheehan: Mm-hmm (affirmative)

David Guarino: So that's where the delay in getting her asset is. It's not the probate process itself. It's the concern for creditors who have an extended time to file a claim the estate.

Brendan Sheehan: Yeah. Okay.

David Guarino: So to go to the typical structure of the will, I think that's what we have on the slide here, there are four points that I think we should talk about in what you would expect to see in a will. For anyone that has children that are minor children or disabled children, you will have provisions in there that provide for guardianship and conservatorship for the minor. You're nominating people into these positions. The guardian is essentially the person who takes control of the person of the minor. In layman's terms, what that means is, if the testator dies and leaves behind a 12 year old son, he will nominate somebody to be the guardian of his son, and the guardian will decide where's the kid going to school, where is he going to live, and who's going to make health ... what sort of healthcare decisions are going to be made on his behalf.

David Guarino: The conservator is going to be the person who decides how are we going to spend the money that's left for the 12 year old son. So, often it can be the same person, but they don't have to be. So we delineate in the will. There's a guardian appointed and a conservator appointed, which may or may not be the same person. I think, Brendan, one of the things you've seen in our work together is, families, especially married couples, this is a big issue for them about who's going to take care of our kids after we're gone. The spouses will say, "We'll have to think about that." Because they're both thinking, "I like my brother-in-law, but I'd much prefer my sister." And the husband's thinking, "I like my sister-in-law, but I'd much prefer my brother." So that's where one of the points, most often, the points of contention or where it takes some thought is, "Who is going to step into these roles."

David Guarino: The other thing to think about in a will. The will will say I leave my property in this manner, again my example of house to brother, cash to sister, everything else to my nephew. Even with a document that says that, you have the opportunity created memorandum that says, "Even though I said everything else to my nephew, I want my niece to get my watch." Or, "I want my cousin to get the grandfather clock." Or other types of tangible personal property which as you know from our work together, tangible personal property is tables and chairs, forks and knives. It's the example of anything that's not cash and anything that's not real estate, generally speaking, is personal property.

Brendan Sheehan: One of the biggest thing would be the jewelry, right?

David Guarino: Correct. That and collectibles. What people will is rather than go through the house and put post-it notes on the back of everything, or rather than creating a 40 page listing in the will of everything they want to go to everyone, they will create a separate memorandum that allows you to say, "I leave my watch to my cousin." Or, "I Leave my grandfather clock this person" that list can be as long as you want and you can change that list without having to go back to the lawyer's office and having it notarized and witnessed like we talked about for authenticating a will. The only caveat to that is, we remarked before, is that when you're saying I want something to go to someone, you have to be specific not my favorite watch to my favorite nephew because nobody is going to know what that means after you're gone.

David Guarino: The remainder of the language we talk about next is distributing the remainder of the property to the beneficiary. So, typically, the wills says, "I leave my tangible personal property to these family members, and then I leave the rest of my property to some other group", and often it's the same family members. Or this is where it would say, "I leave it to my trust." And as we get into the trust discussion, even if you have a trust, you will have a will. The will will say that, "Upon my death"... if I have a trust, "I leave my property to my trust." You also name the personal representative in the will to carry out the wishes.

David Guarino: So essentially the testator picks somebody who is responsible for making sure that the brother gets the house, and the sister gets the cash, and the nephew gets everything else. Somebody has to sign the deed for the estate. Somebody has to go to the bank with the power to empty the bank account and transfer the funds to the sister. That's the personal representative. Moving onto the next... The other standard document for adult with capacity in Massachusetts is a Massachusetts Healthcare Proxy. This is, you would expect, is the document that names somebody to make healthcare decisions for you. It's only effective if you can't communicate your own wishes for healthcare. So what do I mean by that?

