Don’t Yet Want Your Heirs to Know About Your Assets? Use a Quiet Trust in Your Estate Plan

Young woman demanding money.Trusts are great tools for leaving assets to your heirs while maintaining control over their access to those assets. In many cases, you would tell your beneficiaries that you have made a trust for them. However, this is not always desirable — and this is where a “quiet” trust may be helpful.

A quiet trust is a trust created much like other trusts, but with little to no notice given to its beneficiaries. A person, called a grantor, places assets in a trust managed by someone who is appointed as a trustee.

The trust document may provide that income will only be distributed to a beneficiary once specific conditions are met — for example, when the grantor passes away or the beneficiary reaches a certain age. It may further require that no information regarding the accounting of the trust, what the trust owns, or other details will be provided to a beneficiary until certain conditions or timeframes occur.

Advantages of a Quiet Trust

Many people turn to quiet trusts for their children or grandchildren. They want to avoid their heirs relying on these future resources and becoming complacent instead of developing themselves financially or professionally. The idea is that if the beneficiaries don’t know about the money, they will work harder to create their own wealth and develop good financial habits. Many trust grantors hope that this personal development will make it more likely that once their heirs receive income or assets in a trust, they will be better equipped to manage and preserve these resources.

In other situations, you may wish to keep a trust a secret as a matter of privacy. A quiet trust can control the number of people who know about the trust. This can prevent family disputes if one person will receive more than another. It can also prevent heirs from talking too much about what they may receive, misusing the information, or being taken advantage of. For example, some parents may be concerned about their children’s creditors or anyone trying to get close to them for the wrong reasons.

A quiet trust can shield your loved ones from these problems and help them overcome any disincentive to develop themselves to be the best they can be. In addition, just like an ordinary trust, a quiet trust can be used for estate tax planning and avoiding the lengthy and expensive probate process. Depending on how they are set up, quiet trusts can also delay when the assets are taxed as income.

When a Quiet Trust May Not Make Sense

However, there are situations where a quiet trust may not work for you or your family. For one, you may wish to involve your children in your financial planning or discussions about your assets.

Sometimes keeping information secret can also backfire. Your heirs may not be prepared for suddenly receiving large sums of money or investments if they are unaware of them. For example, if you leave them rental property and they have moved to another state by the time they receive it, they may not be able to manage the property easily.

The lack of disclosure may also create a certain amount of distrust or resentment.

Setting Up A Quiet Trust

How you set up a quiet trust will likely vary based on state law. The basic process involves drafting a trust agreement, transferring assets, and implementing the terms of the trust. You should ensure that the person you choose to manage your trust is someone on whom you can rely. The wrong person could mishandle assets, fail to keep proper accounting, or miss deadlines for filing tax returns.

This process is best overseen by an attorney and other professionals, such as a financial planner and CPA familiar with trusts.

For guidance on quiet trusts, reach out to the MSW team: Amy Stratton or Kristen Prull Moonan

Be Cautious of Generic Health Care Proxy Forms

Senior woman wearing mask sitting on hospital bed while doctor wearing mask fills out form.Doctors, nurses, and hospital staff work hard to care for their patients when they are sick or hurt. However, even when a procedure is done to save a patient’s life, a hospital cannot act without patient consent. If a patient cannot speak for themselves and express their wishes, the hospital relies on what is known as a health care proxy form.

If you have ever been admitted to the hospital, you have likely been asked to sign a health care proxy form. Hospitals use proxy forms to obtain consent in advance from patients in case they become incapacitated and medical professionals need to administer medication, perform surgery, or otherwise treat the patient. However, the generic version used by most hospitals can fall short for many patients and may infringe upon their autonomy. Always be cautious when you sign a boilerplate document.

What Is a Health Care Proxy?

A health care proxy is a form that a patient uses to name an agent who will carry out their wishes regarding medical care if the patient cannot speak for themselves. Having a health care proxy specifically tailored to your needs can be important. For example, you can outline what kind of treatment you do — or do not want — if you become terminally ill or are in a coma; at the same time, you can indicate other wishes, such as whether you would want pain medication administered or your organs donated.

The agent only has the power to make decisions on the patient’s behalf once a doctor confirms that the patient requires medical attention but cannot advocate for themselves. The agent’s power ends when the patient can once again state their treatment preferences. Appointing an alternate agent is a good idea, too.

What Is the Problem with Signing a Generic Health Care Proxy?

A health care proxy is important because it instructs your agent to speak for you and, if well-written, it will give specific instructions about what medical treatments you want and which treatments you refuse. An estate plan is not complete unless it includes a health care proxy form.

