IRS Raising Annual Gift Tax and Estate Tax Exclusions in 2023

12/11/2022

IRS Raising Annual Gift Tax and Estate Tax Exclusions in 2023

Last modified: 12 minutes ago | 12/11/2022

Although inflation is generally nothing to be pleased about, the IRS recently announced inflation-adjusted changes to the annual gift tax annual and estate tax exclusions for 2023.

If you are considering wealth transfer tax planning, these are welcome increases.

Gift Tax Annual Exclusion

Effective January 1, 2023, the gift tax annual exclusion will increase from $16,000 (2022 number) to $17,000 per recipient. This means you can gift this amount to as many people as you wish in 2023 without using up your lifetime gift and estate tax exemption or paying gift tax. Married couples who gift-split may gift a combined $34,000 per person in 2023 without making a taxable gift.

Combined Gift and Estate Tax Exemption

Another significant change, effective January 1, 2023, is the combined gift and estate tax exclusion increase. It is currently $12.06 million, increasing to $12.92 million ($25.84 million for a married couple). The combined gift and estate tax exemption is the total amount of gifts a person may make during their lifetime, including transfers made at death, before being on the hook for gift or estate tax.

Those who have used up their lifetime exclusions as of December 31, 2022, will now be able to gift another $860,000 tax-free starting January 1, 2023. Married couples in this situation may make additional gifts of $1.72 million.

Generation-Skipping Transfer Tax Exemption

Another significant inflation-related change to be aware of: The generation-skipping transfer tax exemption is also going up. It will be $12.92 million, up from $10 million.

This may be useful for an individual who wishes to place assets in a trust for the benefit of future generations. In doing so, they may allocate their generation-skipping transfer tax exemption to this trust. The result is that these assets can remain in the trust for multiple generations without any gift, estate, or generation-skipping tax due on distributions or upon the trust’s termination.

Looking Ahead

However, readers should remember that these figures will revert to much lower amounts when the current Tax Cuts and Job Act expires on December 31, 2025, if Congress does not extend it or make it permanent. These exclusions will be reduced by approximately 50 percent to 2017 levels upon expiration, as adjusted for inflation.

There are a variety of planning strategies available to take advantage of these more significant exemption amounts before they are no longer available. If you have questions about how you can benefit from the increased tax exclusions, contact your estate planning attorney.

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(6) My thoughts on MA estate tax planning

1/2/2021

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MA has an estate tax for wealth over $1 million. Will it affect you? Is this problem yours?

The problem...

You own more than $1 million of assets and live in Massachusetts. You know that Massachusetts has an estate tax on residents who pass away with more than $1 million. With an extremely broad definition of what you 'own'. Yes, retirement accounts, life insurance included.

Years ago I learned from skilled tax accountants the approach to take. It's a 3 part way to lower estate taxes. And so today, 28 years later, we can talk about lowering MA estate taxes on your family.

Level 1: Use Revocable Living Trust (for some people)
Level 2: Remove existing life insurance from estate taxes (if larger policy exists)
Level 3: Make Gifts (many different ways to do this)

Table shows MA Estate taxes

Estate size   MA Estate tax
$1 Million   Exempt
$1.2 Million $45,200
$1.4 Million $58,000
$1.6 Million $70,800
$1.8 Million $85,200
$2 Million $99,600
$2.5 Million   $138,000
$3 Million   $182,000
$3.5 Million $229,200
$4 Million   $280,400
$4.5 Million $335,600
$5 Million   $391,600

Level 1 of Estate Tax Planning: Use Revocable Living Trust

Are you:

Married? Have life partner?
Own over $1 million?
Live in a state with estate taxation, like Massachusetts?

If you answer 'yes' to all these questions, each spouse or partner should consider signing a revocable trust.

Each trust should contain an estate tax saving provision. This may be done by instructing the trustee who acts after your death to set aside a Separate Account at your death. It would be a maximum of $1 million of assets.

(This is one way of doing it, there are others. And based on Massachusetts law,)

The Separate Account is the 'exempt' amount. After your death, the trustee in charge of that account uses it for your spouse, partner, or children.

Let's call the Separate Account the Family Trust (FT). It has both tax and non-tax goals. The lesson today deals with the tax lowering goal.

The estate tax goal is to keep the Family Trust assets out of the surviving spouse (partner) estate at their later death.

So the estate of the survivor is smaller than would be if ALL the assets ended up in the surviving spouse's name. This has been part of estate planning for many, many years.

This approach can lower estate tax. Because the first $1 million is not taxed at either the first or second death. And $11.7 million (Federal, 2021) is similarly not estate taxed at either death either.