David Guarino: There's two things to note about the healthcare proxy. One is, unlike the will that's only effective at death, this is effective immediately. Meaning that the day you sign it, it's valid. It doesn't have to wait till your death, but it is limited by, it's only effective if you can't communicate your own wishes. So, my wife is my healthcare agent. If I go to the doctor and he gives me some options for health issues or treatment, I make those decisions as long as I can make those... As long as I can tell the doctor what my decisions are even if my wife is my healthcare agent. She doesn't have the right to trump my decision. It's only if I'm not able to communicate my own wishes. We'll contrast that with the power of attorney in a moment. This is a standard document for healthcare that all adults in Massachusetts should have.

Brendan Sheehan: One of the questions that I get a lot is, "Okay. I think I filled one of those healthcare proxies out at the doctor's or at the hospital or something."

David Guarino: Right.

Brendan Sheehan: How would you compare and contrast healthcare proxy you had put together versus what their doctor's office would make them put together.

David Guarino: I think what we found anecdotally is that, we always put a healthcare proxy together with every estate plan we do and we follow... there is a statute for it, so we follow it pretty closely and format it simply, but I think of it more as the emergency healthcare proxy because there's been an accident and the person isn't in the condition to sign another healthcare proxy. If it's planned surgery or planned healthcare the medical world will look at the healthcare proxy that you've signed with your law firm, and go in with it, and you go in and say here's my healthcare proxy. They'll say that's great but we have our own form that we'd like you to sign. They should be for the same purpose, and Ideally they follow the same statutory language, but everyone drafts things a little bit differently and I would expect that their language is a little more self-serving for the doctor's. To help the doctor's do their job more efficiently than maybe they would prefer in our proxy.

Brendan Sheehan: Another question I get is, "Is the healthcare proxy where we talk about end of life decisions?" So if I'm in a vegetative state and I don't want to extraordinary things being done to keep me alive is it in the healthcare proxy or somewhere else?

David Guarino: It is in the healthcare proxy sort.

Brendan Sheehan: Mm-hmm (affirmative)

David Guarino: Because that's just if they don't recognize some of the other documents that other state's have for end of life decisions.

Brendan Sheehan: Some of those other states that I mentioned earlier, do any of those have you know?

David Guarino: You'll have to talk to a Texas lawyer.

Brendan Sheehan: You mean like a true attorney?

David Guarino: I assume that other states do have more robust documents for that. In Massachusetts, what generally happens is I name my wife to be my healthcare agent and with that power she'll make those decisions for me. She'll rely on what I've communicated to her during my lifetime as either my wishes, but what I'm telling her are my wishes not musts. So, by giving her the healthcare agency I'm essentially giving that decision to her.

Brendan Sheehan: Okay. Next?

David Guarino: Yes, please.

Brendan Sheehan: Yes.

David Guarino: Moving onto the durable power of attorney. This is the other lifetime document that is if I give my wife my power of attorney she has the ability to help me manage my own assets and do anything for me that I can do for myself regarding my financial assets. So that would be cash. That would be, I should say, in terms of properties not just financial assets. It also includes real estate. She could sign the deed for our house and things like that. Typically, we name our power of attorney and we make that effective... my preference is to make that effective immediately. So you contrast that with the healthcare proxy that's only effective if I'm incapable of communicating my own decisions. The power of attorney that gives my wife the ability to manage my property is effective immediately. It also, one of the things that we put into the power of attorney is that question of whether we give that person the power to make gifts.

David Guarino: So, typically, I would give my spouse, in my power of attorney my wife has the ability to take my property and give it to herself. There are predator protection reasons or tax reasons or Medicaid planning reasons that it's useful for spouses to be able to transfer property back and forth. Typically, but again not always, if we have the brother as the power of attorney or one of the kids as power of attorney, we don't give them the gifting power. So it's less obvious and less likely that it's to the parent's benefit for the son to be able to take their asset and put them in their own name and less so even for the brother.

