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Massachusetts

Jul 19
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Spousal Lifetime Access Trust (SLAT)

By Uncategorized

A Spousal Lifetime Access Trust (SLAT) can be a valuable tool to transfer wealth to future generations while helping to ensure your spouse’s financial security.

What is a SLAT?

A SLAT is an irrevocable trust that can provide significant flexibility for married couples. One spouse creates and funds a trust primarily for the benefit of the other spouse. The spouse that is the beneficiary of the SLAT can receive distributions from the trust. Thus, if necessary, your spouse is able to use funds from the trust to maintain their standard of living even though the trust assets have been removed from your estate. SLATs most often terminate at the death of the beneficiary spouse, at which point the trust assets pass to the other SLAT beneficiaries (typically a younger generation), either outright or in trust.

What are the requirements for establishing a SLAT?

  • The donor spouse must gift assets that are their sole property (not property owned by the spouses jointly).
    • If you reside in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA, and WI), you may first need to convert your community property into separate property before making gifts to a SLAT.
  • If two SLATs are created (one for each spouse), they cannot be identical to each other. If they are identical, the IRS can apply the” reciprocal trust doctrine,” which can undo the benefits of your planning.
  • The donor spouse cannot directly retain any rights to the assets gifted.
  • The trust must be irrevocable.

What are the benefits of setting up a SLAT?

  • Your spouse can maintain access to the assets owned by the SLAT if they need additional cash flow.
  • Any asset appreciation after the initial gift occurs outside of your estate.
  • You are responsible for paying income tax on any income generated by the SLAT. Paying income taxes on behalf of the SLAT is not considered an additional gift to the SLAT. The SLAT is able to grow without being reduced by the payment of income taxes, leaving more to pass to your beneficiaries.
  • Assets placed in a properly-established SLAT are generally protected from creditors of the beneficiary spouse.
  • Generally, SLATs can hold S corporation shares.

What are the potential downsides to setting up a SLAT?

  • It is not ideal for the beneficiary spouse to withdraw funds from the SLAT unless they are truly needed. SLAT distributions to the beneficiary spouse bring assets back into their estate and reduce the trust assets that can grow estate tax free for the ultimate beneficiaries.
  • If the beneficiary spouse dies first, the donor spouse loses their indirect access to the trust assets through the distributions to the beneficiary spouse.
  • In the event of a divorce, you may still be responsible for paying the income tax on a trust for the benefit of a now ex-spouse.
  • When your beneficiaries inherit the assets, they inherit the original tax basis you had. This might not be ideal for assets with low basis, meaning the beneficiaries could owe more capital gains tax when they eventually sell. However, many SLAT documents allow the donor spouse to remove a low basis asset and replace it with a high basis asset if those assets have the same value.

Is a SLAT right for you?

SLATs can be a flexible way to transfer wealth to future generations at current values while allowing your spouse to have access to that same wealth. If you want to take advantage of the current estate tax exemption amounts but aren’t quite ready to give up complete access to your assets, a SLAT could be the right strategy for you. By understanding the requirements, advantages, and potential downsides, you can make an informed decision about whether a SLAT is right for your estate planning needs. As always, consult with your tax advisor to tailor a strategy that best suits your situation and goals.

Jun 21
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Home Placed In Massachusetts Trust Protected

By News

Ability to Use House Placed In Massachusetts Trust Does Not Render Trust Available

Reversing a lower court, Massachusetts’ highest court rules that two Medicaid applicants’ trusts were not available assets even though the applicants retained the right to use the houses that were put into the trusts. Daley v. Secretary of the Executive Office of Health and Human Services (Mass., No. SJC-12200, May 30, 2017) and Nadeau v. Director of the Office of Medicaid (Mass., No. SJC-12205, May 30, 2017).
James and Mary Daley created an irrevocable trust. They conveyed their interest in their condominium to the trust, but retained a life estate in the property. Seven years later, Mr. Daley was admitted to a nursing home and applied for Medicaid benefits. The state denied him benefits after determining that the trust was an available asset. Lionel Nadeau and his wife created an irrevocable trust and transferred their house into the trust. The trust provided that the Nadeaus had the right to use and occupy the house, which they did until Mr. Nadeau entered a nursing home and applied for Medicaid benefits. As with the Daleys, the state considered the trust a countable asset and denied benefits.