The subtrust design can frequently be in this form:

SUBTRUST AFTER I DIE

Income. All income to spouse. (Or discretion to distribute all or some.)
Principal. To spouse and descendants for their health, education, maintenance, and support. (Or variations on this wording,.)
Death of beneficiary. Subtrust ends with death of surviving spouse. Assets go to children, equally, or to their descendants. Maybe outright to child, maybe held in trust for a longer period you set.

Health, education, maintenance, and support. This is broad. This language directs the trustee to distribute money to a beneficiary. How much? To let them continue to have the same style of living as the beneficiary enjoyed before the death.

Can the trustee be the same person as the beneficiary?  Yes, but you need to include precise language in the trust document.

Can the surviving spouse be both the trustee while also being a beneficiary? Yes. This is common. It's what most people want and is frequently found in living trusts.

Want to improve your own estate planning for your family? Learn more at 7 Questions to Test the Strength of Your Estate Plan

Level 2 of Estate Tax Planning:  Remove existing life insurance from estate taxes

If you're:

unmarried with assets over $1 million, or
married with over $2 million (and already have Level 1 planning)

you face MA estate taxes. If so, you should ponder adding Level 2 to your estate planning.

Many people say that 'isn't life insurance free of taxes?' Yes, free of INCOME tax. But not for estate tax purposes.

Yes, you heard me right. life insurance is not free from estate tax. Let me explain.

Life insurance is part of your estate because you can change the beneficiary right up to your death. It's that right to control its recipient after death that makes it part of your taxable estate.

By the way, if you make your spouse the beneficiary, the proceeds will not be estate taxed because of the marital deduction. A marital deduction eliminates estate tax on the first spouse to die.

But even if you named your spouse as beneficiary of the life insurance, here's the problem

When you leave it to your spouse, the proceeds will be part of their wealth. To be part of their estate when they later die. So the proceeds do get estate taxed. Only later, as part of the surviving spouse's estate.

By the way, some people make this mistake. They think this: because life insurance does not pass through probate then it's not part of an estate for taxation. Yet those are two different concepts. Probate is probate, taxation is taxation.

How to remove life insurance from estate taxation?

To remove life insurance proceeds from estate tax at your death and your spouse's death, you can do this:

Transfer the life insurance policy to a separate trust. Now. As Level 2 of estate tax planning.

Because you don't own the policy at your death it isn't part of your taxable estate.

Yet that type of trust is not a revocable trust. It's an irrevocable trust.

Using an irrevocable trust in this way is not unusual. It's used so often that it even has its own term, the 'irrevocable life insurance trust.' Or ILIT for short.

There are two main requirements:

First, you must change both the owner and beneficiary of the policy to be your ILIT.

Second, you must live 3 years after the transfer of the policy before you die. Take both these steps and you reduce the family's estate taxes.

Level 3 of Estate Tax Planning: Gifting

Some people can't use Level 1 or Level 2 planning. They're not married (partner) and have no large life insurance to remove from their estate.

So, if that's you or if you already have Level 1 and Level 2 planning, and still face MA estate taxes, you can consider gifting.

After you make a gift, your estate is lower. It makes sense, doesn't it? There is less that remains in your estate because you gave some of it away during life.

And because the MA estate tax is based only on your estate at death, the estate tax is lower.

Non MA real estate. You should know that real estate outside of MA is not taxable as part of your MA estate. This is important. So a gift of NH real estate, for example, will not lower your MA estate tax. And because NH estate tax doesn't exist, choosing NH real estate to gift does not lower your MA estate tax.

Gifting comes in many forms

These include gifts of money, gifts of real estate, gifts of property like cars. Gifts can be outright in form or alternatively in trust form.

Current gifts in trust form allow you to control the distribution of the asset after your death. While still lowering your estate by making lifetime gifts.

Gift trusts

You should not be the trustee. Until the trust ends, the trustee decides when to distribute money to the beneficiary (your loved one). A gift trust can have more than one beneficiary. And there can be more than one trustee. You can name two people together to be trustees.

$15,000 gifts Many people know that you can make a $15,000 gift to another person without paying a gift tax. They mistakenly think it's the most money you can make as a gift without paying a gift tax.

Yet, this is not true. You can give much more than that without paying a gift tax. The gift tax is a Federal tax, not a tax that MA has.

The IRS rules say that you can give $15,000 before preparing and filing a gift tax return.

But you can ALSO give up to $11.7 million (2021) without paying a gift tax. Filing a gift tax return is not too difficult. It is called a 709 form.