Brendan Sheehan: Mm-hmm (affirmative)

David Guarino: That's usually the distinction in the power of attorney, but my preference is spouse has the ability to make gifts, and the spouse has that capacity effective immediately. There is a period or there is an alternate option in the power of attorney that it's only effective upon incapacity. That means that my wife has my power of attorney, and if she can prove that I don't have the capacity to act for myself, she can step in. I think the challenge with that, and this is something a friend and I have talked about a number of times, conceptually if I am disabled and incapacitated and she gets proof of that today and comes to Waymark and says, "Here, David is incapacitated. Here's the doctor's note. I want to do this, this, and this with his investments." And then three weeks from now she comes back. Brendan should be asking, "Well is he still incapacitated?" You have to prove that again. If we have a lot of things going on, she has to prove it every time she deals with it. I think that is for my preference is to have it effective immediately.

Brendan Sheehan: Mm-hmm (affirmative) So that makes it an extremely powerful document because if someone wanted to... let's say that you gave the power of attorney to a child. Let's say that child was in a financial strain. They could take advantage. They could actually start taking money out of the account, and me as a financial professional, if they have a document that says that effective immediately they can make decisions on David's behalf, in this example, I have to listen to them. A bank has to listen to them. A financial institution, fidelity, has to listen to them. So, it's an extremely powerful, excuse me, powerful document. It's definitely one that I think, again sometimes when I talk to people they say, "Well I have a will. I'm all set." And this is where I say, "Well if you have a durable power of attorney?" They say, "Oh not really and/or I think I have that, but I think we did it like 10 years ago." Talk a little bit about that Dave because the logistics of a power of attorney sometimes don't make up with the law.

David Guarino: Yeah. I think that that's right. I think that the will is conceivably something that you do want, and you never touch it again until death. This is something you create when you're 20 and conceptually if circumstances in your life never change it would be effective at death at 90 years old. A power of attorney, even if it says durable power of attorney and it's supposed to last for the rest of your lifetime, you are unlikely to get that power of attorney honored by any financial institution if you signed it 20 and now you're 35 and you're wife or cousin or whoever is named in there goes into the bank and says, "I've got David's power of attorney from 23 years ago."

David Guarino: They're not going to accept that, and rather than get into a legal battle about the effectiveness of a durable power of attorney the better, more prudent plan is just simply update that power of attorney every two years. That precludes the fighting with the financial institution to say that my 20 year old power of attorney is technically good, but it took me $10,000 of legal fees to prove that when I could have just updated that power of attorney three years ago and half an hours work.

Brendan Sheehan: I think that's a really important point. We hear it way more. We're always telling clients every five years you should have your estate planning documents looked at, but there are some financial institutions that will do one of two things; Either not take a durable power of attorney that you draft with an attorney and say you have to fill out our Bank of America power of attorney. I'm picking on Bank of America because I think they're one of the culprits there. The other thing that sometimes these institutions say is, "Okay well let me take a look at it. Oh, I'm sorry we can't use this because it's dated more than two years in the past."

Brendan Sheehan: So you need a refreshed one that just simply says... even if it just simply says the exact same thing. You know, it just needs to be dated 2019 not 2017 or whatever. So the durable power of attorney, again, very powerful document, and the reason why banks and everyone are so finicky about it is because you're pretty much giving the power to act financially to someone else.

David Guarino: So getting back to the media. I think that that's a really good summary of the documents that every adult who is of capacity in Massachusetts should have. The will, the power of attorney, and the healthcare proxy. No matter what your financial circumstance or marital status or health or any of those things that would go into it a trust decision, that we'll talk about momentarily. You should have those documents. So now we get into the optional documents which is the trust.

Brendan Sheehan: I'm going to pause you on that because you said everyone should have them. So, I get some younger clients who say, "Well, I'm not married yet. I don't have any kids. Why do I need a will, power of attorney, healthcare proxy?" What would you say to them?

David Guarino: A couple different things. One is to control where your property goes. If you don't have a will then the state rules will control who gets whatever you leave behind. For some kids they're going to say, "well that's fine. It's going to go to my parents. That's what I want anyhow." If you want some choice over that, that's where the will comes in.

