A durable power of attorney is an extremely important estate planning tool, even more important than a will in many cases.  This crucial document allows a person you appoint -- your "attorney-in-fact" or "agent" -- to act in place of you -- the "principal" -- for financial purposes when and if you ever become incapacitated due to dementia or some other reason.  The agent under the power of attorney can quickly step in and take care of your affairs.
 
But in order to execute a power of attorney and name an agent to stand in your shoes, you need to have capacity.  Regrettably, many people delay completing this vital estate planning step until it’s too late and they no longer are legally capable of doing it.
 
What happens then? Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, the representative may have to seek court permission to take planning steps that he or she could have implemented immediately under a simple durable power of attorney.
 
This is why it’s so important that you have a durable power of attorney in place before the capacity to execute the document is lost.  The standard of capacity with respect to durable powers of attorney varies from jurisdiction to jurisdiction. Some courts and practitioners argue that this threshold can be quite low: the client need only know that he trusts the agent to manage his financial affairs. Others argue that since the agent generally has the right to enter into contracts on behalf of the principal, the principal should have the capacity to enter into contracts as well, and the threshold for entering into contracts is fairly high.
 
If you do not have someone you trust to appoint as your agent, it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney that simply nominates the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination "except for good cause or disqualification."
 
Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by an attorney. To execute a durable power of attorney before it’s too late, contact us today.

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 in a will or estate plan that can have a big impact on your 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.  Read more in our earlier news item on Using a Separate Memorandum to your Will for Tangible Personal Property.

3. Digital Assets
More and more we conduct 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, Facebook, Mint, and anywhere else you conduct business online. 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.  Massachusetts allows for separate Pet Trusts that allow you to leave funds for the care of your pets.

Contact us to make sure your will and estate plan takes care of all your needs. 

MassHealth imposes a penalty period if you transferred assets within five years of applying for long term care benefits, but what if the transfers had nothing to do with MassHealth eligibility? It is difficult to do, but if you can prove you made the transfers for a purpose other than to qualify for MassHealth, you can avoid a penalty.
You are not supposed to move into a nursing home on Monday, give all your money away on Tuesday, and qualify for MassHealth on Wednesday. So the government looks back five years for any asset transfers, and levies a penalty on people who transferred assets without receiving fair value in return. This penalty is a period of time during which the person transferring the assets will be ineligible for MassHealth. The penalty period is determined by dividing the amount transferred by what MassHealth determines to be the average private pay cost of a nursing home.
The penalty period can seem very unfair to someone who made gifts without thinking about the potential for needing MassHealth. For example, what if you made a gift to your daughter to help her through a hard time? If you unexpectedly fall ill and need MassHealth to pay for long-term care, the state will likely impose a penalty period based on the transfer to your daughter.
To avoid a penalty period, you will need to prove that you made the transfer for a reason other than qualifying for MassHealth. The burden of proof is on the MassHealth applicant and it can be difficult to prove. The following evidence can be used to prove the transfer was not for MassHealth planning purposes:

• The MassHealth applicant was in good health at the time of the transfer. It is important to show that the applicant did not anticipate needing long-term care at the time of the gift.
• The applicant has a pattern of giving. For example, the applicant has a history of helping his or her children when they are in need or giving annual gifts to family or charity.
• Demonstrate the intention of the gift.  For example, we successfully demonstrated that a $25,000 gift should not trigger a penalty by showing that the memo field of the check stated “congrats on your wedding” and the date of the check was close in time to the wedding of the applicant’s daughter.
• The applicant had plenty of other assets at the time of the gift. An applicant giving away all of his or her money would be evidence that the applicant was anticipating the need for MassHealth.
• The transfer was made for estate planning purposes or on the advice of an accountant.

Proving that a transfer was made for a purpose other than to qualify for MassHealth is difficult. If you innocently made transfers in the past and are now applying for MassHealth, it’s important to work with an attorney from the start of the MassHealth application.

While the execution of wills requires formalities like witnesses and a notary, the reality is that most property passes to heirs through other, less formal means.  Just as planning and care is taken in crafting one’s will, a similar level of care and planning should go into the beneficiary designations on retirement accounts.

Many bank and investments accounts, as well as real estate, have joint owners who take ownership automatically at the death of the primary owner. Other banks and investment companies offer payable on death accounts that permit owners to name the person or people who will receive them when the owners die. Life insurance, of course, permits the owner to name beneficiaries.