The Daleys and the Nadeaus appealed but following hearings, the state ruled that the trusts were available assets because the Daleys and Nadeaus had the right to occupy and use the properties that were in the trusts. In separate rulings, Massachusetts trial courts held that both trusts were available assets. [Daley v. Sudders, Mass. Super. Ct., No. 15–CV–0188–D; Dec. 23, 2015; and Nadeau v.Thorn, Mass. Super. Ct., No. 14-DV-02278C, Dec. 30,2015]; see The ElderLaw Report, March 2016, p. 5.) The Daleys and Nadeaus appealed and the Massachusetts Supreme Judicial decided both cases together.

The Massachusetts Supreme Judicial court reverses, holding that the trusts are not available assets. According to the court, “where a trust grants the use or occupancy of a home to the grantors [as in the Nadeau’s case], it is effectively making a payment to the grantors in the amount of the fair rental value of that property.” The court adds that these payments “do not affect an applicant’s eligibility for Medicaid long-term care benefits, but they may affect how much the applicant is required to contribute to the payment for that care.” In the Daleys’ case, the court rules that because the Daleys hold a life estate, their use of the home is not considered income and “the continued use of the home by the applicant pursuant to his or her life estate interest does not make the remainder interest in the property owned by the trust available to the applicant.”

Maryland elder law attorney Ron M. Landsman joined the briefing and argument. In reaching its conclusion in the Daley case, the court cites the Elder Law section of West’s Massachusetts Practice series, written by Harry S. Margolis and Jeffrey A. Bloom of the Boston firm of Margolis & Bloom, LLP. For the full text of this decision, go to: http://tinyurl.com/elr-Daley3

Mar 04
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Major Changes Proposed to Massachusetts Medicaid! Will Rhode Island Follow?

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Massachusetts Medicaid is called MassHealth

Massachusetts Governor Baker’s FY2017 budget proposes a significant  amendment to Massachusetts General Laws chapter 118E to expand the types of property the Commonwealth can seek reimbursement for Medicaid a/k/a MassHealth benefits paid on behalf of certain deceased MassHealth recipients. Expanded estate recovery, as described in Outside Section 11.

source: Boston Magazine

Governor Baker

  • Under current law, the Commonwealth can be reimbursed for MassHealth coverage of nursing home care and community based care provided to persons age 55 and over, from property in the recipient’s probate estate. Federal law requires state Medicaid agencies to file claims against probate estates. Federal law does not mandate recovery against non-probate assets.
  • Similar legislative changes have been rejected twice by the Legislature.

Proposed Change:

  • The Governor proposes to dramatically expand the MassHealth asset recovery by allowing claims against any property in which the decedent had any legal title or interest immediately prior to death.
  • This would expand the pool of assets from which the Commonwealth could seek reimbursement to the decedent’s interest in jointly owned personal and real property, property in which the decedent held only a life interest, and possibly even to property held in a trust of which the decedent was a beneficiary during life.
  • The administrative costs for expanding estate recovery could be astronomical for MassHealth, potentially outweighing the benefits to the program.

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What this Means To You:

  • If enacted into law, Medicaid planning as it has been known and performed and understood in Massachusetts will be forever changed.
  • Ambiguities in the statute language may create questions of law as to what assets may be included in expanded estate recovery, creating possible issues with real estate titles and title insurance claims.
  • Existing estate plans and new estate plans will need to be reviewed to understand the impact of the potential new change on each individual and couple’s plans.

Want To Lean More?

Contact our office for a consultation to discuss how this may impact you and your estate plan.

Nov 04
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IRS Announces 2016 Estate and Gift Tax Limits

By Uncategorized

2016 Estate and Gift Tax Limits –

For 2016, the Internal Revenue Service has announced that the estate and gift tax exemption is $5.45 million per individual, up from $5.43 million in 2015. That means an individual can leave $5.45 million to heirs and pay no federal estate or2016-gift-tax-ornament_optomized-480x350 gift tax. A married couple will be able to shield $10.9 million from federal estate and gift taxes.

The annual gift exclusion for 2016 remains the same at $14,000.

Why is this important? Most people have a desire to pass as many assets as they can to their heirs. When deciding on your estate plan, knowledge as to what portion of your estate, if any, may be subject to estate taxation is critical in deciding on a plan.

My assets are below the 2016 threshold, should I still be worried? Maybe. Even though the you may be below the Federal level, you may be above the levels taxed by each state. For example, the State of Rhode Island has set a limit of $1,500,000 before an estate tax is due; Massachusetts is even worse being set at $1.0 million. Other states, such as Florida and New Hampshire do not impose any estate tax.

Still concerned and confused about estate taxes? Contact us for a free consultation.

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