David Guarino: The other part of that is, again assuming no kids and so we're not worried about guardians and conservators for their kids which is a compelling reason for a will. You also make it easier for property to end up where you want it to end up. If you die without a will, then you have to go through an attesting process, which is still a probate court proceeding. Again, it's not a lifelong commitment to the probate court, but it's something you could avoid by having a simple will. I think the power of attorney and the healthcare proxy are even more compelling for someone who's 19 years old that says, "I don't have anything."

Brendan Sheehan: What's interesting about that is that I think a lot of people don't realize what they do have. So for instance, they may pass away at the age of 23. I think we actually know someone that did, but we won't get into the situation. He had, I believe, a $50,000 life insurance policy through work and didn't designate a beneficiary. So in that case, there was a $50,000 estate that had to go through probate and to the next point it goes to the attestate process because that asset didn't know where to go. The state makes that decision if you haven't designated anything yourself.

David Guarino: Right. I think those are the compelling reasons for the will. I think to finish the answer for the proxy and the power of attorney. Even an 18 year old can become incapacitated, and it's important for someone to be able to make those legal decisions. If the child was 19 years old or young adult was 19 years old and he becomes incapacitated and someone has to make medical decisions for him, and there's no healthcare proxy, the parents go in and say well we're his parents we should make the decision. The hospital or other medical facility is going to say, "Well we need you to have legal authority to do that." And if you don't have healthcare proxy you have to go get guardianship or seek control or seek approval elsewhere.

Brendan Sheehan: And that's not easy

David Guarino: All of which could have been avoided by a simple healthcare proxy. Same for property management with a power of attorney. These documents preclude having to go get court approval to do the same thing.

Brendan Sheehan: Yeah. Okay. We're at the half hour mark right now. I don't see any questions.

David Guarino: Okay.

Brendan Sheehan: No questions yet. So we're going to get into the trust, and as I mentioned, we're going to try to keep this at 45 minutes. This is where I know Dave could go on for hours on trusts because trusts are... We just got through the basic estate plans and it took us a half hour.

David Guarino: Okay.

Brendan Sheehan: Let's see if we can wrap up the trust in a 15 minute period.

David Guarino: Sure. So, starting with the trust. Just to set out the basic ground rules of what is a trust, and trust is essentially a legal arrangement where somebody transfers property to somebody else to hold for the benefit of a third party. A good example is, I give the babysitter $20.00 to hold for the kids and buy them dinner. Technically, I'm the grantor, or some other terms, trustor, settlor, donor, creator. They all means the same thing. I'm the person who sets up a trust. I give the $20.00 to the babysitter. She is now the trustee, to hold for my kids, to buy them dinner or buy them ice cream or something. Those are the instructions I've given her, the trust restrictions for the kids, who are the beneficiaries.

David Guarino: So that's an extremely simplified example, but it's generally, trust is a 20 or 30 page legal document that says, "Somebody transfers property to somebody else to hold for the benefit of a third party." Typically, those trusts could either be revocable or irrevocable. A revocable trust is something that the grantor can change. So they can change the terms of it. They could say, "Hold it for me for my lifetime and after I'm gone leave it to my brother." Three months later say, "After I'm gone, make half to my brother and half to my sister." Then three months after that, "Make it all to my sister." So the whole thing can be changed as long as the grantor is competent.

David Guarino: An irrevocable trust, which is used sometimes for tax planning or used sometimes for Medicaid or other purposes, is something that the grantor can't change. So, in my example, We created a trust that says, "Hold it for me for my lifetime and at my death it goes to my brother." Three months later I change my mind and I want half of it to go to my sister or I want all of it to go to my sister. I can't change that document. There's usually a tax reason or a control reason that it's in my interest to create a trust that is irrevocable, that I can't change. There are obvious consequences to that which means it's essentially permanent or I should think of it as permanent when I create it. The law still allows some flexibility, but the general concept should be that if the trust is irrevocable, you shouldn't plan on changing it when you change your mind.