All of these types of ownership and beneficiary designations permit these accounts and types of property to avoid probate, meaning that they will not be governed by the terms of a will. When taking advantage of these simplified procedures, owners need to be sure that the decisions they make are consistent with their overall estate planning. It's not unusual for a will to direct that an estate be equally divided among the decedent's children, but to find that because of joint accounts or beneficiary designations the estate is distributed totally unequally, or even to non-family members, such as new boyfriends and girlfriends.
It's also important to review beneficiary designations every few years to make sure that they are still correct. An out-of-date designation may leave property to an ex-spouse, to ex-girlfriends or -boyfriends, and to people who died before the owner. All of these can thoroughly undermine an estate plan and leave a legacy of resentment that most people would prefer to avoid.

These concerns are heightened when dealing with retirement plans, whether IRAs, SEPs or 401(k) plans, because the choice of beneficiary can have significant tax implications. These types of retirement plans benefit from deferred taxation in that the income deposited into them as well as the earnings on the investments are not taxed until the funds are withdrawn. In addition, owners may withdraw funds based more or less on their life expectancy, so the younger the owner the smaller the annual required distribution.  Further, in most cases, withdrawals do not have to begin until after the owner reaches age 70 1/2. However, this is not always the case for inherited IRAs.
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Following are some of the rules and concerns when designating retirement account beneficiaries:

• Name your spouse, usually. Surviving husbands and wives may roll over retirement plans inherited from their spouses into their own plans. This means that they can defer withdrawals until after they reach age 70 1/2 and take minimum distributions based on their age. Non-spouses of retirement plans must begin taking distributions immediately, but they can base them on their own presumably younger ages.
• But not always. There are a few reasons you might not want to name your spouse, including the following:
  • He or she is incapacitated and can't manage the account
  • Doing so would add to his or her taxable estate
  • You are in a second marriage and want the investments to benefit your first family
  • Your children need the money more than your spouse
• Consider a trust. In a number of the above circumstances, a trust can solve the problem, providing for management in the case of an incapacitated spouse, permitting assets to benefit a surviving spouse while being preserved for the next generation, and providing estate tax planning opportunities. Those in first marriages may want to name their spouse as the primary beneficiary and a trust as the secondary, or contingent, beneficiary. This permits the surviving spouse, or spouse's agent if the spouse is incapacitated, to refuse some or all of the inheritance through a "disclaimer" so it will pass to the trust. Known as "post mortem" estate planning, this approach permits flexibility to respond to "facts on the ground" after the death of the first spouse.
• But check the trust. Most trusts are not designed to accept retirement fund assets. If they are missing key provisions, they might not be treated as "designated beneficiaries" for retirement plan purposes. In such cases, rather than being able to stretch out distributions during the beneficiary's lifetime, the IRA or 401(k) will have to be liquidated within five years of the decedent's death, resulting in accelerated taxation.
• Be careful with charities. While there are some tax benefits to naming charities as beneficiaries of retirement plans, if a charity is a partial beneficiary of an account or of a trust, the other beneficiaries may not be able to stretch the distributions during their life expectancies and will have to withdraw the funds and pay the taxes within five years of the owner's death. One solution is to dedicate some retirement plans exclusively to charities and others to family members.
• Consider special needs planning. It can be unfortunate if retirement plans pass to individuals with special needs who cannot manage the accounts or who may lose vital public benefits as a result of receiving the funds. This can be resolved by naming a special needs trust as the beneficiary of the funds, although this gets a bit more complicated than most trusts designed to receive retirement funds. Another alternative is not to name the individual with special needs or his trust as beneficiary, but to make up the difference with other assets of the estate or through life insurance.
• Keep copies of your beneficiary designation forms. Don't count on your retirement plan administrator to maintain records of your beneficiary designations, especially if the plan is connected with a company you worked for in the past, which may or may not still exist upon your death. Keep copies of all of your forms and provide your estate planning attorney with a copy to keep with your estate plan.
• But name beneficiaries! The biggest mistake many people make is not to name beneficiaries at all, or they end up in this position by not updating their plan after the originally-named beneficiary passes away. This means that the plan will have to go through probate at some expense and delay and that the funds will have to be withdrawn and taxes paid within five years of the owner’s death.

In short, while wills are important, in large part because they name a personal representative to take charge of your estate and they name guardians for minor children, they are only a small part of the picture. A comprehensive plan needs to include consideration of beneficiary designations, especially those for retirement plans.