Large gifts. You can lower your MA estate tax by making not only $15,000 gifts but also large ones. Much larger ones.

For example: You are single with $2.4 million dollars. You're somewhere between 70 - 90.

If you make a $400,000 gift by check to an adult child, you will not pay any gift tax. Because it is under $11.7 million. You will have made a gift of $400,000 minus the $15,000 that is exempt from gift calculation.

When you die with $400,000 less (due to the gift), the size of your MA estate is $2 million. And the MA estate tax is lower. Because the MA estate tax return calculates the estate tax on the size of your death estate. Not the amount you once owned.

Charitable gifting

Another way to lower your estate tax bill is to give or leave, at your death, money to charity. Your estate will be able to deduct any charitable distributions from your taxable estate and so lower the size of your taxable estate.

And the estate tax will be lower.

As I write this, I am listening to a podcast about food banks during the Covid 19 pandemic. Jobs were lost and families needed food for both adults and children.

All are embarrassed by their situation of waiting on line. A private foundation provides the money for the food. Mostly volunteers are on their feet for 9 hours. Trying to get the food in to the site, and out. Each day.

You can leave money, above the amount exempt from MA estate tax, to a charity or two. If you do not have obvious beneficiaries, or even if you do, you might want to search your gut for a charitable impulse.

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(5) plain English estate planning

1/2/2021

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Plain English in MA Estate Planning

There's a crisis of inattention in the modern world. We're all surrounded by electronic devices that sound off continually, requiring - or seeming to require - our immediate attention.

Ernest Hemingway once said in an interview, "You can write anytime people will leave you alone and not interrupt you." It's true. If you're a writer, you must arrange time when people will leave you alone and not interrupt you. The biggest key to writing is to apply your seat to the chair, when nobody else is around, and to write.

Having nobody else around includes silencing your smartphone and turning off popup notifications. A real writer needs time to contemplate and compose in silence."

Bryan Garner, https://www.lawprose.org/lawprose-lesson-317-writing-in-solitude/

Lawyers are notorious for poor writing

To be honest, we attorneys were trained in law by reading endless law cases. Nothing but case after case of complicated sentences. Full of needless words and phrases.

Later, when predecessors or we write or speak to clients in the same style, the public has complained. It bores them to tears. It's been going on for centuries.

Yet, for decades, legal scholars and some attorneys have also complained. But to little avail. Lawyers who take plain English seriously are in the minority. Most just don't care. Or even see the problem.

Let me say: You don't need convoluted legal documents. Full of legal jargon. There is another approach. This alternative approach is plain English.

If you'd like to speak with us, contact us and we'll get back to you. I promise.

I've been reading about the plain English subject for 15+ years. Studying it (and the law of wills and trusts) daily.

As I practice law, I work to improve my native skills. (Maybe all writers feel the same.)

Like most people, I don't enjoy reading legal documents that need a good, serious edit to be more readable.

About plain English

Bryan Garner is the leading advocate for a change to a more direct writing style. He's an attorney and author.

Bryan has written over 20 books. His newest is 'Garner's Guidelines for Drafting & Editing Contracts.' I loved it and read it from cover to cover. Because a will or trust is almost a contract.

He writes that lawyers who constantly use the words 'said' or 'shall' are not writing well.
Yet, it is the tip of the iceberg. Legal writing is full of using 2 or more words when 1 word would do. And common legal writing has few heading, little attention to typography and little attention to the way the page looks.

Another book I enjoyed was Kenneth Adams' 'Adams on Contract Drafting.'

Adams' book explains that all legal document contain seven different categories of language. Each category serves a different function.

For example: One category gives a person a power to do something (the language of 'authorization').

Another category places a legal duty on someone (the language of 'obligation'). And so on.

The author advises the attorney/writer to be aware of what they want to say and use the correct type of language category.

Want to improve your own estate planning for your family? Learn more at 7 Questions to Test the Strength of Your Estate Plan

My documents are plainER, not plain

I work hard to make my writing as clear as possible. This takes as much time I can find to edit and edit again. Early in the a.m. for me. It's now 4:35 a.m.

All the writers say that editing is key. The first draft doesn't make it. Not even close.

And because some legal documents contain intricate tax or trust law clauses, you the reader may need to re-read something. Unfortunately.

But the writing should contain at least a second or third edit.

In sum, these type of legal documents need both tax and non-tax written provisions. Not the easiest things to deal with.

Tax provisions: Massachusetts and U.S. continue to have an estate tax. While the U.S. estate tax exemption is $11.7 million (2021), the MA exemption is much lower, at $1 million. Your taxable estate includes all you own, in any form. Your estate includes a house, IRAs, 403(b), life insurance, and other assets. There is no income tax on life insurance, I know. But it ends up in your taxable estate.