Brendan Sheehan: When Dave says Medicaid, and many of you already know this, but just to be clear. Irrevocable... so I get a lot of questions about nursing home protection. And they say, "Well I have a trust so I'm all set." And I say, "Okay is it revocable or is it irrevocable? If it's revocable, no protection. If it's irrevocable then it could be protection, but it has to be written properly in order for that to actually work for Medicaid purposes. When I said Medicaid, again, Nursing Home protections so just throwing that in there.

David Guarino: Okay.

Brendan Sheehan: And I know that's a pretty common question I get from a lot of people.

David Guarino: The other thing for nomenclature or for trust anatomy... Often the trust that we set up, the grantor, the creator will be the trustee and the first beneficiary. Typical estate plan, I'll create a trust for myself that it's held for my benefit. I name myself as the trustee and I name myself as the beneficiary so for all three purposes I'm the grantor, I'm the trustee, I'm the beneficiary. That will change over the course of a lifetime and after I'm gone. Whereas someone else will step in as trustee and typically somebody else after that will step in as beneficiary. That's the basic for the estate plan, for a trust plan. Move on.

David Guarino: So again, the reasons to use a trust as we just broadly outlined is asset management and probate issues like we talked about with the will, and we'll get into it in a moment with tax planning and beneficiary concerns. I think that we'll go through these, the asset management and probate, pretty quickly because we've talked about probate related to the will. Moving ahead to the probate issue, probate planning.

Brendan Sheehan: Hang on a second, David. It looks like I have a sound issue again. It's saying no sound. Just- (silence)

Brendan Sheehan: Okay, we're going to try this again.

David Guarino: Okay.

Brendan Sheehan: My understanding is that the audio cut out, so I apologize for that.

David Guarino: Okay. Move ahead, we're talking about the reasons to create a trust and one of them would be asset management and probate. For asset management, I think of this as most stereotypically of a person who is in failing health and is concerned about their ability to manage their own affairs. They will put property in a trust that will allow somebody else to help them to manage their property. That's for someone with diminished capacity or it's also commonly used for somebody who wants a professional advisor managing the trust.

Brendan Sheehan: Audio difficulties again. (silence)

Brendan Sheehan: Testing. Testing. (silence)

Brendan Sheehan: Okay, I'm going to put a poll here. Brandon has given me a notification that you can't hear us, but I do see that there is audio that seems to be popping up. So, okay. I see one person that says they actually can hear us just fine. So... I'm going to put a poll here and make sure you can hear us. (silence)

Brendan Sheehan: I apologize for this.

Brendan Sheehan: We're going to launch this poll. Okay. So let's see if everyone can hear us. Brandon says he can't hear us. So we've got so far four people can hear us. One person can't. I don't know if that's Brandon.

David Guarino: Maybe he's having audio issues.

Brendan Sheehan: That's what I'm thinking. All right, so we're just going to keep going and assume that everyone can hear us okay. All right, sorry about that. I apologize for all the audio difficulties we've been having with this one. All right you can continue.

David Guarino: All right, We've talked about the reasons for creating a trust, one of which is asset management and probate avoidance. Asset management is because we're, the person creating the trust is concerned about their ability to continue to manage their affairs. It would be useful to have somebody else steps in that role while still retaining control as the grantor of the trust, and still retaining the benefit of the property as the beneficiary.

David Guarino: The other reason for creating a trust is probate avoidance. All the things that we talked about that would create a little bit of trouble when you have just the will that you have to go through the probate process. You can avoid that by putting property in a trust. The trust that would be something that's designed to say that the same disposition, "The house goes to my brother, my cash goes to my sister, and every thing else goes to my nephew." I can put that in a trust rather than in a will, and then I don't have to have my estate probated.

David Guarino: Alternatives to that include; designated beneficiaries and joint accounts. I could put my brother on the deed to my house and I could put my sister on my bank account and things like that. It's challenging to do that with everything you have, but those are probate alternatives so we don't have to go through the probate process to get the property where I want it to go after I'm gone. Move onto the next.

