Revocable Living Trusts and Children as Beneficiaries of Life Insurance

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Client’s often tell me that they have named their spouse as the beneficiary of their life insurance policy and then their child as the backup beneficiary. This is very common.

There are a few things to consider if you currently have your beneficiaries listed this way.  If your child is a minor when the second spouse dies then a legal guardian must be appointed by the court to oversee the child’s inheritance.  You have no say in who the guardian will be. The guardian then holds the money for the benefit of the child until the child reaches the age of majority (18 years old in Massachusetts).  As you may know, the appointment process can be time consuming and costly and can prevent your child from being able to use the money right away.

Your child will then receive the full amount of the life insurance policy at 18. If your life insurance policy is, let’s say, a million dollars, then your 18 year old will be inheriting one million dollars outright at the age of 18. That’s 18 years old with a million dollars!  I have big hopes and dreams for my daughter  (Edit: I now have three daughters!).  I hope that she is grounded enough and mature enough to be responsible with new found wealth at 18 years old.  However, I am also a realist.  People don’t always make the best life decisions during this phase of their life.

One option is to create a Revocable Living Trust and then name the Trust as the beneficiary of the Life Insurance policy.  This allows your minor child to avoid the guardianship process and allows you to choose who you would like to oversee the money and provide specific instructions as to how that money should be spent.  It also allows you to control at what age your child has full control over the money.  You have the ability to keep the money in trust for the child and protect her from future creditors, divorce, bankruptcy and lawsuits.

The bottom line is you can control your children’s inheritance but you need to plan ahead for it.  Speak to a qualified estate planning attorney to learn more about Revocable Living Trusts and how they can benefit you.

The Importance of An Estate Plan If You Have Young Children

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Estate planning allows parents to plan for who will care for their children and how they are cared for, ensures their property will pass to whom they want, the way they want and when they want and determines who will handle the property they leave to their children.

Minors need parents, and if you pass away prior to your child turning 18, who will care for them?  If you don’t decide and document it in a plan, the court will decide for you.

If you have children, especially young children, here are a few things to think about:

  • Do you have clear instructions for the way you would like your guardian to raise your kids?
  • Do you have an emergency guardian in place in case of an accident?
  • Have you thought about leaving your property to your minor children?  Who will oversee their inheritance?
  • Your children, first and foremost, need food, clothing and shelter when you are gone.  Do they have access to their inheritance right away?
  • How will your children pay for college?
  • Will your children’s inheritance be protected from creditors, divorce and lawsuits?

These are only a few of the important issues that parents with young children face.

What Do I Do When Someone Dies?

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When someone close to you dies it can often be an overwhelming experience. We have created a checklist to use when a person dies to help guide you through this difficult process click here to download.

Please call our office for specific advice when needed.

Do I Need a Will or Trust, or Both? Answered by a Massachusetts Estate Planning Attorney

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Do I Need a Will or Trust, or Both? Answered by a Massachusetts Estate Planning Attorney

Many people are familiar with the terms “will” and “trust,” however, they don’t exactly know the difference, nor do they know which is more appropriate to address their needs. Being proactive with your financial planning and asset protection is the first step to taking care of your assets and your family when you pass. The next important step is determining which type of protection and planning will fulfill your wishes and make the most sense for your individual set of circumstances. 

Do you need a will or trust, or both?

Specifically, while a will and a trust serve different purposes and can each be drafted individually for a client, they may also cohesively work together to make an airtight plan as well. To learn more about what type of estate plan is right for you, it is critical to hire an experienced and qualified estate planning attorney who can discuss all of your legal options to ensure you are adequately protected and secure.

Wills, Explained

When you die, a will protects and addresses any property that is in your name and not held in a trust or joint tenancy (with your spouse). It is important to keep in mind that a will must pass through the court system, specifically through the probate department. This means that the court will oversee the validity of the will and handle all distributions and allocations of the property stated therein. Considering that a will must be processed through the court system and in turn, becomes public record, this may or may not be the right estate plan for you.

Trusts, Explained

On the other hand, a trust only covers property that has been assigned or transferred into the trust; property is not covered automatically. A trust is a legal document and agreement set up by a “grantor,” providing a “trustee” with the duty of holding legal title to property for the benefit of another person, called a “beneficiary.” A trust can be created as revocable, in order to provide flexibility, or irrevocable (cannot be revoked), depending on the grantor’s needs and goals. Unlike a will, a trust does not have to go through the court system’s probate department, which can alleviate time and resources and also keeps the matter more private.

How a Massachusetts Estate Planning Attorney Can Help You

Let us help you achieve your unique estate planning goals, as our qualified Massachusetts Estate Planning & Probate Attorneys will assess your goals and needs to ensure you receive a plan that works for you. Call The Sullivan Firm, P.C. today at (978) 325-2721 to arrange a free-of-charge exploratory meeting. Together, we can preserve, protect and provide for your loved ones.