Nontax provisions: People live many different situations. All unique. When they die, they leave different situations behind. And so their wishes may differ from one another and this takes detail. With the background of law forcing some things to be said that are not obvious to those not trained in this legal area.

So, we need more complex language for some documents. And 'plainER' may better describe some documents.

To cut many needless words. Words that make reading legal documents difficult - sometimes impossible. People want better documents.

"Only by long practice can you express yourself clearly, attractively, and sincerely. Those are the eternal qualities of good speech and writing: lucidity, euphony, and sincerity.

Bryan Garner, LawProse Lesson #340, Discipline in Writing.

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(4) Limits of a will or living trust

1/2/2021

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Limits of a Will

Unfortunately a Will doesn't go into action until after your death.

So, in case of illness, the fact that you have a will is irrelevant. It doesn't give another person the right to sign your name on any documents or make decisions. It just sits in your file cabinet or safe deposit box. And doesn't help you or your family.

Living Trust

Contrary, a living trust is useful on incapacity. Your successor trustee can step in and do what's needed.

And, at death, it can avoid the need to go to probate court to have a will approved. That is what attracts many people to it at first. But there's more to it than that.

Maybe you've signed a living trust already

When was the last time you looked at it? Have things in your life changed quite a bit?

If you have a trust - but nothing in the name of the trust - this can be an issue. How are your assets owned? Maybe those assets are still in your sole name. Or in joint name.

When we do an estate planning/living trust review, we consistently see there's no assets in the trust's name. You haven't changed the legal ownership of a major asset from you to the trust.

This process of naming the trust to be owner of an account is called 'funding' the trust.

If you don't fund a trust, two things are possible...

First, the sole assets will need to pass through probate. So the trust can own the assets after that. A pour-over will directs that post-death transfer from probate estate to a living trust.

Yet, keep in mind that probate is not the end of the world, despite the ranting of some.
Yet it's sometimes an expensive detour to getting your assets to your loved ones. A delay and cost. And going through probate does not build character or make you a better person.

Second, remember that you face Massachusetts estate taxes if your assets exceed $1 million. If you're married, without a living trust plan, your family's estate tax bill may be higher than needed.

If married, those MA estate taxes will be due at the second death. Because you're not using the tax saving provisions of your married living trust.

By failing to put any assets into your trust, higher taxes can occur. Because you're not using the estate tax provisions typically part of a married person's living trust.

Yes, the provision is IN the document but not actually USED when you die.

Instead, your first million will go to your spouse along with all other joint assets. Then, on the second death, all will be subject to estate tax. It all gets bunched up together, for the tax man.

Want to improve your own estate planning for your family? Learn more at 7 Questions to Test the Strength of Your Estate Plan

Outdated Living Trust and Documents

What's happened since you signed a Living Trust?

Has someone you named in it died?
Or has become seriously ill?

In our practice, we write clients twice each year.

In our letter, we remind them of the above possibilities. And many others. And encourage them to ponder if they may need to alter their documents.

It's essential to do estate planning correctly at the start and ALSO keep it right over time. Like it or not, time keeps moving along. And we see lots of out-of-date estate planning.

So, review your current estate planning documents.

Then you can figure out if you should amend or replace them.

Completely replacing a document can be better. It can be more useful and even more cost-effective than cutting up old documents.

This decision depends on the particular situation. Each case is different. It takes time and focus to figure it out.

Useful is a professional who finds the quiet to review it.

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(3) MA Health Care Proxy, Durable Power of Attorney, Living Will

1/2/2021

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In your estate planning, you discuss and then decide to use one of two approaches. The one chosen should make sense for you and your situation.

Living Trust
Will

The documents should also deal with incapacity. So, to the trust and will we generally also add these documents:

Health care proxy
Durable power of attorney

Today we'll discuss these two additional documents. So a will or trust becomes a full estate plan.

Dealing with Incapacity

Three documents can help:

Health care proxy
Durable power of attorney
Living Trust incapacity provisions

Want to improve your own estate planning for your family? Learn more at 7 Questions to Test the Strength of Your Estate Plan

Health care proxy

It's possible that before you die you become too ill to communicate your medical wishes. Or you're involved in a car accident or some other dramatic mishap. A world of possibilities.

You could benefit by now giving someone authority to speak up for you for medical reasons. MA law allows you to name up to two persons. One at a time, to make medical decisions for you. It's called the health care proxy document.
You need to sign the document before two unrelated people. They're called witnesses. Like a will, they sign too.