The problem with relying on the generic health care proxy form the hospital provides is that, in some cases, these forms will not take your individual wishes into account. Every person treated at the emergency room or admitted into the hospital signs the same health care proxy form. Anything that could have a life-or-death consequence should be tailored to you and specifically address your needs.

If you have a health care proxy, inform the hospital staff so they can make the document a part of your medical record.

How Can I Complete My Own Health Care Proxy?

Part of creating an estate plan is having a health care proxy drafted. If you have not created an estate plan or health care proxy,  reach out to the MSW team: Amy Stratton or Kristen Prull Moonan

 

Plan Ahead Before Seeking Nursing Home Care: Avoid Unnecessary Debt for You and Your Family

Senior African American couple consult with attorney.Many senior citizens may need the services of a nursing home or at-home care at some point in their life. You might assume that government assistance or health insurance will step in and cover the cost if you cannot afford these services. Unfortunately, neither health insurance nor Medicare covers long-term care. Because obtaining long-term care insurance can be very expensive, Medicaid could become your only option.

Medicaid coverage is not a given, however. If you have assets or recently transferred assets, Medicaid may determine you do not qualify for coverage until a certain amount of time has passed. If this happens, you and their family can face significant medical bills. If you cannot pay, nursing homes may take you to court to get reimbursed.

What steps can you take to avoid this? First, before applying for Medicaid, get a better understanding of the timelines in your state – known as lookback periods – that can affect your eligibility. Then you can engage in proper Medicaid or asset protection planning in advance of these timeframes. A good age to begin planning is around age 65, although everyone’s situation is different.

Individual states run Medicaid programs, and every state has different rules regarding Medicaid eligibility. These programs were designed as a payor of last resort — in other words, to qualify, you must meet strict requirements. There are two primary types of Medicaid benefits: home care and skilled nursing home care.

Lookback Periods

You must submit an application to your local Medicaid office to qualify for these benefits. As part of this process, the state will look at any money or property you may have transferred within a certain lookback period. In New York, for example, this period of time will soon be 30 months for home care and 60 months for skilled nursing care.

These lookback periods can have serious consequences. If you have not engaged in appropriate asset protection planning, you may not be able to qualify for home care or nursing home care for many months. The result is that many elderly individuals must then spend down their savings and liquidate their assets to pay privately for their home care before Medicaid starts covering anything. If a person no longer has resources and is subject to a disqualification penalty period, family members may have to step in and bear these costs on their own.

So, what can you do? The answer is to start planning as soon as is practical.

Options to Explore

Speaking with an elder law attorney can help you and your loved ones explore options available to avoid you or them being personally responsible for the costs of your care.

  • Medicaid Asset Protection Trust — One common approach is placing assets in a Medicaid Asset Protection Trust. You may be able to use this to shelter various assets such as stock accounts, savings, a home with unprotected equity, and much more.
  • Pooled Income Trust — Another option you may explore is contributing income that exceeds Medicaid allowances to a Pooled Income Trust. This can allow you to qualify for Medicaid while diverting excess income to a trust that pays qualified expenses on your behalf. This will enable you to benefit from the income and not spend it on things Medicaid could have otherwise covered.
  • Spousal Refusal — Your spouse may also have options that can help you qualify for Medicaid. One such option includes exercising a right of spousal refusal — a process available in some states by which the income and assets of your spouse can be removed from consideration in your Medicaid eligibility analysis.

Finally, an attorney can help you understand if certain transfers are permissible under Medicaid rules without triggering a penalty period.

Without proper planning, individuals with assets and income exceeding specific state-set thresholds would have to spend this income and their assets on their care or exempt items before they can receive Medicaid benefits.

For assistance in planning, reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

Four Provisions People Often Forget to Include in Their Estate Plan

Even if you’ve created an estate plan, are you sure you included everything you need to? There are certain provisions that people often forget to put in a will or estate plan that can have a big impact on a family.

1. Alternate Beneficiaries

One of the most important things your estate plan should include is at least one alternative beneficiary in case the named beneficiary does not outlive you or is unable to claim under the will. If a will names a beneficiary who isn’t able to take possession of the property, your assets may pass as though you didn’t have a will at all. This means state law will determine who gets your property, not you. By providing an alternative beneficiary, you can make sure that the property goes where you want it to go.

2. Personal Possessions and Family Heirlooms

Not all heirlooms are worth a lot of money, but they may contain sentimental value. It is a good idea to be clear about which family members should get which items. You can write a list directly into your will, but this makes it difficult if you want to add items or delete items. A personal property memorandum is a separate document that details which friends and family members get what personal property. In some states, if the document is referenced in the will, it is legally binding. Even if the document is not legally binding, it is helpful to leave instructions for your heirs to avoid confusion and bickering.