Troy Sullivan, Massachusetts Estate Planning Attorney

The Sullivan Firm, P.C. is a boutique probate and estate planning law firm serving the North Shore and Cape Ann of Massachusetts including Gloucester, Rockport, Manchester and Beverly. The firm concentrates on estate planning matters, including trusts, wills, healthcare proxies, life planning, probate, special needs trusts, and trust administration. 

Avoiding a Tax Bomb on Proceeds from a Life Insurance Policy

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Life insurance is a contract entered into between a policy holder and an insurance company. Specifically, the life insurance policy holder makes set payments to the insurance company in exchange for the promise that the company will pay a designated sum of money to a beneficiary in the event that the policy holder passes away. All Massachusetts residents are subject to a state estate tax if their estate is valued over $1 million.

Your estate includes all of the property you own, including tangible personal property (your “stuff”), intangible personal property (bank accounts, IRAs, 401Ks, business interests, etc), and real property as well as any proceeds from a life insurance policy. Because the proceeds on a life insurance policy can be in the hundreds of thousands and even millions of dollars, these proceeds exponentially raise the value of your estate and the tax bomb that your estate faces.

Is there a way to avoid the estate taxes due because of the proceeds received from a life insurance policy?

You can avoid the tax bomb on life insurance proceeds if you set up an irrevocable life insurance trust (ILIT). The ILIT takes the life insurance policy away from your estate and places it in a separate trust. The policy is therefore no longer owned by you. Rather, it is owned by the trust. Because it is irrevocable, you cannot change your mind and dispose of the trust. While this finality may seem alarming to many, the ILIT does allow you to control many other decisions related to the ILIT.

For instance, you can designate beneficiaries. You can also dictate terms for when and how they will receive the life insurance proceeds. Under the regular scheme, payout upon death is immediate and in full. Under an ILIT, you can stagger payments. You can also dictate what exactly the proceeds are to be used for, such as for living expenses or education. This helps younger children or adults with budgeting issues.

How do I set up an irrevocable life insurance trust?

To set up an ILIT, you simply need the names of your beneficiaries, the name of your trustee, and all of the terms you wish to set out for the distribution of the trust (how, when, and how much). Then obtain a life insurance policy, making the ILIT the owner and beneficiary of your policy. If you already have a policy, transfer ownership to the ILIT.

Setting up an irrevocable life insurance trust can be complex, and there are certain requirements that need to be met, but an experienced Massachusetts estate planning attorney can help you evaluate whether it is your best option. Contact The Sullivan Firm, P.C. today at (978) 325-2721 for a free consultation on trusts.

Troy Sullivan, Massachusetts Estate Planning Attorney

The Sullivan Firm, P.C. is a boutique probate and estate planning law firm serving the North Shore and Cape Ann of Massachusetts including Gloucester, Rockport, Manchester and Beverly. The firm concentrates on estate planning matters, including trusts, wills, healthcare proxies, life planning, probate, special needs trusts, and trust administration. 

Mental Incapacity and Estate Planning

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The common issue of mental incapacity is one of the most important reasons for beginning the estate planning process early. While you may work hard at taking care of yourself, you do not know what the future has in store for you. Estate planning allows you to ensure that your assets are protected and distributed in the manner you choose in the event that you become incapacitated later on in life. The Commonwealth of Massachusetts will not recognize any legal documents drafted or signed by individuals who are mentally incapacitated. A will is one such legal document. Mental incapacitation can occur due to mental illness, coma, physical ailment, or the side effects of prescriptions. Generally speaking, mental incapacitation occurs when you are unable to fully understand the terms of the document that you are signing due to a temporary or permanent mental issue. Mental incapacitation centers around the issue of consent. An individual who is mentally incapacitated cannot consent because they are unable to process decisions. When someone becomes mentally incapacitated, the court can appoint individuals to make decisions for the mentally incapacitated person, such as a health care guardian or financial conservator. In probate, mental incapacity has a specific definition with regards to an individual’s ability to draft a will or otherwise conduct any estate planning. According to the Massachusetts Supreme Judicial Court in Goddard v. Dupree et al., 322 Mass. 247:

[T]estamentary capacity requires the ability on the part of the testator to understand and carry in mind, in a general way, the nature and situation of his property and his relations to those persons who would naturally have some claim to his remembrance; freedom from delusion which is the effect of disease or weakness and which might influence the disposition of his property; and ability at the time of execution of an alleged will to comprehend the nature of the act of making a will.