Some people forget that it only becomes effective when a doctor SIGNS a statement. The statement should say that you cannot communicate your health care wishes, in the doctor's opinion.

Durable Power of Attorney

How many times a week do you sign your name? I bet the number is beyond your imagination. Well, what would happen if you cannot sign it? Not good things.

That's where a durable power of attorney document would come in handy.

Like a health care proxy, there is no official government form to get. Some are short; some are long. Yet there's some similarity between forms people use. The attorney who prepares the document will determine its contents. And its length.

Like other legal documents, to create one you must be:

18 years or older
know 'who you are'
know your 'general family facts'

Unlike some other states, Massachusetts law doesn't need witnesses or a notary to sign a durable power of attorney. But if a notary does sign it, it can be more useful. For example, you can have it recorded at the registry of deeds. Yet, recording is seldom required.

The word durable means it is valid even if you become incapacitated. Hard to believe, but that was not always the case.

Here's the scoop

Before about 1980, a power of attorney became invalid if you became incompetent. Power of attorney law is very old and has been around for centuries. That area of law came about before people starting living much longer lives - no longer dying on average before 50.

Problem: Just when you needed to use a power of attorney the most - upon incapacity - the old law said it was no longer valid.

By 1980, legislatures became aware of this problem. Trying to be helpful, Massachusetts and other states passed a 'durable power of attorney' statute.

This type of statute says that a power of attorney is valid even after you become incapacitated.

But the statute requires you to include additional wording in a regular power of attorney. Words like 'this document remains in force if I become incapacitated'.

Putting these words in the document makes the document 'durable'. It's the closest estate planning comes to using magic words to achieve a goal.

How old is your durable power of attorney?

Financial institutions may believe your durable power of attorney is too old for them to accept it's use. Unexpected, but true.

They may call it 'stale.'

The problem is: Each financial company has a different time frame in mind. From our experience it's impossible to prejudge the length of time - until you want (and need) to use the document.

If they reject your current one, and you have no living trust, a court may need to determine whom can sign your name. Not good. Remember, it's your money.
It's expensive because it's a court proceeding.
The court-appointed person may be called a conservator or guardian

Living Revocable Trust

Another document that can help if you become incapacitated is a revocable living trust. This document allows another person to handle trust assets if you can't.

The trust says the person owns the assets as a trustee and may deal with them. Sell, distribute to you.

The pre-death power is an important feature of a living trust. Like a durable power of attorney, the law insists that it be only used to benefit you and your family. Can benefit the Trustee too, if the Trustee is also listed as a beneficiary. This is the living trust you will sign.

So, the living trust helps you if you become too ill or old to manage your assets.

A living trust is very flexible. If you become too old or permanently ill to manage your assets, a well-written trust allows you to resign. You resign as trustee and another person becomes the trustee. The new trustee takes over.

This 'successor trustee' then become the trustee instead of you. Your family may create some legal document showing the change.

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(2) Why bother planning your estate?

12/12/2020

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Why people do estate planning

You NAME a person to handle things

Your assets don't automatically jump from your (dead) name to another person. A person is almost always needed to assist. If you die having signed a will, your will contains that persons name. Or names.

In a Will, the person is called the 'Personal Representative'. Before 2010 MA law changes, this title was the 'executor.'

With a Will, the probate court actually makes the final selection. As we say, 'you nominate and the court appoints.' It's one aspect of Massachusetts probate law.

A MA revocable trust works differently

Differently, because in a trust you actually appoint the person to take over for you. That person is called the 'Successor Trustee'. When you use a Living Trust, there's no need for a probate court to appoint the person because you do it. Yourself. Without a court getting involved.

WHO gets your assets

As I wrote yesterday, if you die without leaving a will or a trust, MA law determines who will get your assets. This MA law is the 'Intestate Statute.' This law lists your nearest relatives. And that's where it goes.

Until 2010, Massachusetts law was that if you died married and had joint children, a part went to EACH. Not all to your spouse.

For many people, they didn't want it divided like this. Because the spouse needed it all. So, you could (and would) sign a will or trust to change from the default law. And it could all go to the spouse. The Will controls over the default law.

About 2010 the MA legislature changed the MA law.

Now, if you:

die married
have joint children
there's no other children of you or your spouse

THEN it all goes to the spouse. That's the newer law.

BUT if either spouse had children that were not joint between them, a complicated set of rules now apply. This area of law has grown complex --- due to societal changes in marriage patterns and children.

By having a will or a trust, you can dictate who gets your assets, within some limits. By the way, the law continues to protect a spouse from receiving zero. But the law continues to allow leaving out a child on purpose.