3. Digital Assets

More and more, we are conducting business online. What happens to these online assets and accounts after you die? There are some steps you can take to help your family deal with your digital property. You should make a list of all of your online accounts, including e-mail, financial accounts, social media accounts, and anywhere else you conduct business online. Include your username and password for each account. Also, include access information for your digital devices, including smartphones and computers. And then you need to make sure the agent under your durable power of attorney and the personal representative named in your will have authority to deal with your online accounts.

4. Pets

Pets are beloved members of the family, but they can’t take care of themselves after you are gone. While you can’t leave property directly to a pet, you can name a caretaker in your will and leave that person money to care for the pet. Don’t forget to name an alternative beneficiary as well. If you want more security, in some states, you can set up a pet trust. With a pet trust, the trustee makes payments on a regular basis to your pet’s caregiver and pays for your pet’s needs as they come up.

Make sure your will and estate plan take care of all your needs. To learn more, reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

Congratulations to MSW Partners on Best Lawyers Recognition for 2023

Congratulations to MSW partners Kristen Prull Moonan and Amy Stratton who were again honored by Best Lawyers in America.

Kristen was recognized for:
• Elder Law

Amy was recognized for:
• Closely Held Companies & Family Businesses Law
• Corporate Law
• Elder Law

Best Lawyers was founded in 1981 with the purpose of highlighting the extraordinary accomplishments of those in the legal profession. Lawyers on the Best Lawyers in America list are divided by geographic region and practice areas. They are reviewed by their peers based on professional expertise, and undergo an authentication process to make sure they are in current practice and in good standing.

How Changes to Portability of the Estate Tax Exemption May Impact You

Pen lying upon an estate tax return.On July 8, 2022, the Internal Revenue Service issued new guidance that allows a deceased person’s estate to elect “portability” of their unused gift and estate tax exemption for up to five years after their death. So, if your spouse passed away less than five years ago, you may be able to file an estate tax return to transfer their unused estate tax exclusion to yourself.

What Is Portability, and How Does One Get It?

Portability is a way of transferring the amount of the gift and estate tax exemption that a deceased spouse did not use to the surviving spouse. It is only available to married couples.

To get the benefit of portability, the executor of an estate must file a federal estate tax return. Previously, this return had to be filed within two years of a person’s date of death, assuming an estate tax return was not required sooner. Because so many estates kept missing this window, the IRS decided to extend it to five years.

Let’s say your spouse has passed away, and you are the executor of their estate. If the total value of your spouse’s assets in their estate is below the threshold for federal estate taxation, you may assume that no estate tax return needs to be filed. While this is technically correct, if you do not file an estate tax return, there is no way to transfer over your spouse’s unused estate tax exclusion for your benefit.

The federal gift and estate tax exclusion as of 2022 is $12.06 million per person ($24.12 million for married couples). A person can give away — either during their lifetime or at death — up to this amount, tax-free.

In the above example, if your spouse’s estate were worth $2 million, that would leave an unused exemption of $10.06 million, which you could add to your own $12.06 million exemption, should you ever need it. But you must file an estate tax return for your spouse and complete the section of Form 706 currently entitled “portability of deceased spousal unused exclusion.”

Now Is a Good Time to Consider If You Could Benefit From Portability

The current federal gift and estate tax exemption will be reduced by half in 2026. So, if you have a spouse who died in the past five years, you should consider as soon as possible whether electing portability makes sense.

To be eligible, the deceased spouse must have been a U.S. citizen or permanent resident on the date of their death, and the executor must not have been otherwise required to file an estate tax return based on the value of the total estate and any taxable gifts. If an estate tax return was filed within nine months after the spouse’s death or an extended filing deadline, the portability option may also not be available.

For families with some wealth, this option could result in hundreds of thousands of dollars or more in tax savings. Many families might not have an estate tax problem now, under the gift and estate tax exclusion of 2022. However, if the second spouse dies after 2026, that spouse’s estate could owe hefty taxes. Portability allows you to plan ahead to avoid this problem.  To learn more, reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

What You Should Consider Before Scattering a Loved One’s Ashes

Man in monk robe scattering ashes and flower petals into water at funeral ceremony.Saying goodbye to a loved one is heartbreaking. Making final arrangements can be overwhelming, and knowing what you are allowed to do to fulfill your loved one’s wishes is important, but it can also be confusing. If the person you lost wanted to be cremated and have their ashes spread, you should know where you can scatter their ashes to make sure that putting your loved one to rest is done appropriately.

Where Do You Want to Scatter the Ashes?  