Putting this in layman’s terms, a testator must have the mental capacity to understand the consequences of drafting a will and how he or she would like to distribute assets in a will. Unfortunately, mental capacity is a grey area in Massachusetts. While an individual who is in a coma cannot under any circumstances contemplate the nature of a will, an individual with a mental illness like bipolar disorder may. By only acknowledging wills of those who are mentally capable of drafting them, the Massachusetts probate courts seek to reduce the number of situations in which individuals use coercion or forgery to create wills for mentally incapacitated testators. If you suspect that someone coerced a loved one to draft a will while your loved one was mentally incapacitated, you need to consult with a qualified probate attorney immediately on how to prove mental incapacity and coercion in court. If you are in the process of drafting a will, it is important that you draft the will with the aid of a skilled probate attorney. The probate attorney can ensure that your will is valid and conforms with Massachusetts law. If you suffer from a disease such as dementia or mental illness that may raise mental capacity concerns, your attorney can assist you with creating a record of mental capacity should any disputes arise after your death. In addition, your attorney can help you create a comprehensive estate plan should you become incapacitated in the future. These additional documents include:

• Health Care Proxy: An agent appointed by you who can make treatment and medication decisions, pay medical bills, and obtain your records.

• Durable Power of Attorney: An agent appointed by you who can make financial decisions while you are mentally incapacitated.

• Advance Medical Directives: Instructions included in a living will that dictate what treatments are or are not permitted.

• Trusts: You can place some of your assets in a trust; develop a plan for how those funds are to be disbursed, to whom, and when; and appoint an individual to administer the trust.

If you or a loved one is or may shortly become mentally incapacitated, you need to consult with a probate attorney immediately on estate planning to avoid any issues regarding medical treatment, financial status or assets. The attorneys at The Sullivan Firm, P.C. have dedicated their careers to helping individuals preserve, protect and provide for their families’ futures. Call The Sullivan Firm, P.C. today at (978) 325-2721 to schedule a free exploratory meeting.

Troy Sullivan, Massachusetts Estate Planning Attorney

The Sullivan Firm, P.C. is a boutique probate and estate planning law firm serving the North Shore and Cape Ann of Massachusetts including Gloucester, Rockport, Manchester and Beverly. The firm concentrates on estate planning matters, including trusts, wills, healthcare proxies, life planning, probate, special needs trusts, and trust administration. 

Smart Estate Planning For A Family Business

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How Long Does the Probate Process Take?

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What happens if you die without an estate plan?

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Creating an estate plan is not an easy subject to broach, especially with someone who is young and healthy. Human nature allows us to always think we have time. Unfortunately, life is unpredictable, and as such, people can be caught off guard and die without ever executing even a simple will. If that is the case and you die without an estate plan (intestate), the Commonwealth of Massachusetts will determine how your assets are distributed.

Given the aforementioned, the Massachusetts Uniform Probate Code (MUPC) sets forth the procedure for administering an intestate estate. Before assets can be distributed, a petition must be filed in the probate court of the county in which the deceased resided, along with a request for an administration. This can be formal or informal. The court then appoints an administrator or personal representative to identify and gather the assets and liabilities of the estate and report them to the court, sometimes referred to as an accounting. This process can be very lengthy and costly. The court may also direct the personal representative to sell real property, wind up any business concerns, pay final debts, and file final income and estate tax returns.  The ultimate cost will depend upon how much work the personal representative must perform to administer the estate.

Once the final accounting is complete, the MUPC establishes the parameters for distribution of the intestate estate’s assets. The decedent’s surviving spouse has priority under the MUPC.The decedent’s surviving spouse takes the entire estate when the decedent has no surviving children or surviving parents. Additionally, if the decedent left surviving children who are also children of the surviving spouse, then the spouse will get the entire share. Lastly, the surviving spouse will get the entire share if the surviving spouse’s children (the decedent’s step-children) do not survive the decedent.

A surviving spouse’s share can be reduced if the decedent had other family members. The surviving spouse’s share will be reduced if the decedent had surviving parents, but no children. In that case, the surviving spouse will take the first $200,000, plus 3/4 of the balance of the estate. The remainder will go to the decedent’s surviving parents. The surviving spouse’s share will be $100,000, plus 1/2 of the remaining balance if all of the decedent’s children are children of the surviving spouse and the surviving spouse has at least one child that is not also a child of the decedent. The surviving spouse will be awarded the same amount if the decedent has at least one child who is not a child of the surviving spouse.

If the decedent dies without leaving a spouse, the decedent’s descendants get first priority. Next, if there are no children or grandchildren, then the surviving parents have priority. If there are no surviving parents, then the decedent’s siblings get priority. If the decedent dies without siblings, then the next of kin will get priority.

Troy Sullivan, Massachusetts Estate Planning Attorney

A Knowledgeable Estate Planning Attorney Can Help Avoid Unintended Results

Attorney Troy Sullivan, an experienced and knowledgeable estate planning on Boston’s North Shore, can help you avoid the unintended results, and potentially exorbitant costs to your family, of dying intestate. Call The Sullivan Firm, P.C. today at (978) 325-2721 to learn how careful estate planning can expedite or even avoid probate and dispose of your estate in the manner in which you want.