You can say WHEN the beneficiary receives the assets

Some people you leave money to are decent at handling money.

But some beneficiaries are too young or too old to handle the assets you leave them. Or they may have issues or problems that may get in the way.

Instead of leaving zero to a loved one with a problem, you can add a trust clause to better handle the money. To direct the money be used for them over a period of time.

This provision is called a 'subtrust.' The subtrust is more detailed than you'll typically find in a simple will.

MA estate attorneys know how to do this. They do it everyday.

In a subtrust, you direct the Successor Trustee to hold the money for the beneficiary's benefit. The Trustee decides when and how much. And gives money from time to time to beneficiary. Or pays some bills for them - say roof over head. Think food. Think education. Think no drugs.

You determine how long this situation will continue. The subtrust terminates when a beneficiary reaches a milestone. Perhaps reaching an age of 30. Or sobriety.

The Successor Trustee then distributes it. Maybe to one person or more than one. No longer in trust. Life goes on.

If the first Successor Trustee can no longer function, due to their own death or disability, another one takes over. You can make a list in your trust of future trustees, in order.

Lowering costs after your death

Some people know that your family may need to complete a court process after your death.

It's called probate. It's the process by which a court declares your will official and effective. Probate means 'to prove.' Probate means to prove the will is valid.

Some people think it's too expensive, complicated, and time-consuming. They don't know why it exists. Probate can be a delay and sometimes a real problem.

Other times a delay is no big deal and not horrible. It depends on the situation.

Dealing with a probate court can be a hassle. Going inside a courthouse can raise tensions. People may associate a courthouse with legal fights. By the way, it's always easy to get through by phone to a probate court. Staff is extremely limited for the tasks they must do.

Most families can live without the added pressure. Particularly after a loved one's death.

Some people confuse the exactness and amount of details needed for a probate process with the real, more general need to gather details after death. Details needed with or even without a probate court process. We've handled about 200 post death engagements since 1993. We've been through both probate and no-probate cases. We've seen the difference between a will and living trust after death.

In sum, probate or not, there's details galore. But probate adds to it.

Yet 'avoiding probate' should not be the only reason to do estate planning. There are more, better reasons to get estate planning done.

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Course: Lesson 1 - Estate Planning in plain English

12/6/2020

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Thanks for checking out my 6+day course on estate planning in Massachusetts. I'm Joel Bernstein, an attorney and founder of MA Wills and Trusts.

You'll get my perspective about estate planning.

If - at the end - you're still abit hazy, you're not alone. It's an area of life where it's better that another person tells you what you should know. (Like the humans we gratefully met on our hike in the woods yesterday. We were lost.)

What is Estate Planning? Estate planning is accepting the fact that we all die and... we can't take our assets with us.

But it's not all gloom.

For most people, this is a positive step in life. They finally deal with the procrastination that is infamous in this area of life.

It deals with a far off day. Your death. And, if you become ill and cannot handle those assets, who will care for you AND those assets during your illness?

So, having stuff is the good news and the bad news.

For most, their assets remain very modest. But, for some people, their assets grow to larger amounts. And along with those assets come a need to plan for their use and passing at death.

Yet, in fact, for most the total value of the assets is less important than saying who gets them.

And how the beneficiary is given the money in problem cases.

Some of us have loved ones (a future beneficiary) who has a problem.
One that prevents them from being able to handle the asset. Maybe drugs. Maybe alcohol. Maybe lack of financial skills.

Some people never sign estate planning documents. In that case, Massachusetts state law will determine who gets it.

Only about 50% have a will or trust when we die.

I think that those without estate planning have not learned about its benefits. Or used the benefits of estate planning.

It takes some time and quiet to figure what you should do. And documents to use. Not to cause problems for those left behind.

We seek, through this course, to spread the word.

What Wills and Trusts BOTH aim for
You have a choice about which document you want to base your estate planning on.

On a basic level, these are a will or a trust. With either one, you should provide:

WHO you want to receive assets
WHEN you want them to get the asset
HANDLED by the person you choose
Getting it done at the LEAST COST, avoiding:

Living probate
Death probate
Estate taxes

These are the prime goals of estate planning.

Estate planning starts with reviewing your family situation and your assets. To see which approach is better for all involved.

Trusts are right for some people. Others, can use a will.

Of course, this simplifies the process. Because there are other ways people own assets. Such as joint ownership and naming a retirement account beneficiary.

But it's a decent start.

WHO should get your assets?
For some people, it's obvious to whom they want to leave assets to after they die.