David Guarino: Taxes are a very common reason in Massachusetts for creating estate trust. Obviously not so common in the states that we talked about that we have attendees who don't have state estate tax to worry about, which is just about everywhere outside of Massachusetts. Massachusetts there's a million dollar exemption. If a person dies with a million dollars then they don't owe any estate tax. If they die with anything more than that then they do some estate tax. In Massachusetts, what does it mean to have a million dollars? As we've talked about, that's more than just having a million dollars in a bank account. That's including the equity in the home. That's including death benefits from life insurance, including 401ks and retirement plans and jointly held assets. All of the things that you don't think about easy access to.

David Guarino: Especially like something like life insurance, but it's something that counts when they're looking at whether you had a million dollars for estate tax purposes. So commonly for married couples in Massachusetts, we will create trusts that are reciprocal so that my wife is the beneficiary of my trust and I'm the beneficiary of her trust. By using reciprocal trust in a way that has tax planning language in that, we can double the amount that we pass to the kids pre an estate tax from a million dollars to two million dollars.

David Guarino: If we don't have the trust, if we just have simple wills... I have a will that says I leave everything to her, and she has a will that says she leaves everything to me, at the death of the survivor of us, we will pay probably about $100,000 more of Massachusetts estate tax than we would if we use separate trust. That's a compelling reason for married couples to use trust in Massachusetts for estate tax planning.

Brendan Sheehan: A couple points on that, that I hear a lot from clients is, "How about tax free assets? Do they factor into this estate tax calculation?" So if I have a $200,000 Roth IRA, that's tax free. Does that factor into the estate tax calculation?"

David Guarino: Absolutely, and it's different tax that it's tax free from. So tax free assets generally mean income tax free. So estate taxes measured is essentially just what did you own in whatever form it was and what is it valued at? Then we're going to put a tax on it based on the value on that, regardless of whether it's all in life insurance that you'll never spend or I've got a three million dollar 401K, they'll be income tax and estate tax for something like that. General concept, yes.

Brendan Sheehan: Two other places where I think people underestimate what kind of estate tax exposure they have is businesses, if they have an ownership in a business for any ownership purpose, ultimately someone passed away, they're going to have an appraisal done on their share of the business and potentially have to pay estate tax based on that value of the business. The other thing is the life insurance. Again, I get a lot of younger couples. They say, "Oh I don't have to worry about death tax. That's only for rich people." Then I say, "Well what's your life insurance coverage?", "Well I got a million dollars. My wife has a million dollars." Well there you go. There's your two million dollars that puts you in that 100,000 tax situation that Dave was just eluding to a moment ago.

David Guarino: Yes.

Brendan Sheehan: So you definitely have to be really careful with this. When we say that the estate tax is all-encompassing, it really is. Everything that you have your name on could potentially be a part of your estate and therefore, a tax could be levied on it.

David Guarino: I agree. I think the last portion of planning for a trust, and we'll go to the next slide, this is the other and probably the most common driving reason for leaving a trust. That's because we have some concerns about what we leave to people. It's not so much the tax planning. It's not the worry about the control that the grandchildren will have. It's not worrying about capacity. It's generally much more common that the reason we have a trust is because there's a reason we don't want to leave something outright to the people that we want to leave our property to.

David Guarino: You'll see the three lists here on capability, responsibility, and tax concerns. Essentially, what we're looking at here is if you've got minor children you don't want to leave something to them outright, so you use a trust for that. Instead of leaving something to my 12 year old son, I leave it in trust for him, and then he'll get the benefit of it but without being in charge. Same with my 20 year old son. I'll leave it in trust for him. I won't leave it outright to him. I'll leave a trustee in charge of it, but he'll be the beneficiary. A common example, or one of the things that becomes frequent in our practice, is a supplemental leave trust because one of the children has a disability of some sort. That's a reason to create a trust.