The place you choose to spread your loved one’s ashes is very important. The rules for spreading someone’s ashes are different depending on the type of location.

Is the Area Private or Public Property?

The biggest question about location is whether the property is public or private. If the location is public, you may be able to scatter your loved one’s ashes freely so long as you do not spread their remains in a place where others would use the space. For example, do not scatter your family member’s ashes in the sandbox at the park. Always be considerate of others in public places.

Also make sure you have the appropriate permission. During the 2022 NHL Playoffs, a hockey fan who lost his best friend, another big fan of the sport, spread some of his friend’s ashes on the ice rink. He quickly learned that he could not pay tribute to his friend that way after being banned from attending games for the rest of the season. If you get the property owner’s permission, you can scatter the ashes on their property. However, it is unlikely that you will get your favorite amusement park or stadium’s permission to spread your loved one’s ashes.

Note that if you are allowed to spread ashes on a piece private property, the specific location may have certain requirements you must follow.

Scattering Ashes at the Beach

You will need permission to spread your loved one’s ashes on the beach. Many states do not allow you to spread ashes along the shoreline, but in states like California, you can scatter ashes 500 yards or more from shore.

Scattering Ashes at Sea

It may have been your loved one’s last wish to have their ashes scattered at sea. The Environmental Protection Agency regulates how surviving loved ones can scatter the ashes of the person they lost. Usually, the EPA requires that anything you put into the ocean decomposes easily. So, flowers are OK, but you probably can’t place the urn into the sea.

Knowing what’s allowed as you lay your loved one to rest will make a hard situation just a little easier. Any way that you choose to honor your loved one is valuable. Spreading their ashes will help you heal and keep their memory alive. To learn more, reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

Is a Grantor Retained Annuity Trust Right For You?

100-dollar bills moving from one place to another.What is a GRAT?

Grantor Retained Annuity Trusts (GRATs) ­are a mechanism by which wealthier individuals and couples can transfer appreciating assets to their heirs and minimize gift or estate taxes. High-net-worth individuals and couples can use GRATs to freeze the value of their estates and transfer any increase in the value of their assets to their heirs, with minimal tax consequences.

Understanding the Basics

GRATs are irrevocable trusts permitted by the Internal Revenue Code. A client (grantor) transfers an asset or assets to the trust. The grantor (and only the grantor) retains a right to receive an annuity income from the GRAT over a certain period of time. The GRAT is required to pay this annuity stream no less than annually, and it must be a dollar amount or percentage of the value of the asset put into the trust. Any annuity income received is not subject to income tax due to special tax rules.

The asset that is transferred is considered a gift equal to its value reduced by how much of an annuity the grantor receives, along with any interest, as set forth in IRS guidance. Once the trust terminates, the assets transfer to beneficiaries such as a client’s children or a trust for their children.

A GRAT can be designed to result in no taxable gift and, therefore, no gift tax. However, if a GRAT cannot be set up this way, then the grantor can use any of his or her lifetime gifting exclusion to offset any gift tax.

If the grantor does not pass away during the GRAT’s term, then any assets or appreciation that pass to beneficiaries are not subject to gift tax or estate tax upon the grantor’s death. If the grantor dies during the term, then the value of the assets needed to pay the remaining annuity payments to the grantor would be included in his or her estate for tax purposes. The rest of the assets would pass without being included in the grantor’s estate.

Let’s Look at An Example

Let us say you have a stock account worth $1 million and transfer it to a GRAT. The terms of the GRAT provide that you receive 10 annual payments of $100,000, plus interest, at a rate set by the IRS from the income of the trust. If designed to be a zeroed-out GRAT, the total payments should equal the asset’s present value at the date of transfer. If the stock account is appreciating, this works out very well. The trust can pay you the annuity without invading the principal, and any appreciation in value transfers to the beneficiaries of the trust, with no gift or estate tax consequences, once its term ends.

Why Consider a GRAT?

A GRAT may be especially prudent for clients that gift money regularly and may use up their federal estate and gift tax exemption. The total lifetime exclusion as of 2022 is $12.06 million ($24.12 million for married couples). A GRAT is also a helpful planning device for clients with high-value estates who may suffer serious tax consequences when the federal exemption reduces by half in 2026.

Furthermore, many states have less favorable estate tax exclusion amounts and gifting rules. New York, for example, has an exclusion of $6.11 million as of 2022. In New York, the consequences of exceeding this threshold can be harsh. If an estate is more than 5% over the exemption, the estate loses the exemption entirely, and the total value of the estate’s assets is subject to estate tax. New York also has a three-year clawback rule for gifts. So, when a person passes away, the state includes the last three years of gifts that person made in calculating the total value of their estate for tax purposes.