Many times (but not always), if you have children, you want them to get what you own. Or, another person like a spouse or partner.

Many times the spouse/partner will need the money to live on. Sometimes it's split between a spouse/partner and your children or others. But this splitting is not that common.

But, it can be more challenging for those without children or close relatives, or in a second marriage.

This hard question accounts for a lot of procrastination to get wills or trusts done.

Sometimes even having close family members doesn't make the decision making easy.

In fact, if you procrastinate too long, you may run out of time to complete this project.

If you wait too long, it's possible that you may become unable to legally sign a legal document. You must be what the law calls 'competent.' If your mental condition falls too much, you cannot sign legal documents.

In your own situation, lacking estate planning can either be irrelevant or misguided.

Irrelevant because SOMETIMES the law would supply the rules that mimic what your will would say.

Or misguided because you should tweak the otherwise applicable state law.

In short, you can do better than the default law if you want to. Estate planning is determining if you can improve on the rules that apply if no will or trust is present.

In the case of your illness, the misfortune is yours. But more likely a problem for those who survive you.

WHEN should the beneficiaries receive your assets?
Some people want to leave money to a person whom can't handle what you want to give them.

Maybe they are too young or too irresponsible. Maybe one has a serious problem with drugs or alcohol. Or their spending habits are out of control.

Likewise, maybe they're good candidates for bankruptcy. Or a pending divorce.

The possibilities of misfortune go on and on. You know your own situation and maybe the more obvious issues that family members face.

Leave an addict money, and you can guess what will happen! But most times it's not that dramatic. It's just a difficult situation.

If you have a beneficiary with a problem, you should know about how a trust provision can help. You can put one in either a will or trust, but these days a Living Trust is the more popular approach.

Adding a trust provision for a problem beneficiary can delay giving money to them. Or too much of it. You put another person in charge of their share.

WHO to put in charge
You can write down in estate planning who will handle your affairs after you die. This decision is important.

In a will they're called a 'Personal Representative'. The title is 'Successor Trustee' in a trust.

The named person must be fair to all people concerned. These are the persons named in the will or trust and to your nearest relatives, the heirs at law.

Roles are similar but different
The biggest difference is that a trust has an element of time.

A will tells the person in charge to distribute the assets after your death.

But, in a trust you can tell the trustee to hold the assets for a period beyond your death. It can be useful to do this. Even if the trustee is the same person as the beneficiary.

It is fine for the beneficiary to be the trustee. Many trusts provide this. Or, if the beneficiary cannot handle the money then another person is named the trustee.

Reasons for using a trust provision
A trust provision allows you to more precisely control the money than without including the trust text in the document. It's usually a few paragraph, maybe an extra page.

It can lower estate taxes in some cases. And help deal with minor beneficiaries or those with a serious problem, such as addiction, etc.

Estate tax savings with a trust provision
As I told you, a trust provision can lower estate taxes for the family. In fact, for centuries people have used trusts to lower estate taxes.

This is how it works.

Your survivor (spouse) doesn't become the outright owner of the money you leave them. So it's not taxed when the second spouse later dies.

The tax law says the survivor's estate is smaller. And so there is less estate tax.

But the survivor can enjoy the money - even though they are not the legal title owner of it.

Massachusetts levies an estate tax for wealth over $1 million. So many people in the state use trust provisions in their documents.

Avoiding probate
Finally, you should know abit about the probate court process. The law may require this process to be started before assets can be transferred after you die.

Because a will does not become a will when you sign it.

Instead, a will legally becomes 'a will' only after a probate court says so. The process is called probate.

The court involvement can involve extra time and money and can be frustrating. Some people want to avoid this process.

Differently, a probate court doesn't need to be approve a revocable living trust. The trust is effective when you sign it. This freedom from court involvement is different from wills.

In the next email, we'll go beyond wills and trusts. And start explaining the other documents in a modern MA estate plan.

Meanwhile, if you have any questions, please hit the reply button and drop me a line. I respond personally to every email.

And if you just want to get started on the estate planning process, call us 781 863-8606.

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The family vacation home

11/11/2020

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Some people have owned a second home or condominium in the mountains for many years. When the kids were younger, they swam or skied or hiked or boated there. It was before the death of one of the parents.

The surviving parent was abit lost by the early death. And never got fully back on their feet. Mentally. The kids called just about daily. There was a date or two but never remarriage.

Now, almost 90, the widow wants to get the property to one of several grown children. Two of the four children would like to continue to use the place, Less use than the one that is slated to receive it. But, the two have children of their own by now and would love the quiet the place affords its inhabitants.

What to do? What not to do?