David Guarino: There's also the in-law problem where parents accumulated some wealth they want to leave probably to their kids and they'll say, "I love my daughter, but her husband I have some questions about." Or vice versa.

Brendan Sheehan: I've heard that a couple times.

David Guarino: Yes. And so that's where you would create a trust that says, "I don't leave it outright to my daughter because that can amount to leaving it to my son-in-law. I instead leave it in trust for my daughter. That takes care of I'm worried about an unstable marriage or all the things that go along with family planning like that, that has concerns about the ability of other people to get at your kids' inheritance.

David Guarino: The higher of level of wealth, the more we're concerned about tax issues. For a wealthy client, who's leaving a significant amount to their kids. Their kids are in self-sufficient in their career and are paying their own bills. They look at it and think, "Well if my kids... I'm going to leave them a significant amount, but they're not likely to spend all that during their lifetime. Leaving it in trust for them so that they can leave whatever they don't spend to their kids, free of being taxed in their estates, makes some sense for them also. I think that those are the main concerns. We're worried about the capability of the beneficiary or the responsibility of the beneficiary. That's the one with the luxurious spending habits, for example.

David Guarino: And then the tax and creditor concerns. Like, kids have creditors chasing them because he's been in a car accident or she's got a former spouse. I don't want to leave it to her directly or to him directly because that's giving half of it or some portion of it to her creditors that I could avoid that by leaving a trust fund. And for the wealthier families, we'll use tax planning in trusts like that.

Brendan Sheehan: Yeah.

David Guarino: I felt like I zipped through that, but that's the end of our broad discussion of why to use trust and where they would integrate into the plan. Just to kind of sum up the broader points that we made, every adult, I think, needs to have a will, a durable power of attorney, and a Massachusetts healthcare proxy. Regardless of their financial situation. Regardless of their circumstance. Beyond that, you get optional concerns about whether a trust is necessary, and those will be primarily just driven by concerns about beneficiaries, who am I leaving my property to, or do I have estate tax concerns in Massachusetts because we've accumulated more than a million dollars. Am I worried about Medicare or Medicaid or MassHealth in Massachusetts. Or other reasons from failing health from the person who's creating the documents.

Brendan Sheehan: Okay. All right. So with that said, as I said, we're trying to keep this under an hour. We do have about 10 minutes for our questions if anyone has any questions. I know we have about a dozen people online right now. Like Dave said, we kind of zipped through the trust part, and the trust part is probably a lot more complex than what we talked about for the first half hour. With that said, I think the trust piece is very individualized. With that said, we have 10 minutes with Dave. Any questions anyone has, again, at the bottom of the screen there is a Q & A button. All you need to do is just cilck on that and type in your question and we'll try to answer them.

Brendan Sheehan: Give about a minute on that to compile questions and if we don't get any new questions then we'll let you get back to your lunch. I'm trying to think if there's anything that we should touch up on while we're waiting on the questions.

David Guarino: I think one of the things that you've talked about earlier is worth reiterating. The beneficiary designations and a part of the estate planning, the most basic estate planning, even for people that don't have trust, one of the things that Waymark does and you should always be careful about is looking carefully at who are the beneficiaries at your life insurance at work, for example. Many people don't even realize. They don't think about that twice when they have a policy at work. Or they have a bank account that's set up as in their name and they're in charge of it. They don't realize that five years ago they set it up that has a beneficiary designation or something like that. Those things are always a part of the estate plan and are always part of the concern of...

David Guarino: You created this document that says it does this. I leave it here and this goes there. Then you find out that beneficiary designations are inconsistent with your current wishes. You've had a policy at work for 12 years. That 12 years ago you said, "I give to my brother" Now 12 years later that is a terrible idea. Nobody thought about it. You just figured that insurance was just going to go to my family. My estate plan will take care of that. That's an important thing that should always be emphasized. We need to look at the beneficiary designation as part of the estate planning.