GRATs can help avoid many of these issues. So why not plan ahead now? Contact your attorney to determine whether a GRAT is a good fit for you. To learn more, reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

The Ins and Outs of Estate Sales

Jewelry at an estate sale.Following the death of a family member, you may find yourself needing to sort through many possessions accumulated over the deceased’s lifetime. An estate sale is one way to distribute those items that you do not want or need quickly and efficiently.

While selling someone’s furniture, jewelry, artwork, antiques, and other belongings yourself can mean a great deal of time and effort on your part, there are companies that help families sell items. An estate sale company will do all the work in exchange for a percentage of the proceeds — typically anywhere between 25 percent and 50 percent. The company usually handles organizing the inventory, staging the house, appraising the value of items and setting prices, promoting the sale to the public, and hiring workers to run the sale. You may need to pay a separate fee to the liquidator for cleaning up following the sale, including donating or disposing of any goods that do not sell.

Keep the following in mind when getting ready for an estate sale:

  • First ensure that you have the legal right to sell the property. There cannot be any unresolved estate issues. Companies may request legal documentation showing that you have the right to dispose of the property.
  • Remove from the house anything you want to keep before calling in the liquidators, but avoid throwing too much away – one person’s idea of trash might be another person’s treasure.
  • There is no regulatory body that oversees the estimated 15,000 estate sale companies in the United States, so before hiring one of them, rely on a referral from a trusted friend or family member and do some research. You can search the website of the American Society of Estate Liquidators, a trade association that requires its members to meet certain requirements and abide by an ethics code.
  • Check your local Better Business Bureau and Yelp for complaints about companies you are considering, or attend a sale run by the company.
  • Make sure your liquidator carries insurance in case there are any accidents while buyers are at the estate sale.
  • Ensure the company offers a written contract.
  • Ask any prospective liquidating company how it handles security, what happens to goods that do not sell, and what type of clean-up is included.
  • Note that many companies discourage families from being present during the actual sale.

To learn more, reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

Keeping Your Emergency Contacts and Medical Information Updated for First Responders

Paramedic in ambulance holding smartphone.If medical personnel are able to access your medical history during an emergency, it could mean the difference between life and death. But if, for example, you are injured, in shock, suffering from dementia, or are otherwise incapacitated, you may not be able to provide that information yourself.

There are several systems readily available to help make crucial contact and medical history information available to first responders. Consider taking the time to update your details with the following free tools:

  • On Your Smartphone: Even when your smartphone is locked, you have options for inputting your emergency contacts as well as other vital information that could help save your life.
    • Medical ID for iPhones. If you are an iPhone user, take advantage of the preinstalled Health app to input details about your medical needs so that first responders will have the information they need in an emergency. To do this, open the Health app, choose Review Medical ID, and enter your information.You can include not only your designated emergency contacts, but also such details as your birthdate, any medical conditions or allergies, your blood type, and your organ donor status. You can then choose to make your Medical ID available on your iPhone’s lock screen for first responders.

      In addition, there is an option to share your Medical ID information automatically with a dispatcher, should you ever need to make an emergency call.

    • Emergency Information on Androids devices. Depending on your device, you may be able to find “Emergency Information” or “My Info” in your Settings, where you can enter your medical details and emergency contacts. Be sure to add anyone you wish to designate as an emergency contact into your Contacts app as well.In your Android Settings, you can also add your emergency contact information to your lock screen as a custom message.
    • In Case of Emergency (ICE) Contact. This program, which was originally established in 2004, encouraged people to list in their cell phone their “in case of emergency” contacts under the heading “ICE,” allowing paramedics or other medical personnel to know whom to contact in the event of an emergency. Today, there is also a free ICE app for smartphones, which allows you to send an instant message, including your GPS location, directly to your ICE contacts with the tap of a button if you are in an emergency situation. Learn more about ICE.
  • The National Next of Kin Registry (NOKR). The NOKR is a free service that allows you to register yourself and your next of kin in the event of such situations as daily emergencies or natural disasters. The information you enter is not available to the public, but it is available to emergency service agencies registered with the NOKR. If you are in an accident, emergency services personnel would be able to search the website to find your next of kin and notify them about your condition. The NOKR stores emergency contact information for those across the U.S. as well as 87 other countries. You can register online, through U.S. mail, or via fax. Learn more about registering for the NOKR.

To get the most out of an emergency contact, you should make sure the person you choose as your emergency contact has agreed to act in this capacity, knows about any allergies or other factors that could affect your treatment, and knows whom to contact on your behalf. To learn more, reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.