Cape Cod Estate Planning Basics: What Kind of Plan Do You Need?
Cape Cod’s population is getting older, as many news articles in recent years have told us. And in 2010 U.S. Census statistics seemed to confirm these reports with statistics. Such reports, however, do not negate the fact that many non-seniors live here as well. Further, seniors themselves have varied needs with respect to estate plans. Below I’ve separated the array of clients we serve, and needs common to each.
Modest Cape Cod Estates – Young Families & Retirees
Those who have recently retired can have remarkably similar estate planning needs to families who are just starting out. Most times a simple estate plan is all that is needed. With nearly all of our clients, for example, we stress the execution of updated health care proxies and powers of attorney over the importance of drafting a last will. This is because for the most part, intestacy laws in Commonwealth of Massachusetts provide for the distribution of property in an orderly manner when no will exists.
Laws regarding the power to act on behalf of disabled or incapacitated individuals, by contrast, can cause great difficulty and significant expense without documents in place. If medical decisions need to be made, for example, drafting a health care proxy will avoid the long and costly process of appointing a guardian. Likewise, managing the finances of someone disabled requires a conservatorship in the absence of a valid power of attorney. Both of these processes – petitions for a conservatorship and guardianship – are at least 20 times more costly and time consuming than drafting the documents in advance in our experience.
Retirees seeking to plan for Medicaid are making a judgment call. But we find that most of the time where no significant assets beyond the family home are at risk – and both spouses are reasonably healthy – a wait & see approach is most appropriate.
Moderate Cape Cod Estates – Middle Aged Families & Recent Retirees
Most estates probably fall into this category – where there may be one or two homes, some retirement accounts and a few older children in the family. When an added level of complexity like this is involved we tend to recommend the basic estate planning documents, as in modest estates, and the option of creating a trust.
The need for a trust might arise from a variety of factors. Revocable trusts are very often used as vehicles to protect assets from the personal liability of their owners – by turning them into beneficiaries. Another common use is to prevent estate assets – such as a piece of real estate – from being locked up in the probate process when an owner passes away. Usually, during life, the beneficiaries are free to take such property out of trust should the need arise.
Irrevocable trusts are used for more technical estate planning strategies, and clients employ them both for protection from Medicaid and avoidance of Massachusetts and federal inheritance taxes. A second home would be a perfect example when the family could use an irrevocable trust to defend against either of these potential threats. Of course, the nature of irrevocable trusts makes them a little tricky, since the owner is giving up most if not all control over the assets.
Complex Estates – Family Businesses and Clear Estate Tax Risks
Complex estates require something beyond basic estate planning documents due to the number, size, and value of assets within the family. Avoiding Massachusetts and federal succession/estate taxes is a major factor in these plans. Adding a family business to the mix further complicates things, as the business owners often want to take into consideration family members who rely on the income as well as family members who help generate the income (not always the same people).
Because such estates are almost always a target for the estate tax, we always recommend that some lifetime gifting should take place. If not, or in addition, the use of irrevocable trusts, LLCs and life insurance can help avoid if not pay for potential estate liability down the road.
Medicaid planning is not usually considered at all for estates this size, since assets that exceed $1 milion can often be converted into interest generating income that will private pay for most if not all of an individual’s long term care should the need arise.
All Estates – Families that Plan Early
No matter what size an estate happens to be, planning things out with estate planning documents is almost always a time and money saving exercise. Of course, the added certainty that occurs within the family is a priceless bonus.