Brendan Sheehan: All right, one of the things that... And switching over to the special needs planning where we see the beneficiaries really being incorrect, frankly. Is that, lets say that your son has special needs. If you just simply say, "I give half to my daughter and half to my son who is special needs." That could potentially cause them to lose benefits. That's where you get into special needs planning, special needs trust. Things like that. So the beneficiary, we try to look at those, at least on an annual basis with clients because it is very, very important, and when a client does, unfortunately, pass away we do find sometimes that the beneficiaries are stale. Things are going in the wrong place. There's nothing you can do after death. There are, but it becomes much more costly and complicated to amend things if the beneficiaries are off.

David Guarino: Yeah.

Brendan Sheehan: We do have a question. Let's see what this is.

Brendan Sheehan: Okay, so I guess we triggered something. So special needs trust, special needs planning. So Dave, talk a little bit about that. We talked about revocable trust, irrevocable trust. Is special needs trust a third type of trust or does it fall into one of those categories there?

David Guarino: I can fall into either. Essentially, a special needs trust is something that's set up typically by the parents who say that, "I'm going to leave some portion of my estate to a child with a disability or a relative with a disability." That says these funds will be available for the benefit of the person with the disability without being considered a resource of theirs. If they're on a program that's based on their resources, such as certain types of MassHealth or things like that, the assets that are left to the special needs trust won't disqualify the beneficiary.

Brendan Sheehan: It could be significant. A lot of times what we do with special needs planning is we'll have a life insurance policy and the beneficiary is a special needs trust. There could be five hundred, a million dollars in that, and if that money ended up in the ownership of that child they're considered to now have half a million to a million dollars of assets. That could potentially eliminate them from getting government benefits.

David Guarino: Right. The way that trust typically works is the beneficiary has no right to say I want anything from this trust. I demand a distribution, and because they can't demand the distribution then that qualifies as a trust that is not an asset of theirs. This is common planning for special needs families. It's to create this third party special needs trust and integrate it into the rest of the plan.

Brendan Sheehan: One of the things that I think there's a little bit of... just logistically sometimes the way that this works. Let's use that example. We have a daughter and a son who has special needs. You create that trust for that child, for the son. Just know that doesn't necessarily need to be funded during life. If you pass away, you could make the beneficiary that trust. That forwards the assets for that child so that it doesn't end up in their hands and potentially disqualify them from getting benefits.

David Guarino: That's the most common planning scenario, Parents hold onto the assets for as long as either of them are alive then after they're gone, when just like any other family, that's when the parents decide. They have a decision about what gets divided among the children. That share that goes in your example to the son would instead go to his special needs trust.

Brendan Sheehan: Any other questions? That was the only question that we've got so far. We'll give you one more minute and then we'll wrap up and call it a day. All right. Looks like we're pretty quiet. If something does pop up while I do the closing remarks. If you have anything to close with or you've pretty much summarized in the last-

David Guarino: No, I think that what I'm hoping that people get out of this is that this is a useful legality check for them before they meet with their lawyer, meet with their financial advisor. What should I be expecting when I go in there for advice about do I need an estate plan rather than being concerned about it, because there's always a concern. I think that the lawyers are going to assemble seven different trusts that I don't need. How do you... How could you reasonable refute their analysis about whether you need a trust or not. That's always the biggest concern, and I think that if you go in knowing that they should recommend power of attorney, healthcare proxy, and will and then the options for a trust would be based on these different concerns. I think that gives you a little more confidence that what you're being sold is appropriate.

Brendan Sheehan: Right. Okay. Well thank you everyone for joining. Hopefully this was helpful for everyone. Feel free to reach out to us if you do have any questions about anything that we talked about. I do apologize for some of the audio issues that we had during the webinar. Keep your eyes open for our October webinar. We're going to be do that on divorce planning. Hopefully it doesn't impact anyone personally. I have spoken with, unfortunately, a couple folks that have children that may be considering a divorce. So it's going to be on divorce planning. What to be thinking about in advance of a divorce. Thank you very much. Have a great day everyone. (silence)

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


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