SALE TO ONE OF FOUR CHILDREN. One child has made an offer to buy it. Seeing that any use of it would end for the two that still would love a week or two a year for say 4 years after sale, the new buyer says no.

This is not a good estate planning approach. There is income tax due upon the sale. The property has been in the family for 50 years. While the death of one spouse 35 years ago increased the tax basis abit, the tax basis is still low.

GIFT TO ONE OF FOUR CHILDREN: This may make more sense tax wise. No capital gains tax.

ALLOW USE OF PROPERTY FOR 2 WEEKS A YEAR FOR 4 YEARS. Either sale or gift can include making the two who still would love some use fee much better about the whole thing.

DIE WITH THE PROPERTY: Given the age of the owner, dying with the property would allow it to get a new step up in income tax basis. So no income tax would be due until sold in the distant future,

Moral of the story: Estate planning really does affect the living. Poorly done, it can leave scars on family members. Think it through with all members of the family and a professional advisor who knows tax law.

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Plain English in Estate Documents

10/24/2020

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In my work (and life), I want to be clear, thoughtful, and straightforward.

I want you — and your family members or others — to more fully understand your documents.

Preparing legal documents is a technical subject. It should be as precise as reasonable, given the time constraints.

Because Massachusetts has an estate tax some documents need tax provisions. These tax-related terms are dense and esoteric.

Other than these tax-related provisions, I want to cut needless words. That make reading legal documents difficult. Even impossible to comprehend. I don't always succeed. But I have this attitude.

Likely, my documents are plainER, not plain.

Plain English seeks to

reduce unnecessary words—don’t use three words when one will do
avoid words like 'herewith' or 'heretofore'
use active, not passive wording
avoid convoluted legal language
use shorter sentences
edit, edit, and edit again

Formatting includes

using headings;
having more white space; and
using a highly readable font.

PLAIN ENGLISH IN LAW: BACKGROUND

Lawyers' are notorious for writing in a complicated way. And full of needless words and phrases.

For many years (centuries), the public has hated it.

In recent decades, legal scholars and attorneys have also seen this problem.

I've been reading about the plain English subject for 15+ years. And working daily to improve my writing and communication skills.

Because like most people, I don't enjoy reading legal documents. Almost all need strong edit to be more readable.

Modern Plain English approach: Garner and Adams

Bryan A. Garner is the leading advocate for a change to a more direct legal writing style. He's an attorney and author of over 20 books.

His latest book is 'Garner's Guidelines for Drafting & Editing Contracts.' (2019). I loved reading it.

While wills and trusts are not contracts, they come pretty close.

An illustration of his approach:

Lawyers who use the words 'said' or 'shall' in just about every sentence are misguided. Because shall only means 'has a duty to'. Nothing else. Doesn't mean 'in the future WILL.'

This example is the tip of the iceberg.

Another book I enjoyed was Kenneth Adams' 'Adams on Contract Drafting.' He is also an attorney.

Adams posits we use seven types of language in contracts. And each type has a different, particular function to achieve.

One type is language of 'authorization.'

Another is language of 'obligation'. And so on.

He tells us lawyers should know our aim when we use words. I work in the Cambridge - Acton area of Massachusetts. Clients are well educated and may want to (almost) understand the documents. And want clear explanations.

Here's an article in The Economist on plain English. Another from the New York Times. Both applaud the approach.

In summary, if you and others don't read a document because it is too dense and poorly written, then understanding it is impossible. This can lead to problems.

Finally, just because lawyers in the past used both the French and English versions of the same word we don't need to and should not.

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About the MA estate tax

10/24/2020

2 Comments

We Massachusetts residents face a MA estate tax. Our state is one of 15 that continues to have this type of taxation.

This tax is different and more complicated than the income tax. It is a tax on the value of property we own or control at death.

Federal estate tax has been in place since 1916. Before that, it came into use from time to time to raise funds for war.

The tax is calculated on the assets we control at death.

To illustrate: You're on your deathbed. You legally can direct where assets or accounts will go. It's deemed a pleasure. One worthy of taxation. Some people call it the 'death tax.'

Only some people pay this tax. Many die with assets below the MA exemption from this tax of $1 million. The Federal exemption is $11.58 million.

Important non-taxable distributions

Your estate does not pay estate tax on distributions that go to a spouse or charity.

What goes to your spouse will end up in their estate. Unless they spend it first. When added to your spouse's assets, the amount will face estate tax later.

This delay for a married person does not apply if you die married to a non-US citizen.

Instead, you should put a special provision into your estate planning documents. To cut estate tax on your death. It's called a QDOT provision.

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