Creative Charitable Giving Strategies for Your Estate Plan

This is a guest post by Michael Duff, Director of Estate & Gift Planning for the American Cancer Society.

Charitable giving is a great option to consider for your estate plan. Charitable estate planning helps you combine your desire to give to charity with your overall financial, tax, and estate planning goals. Many of you are likely familiar with a bequest, the most common form of charitable giving (where you indicate a specific amount or a percentage of your estate/trust to go to charity). However, there are many different options to consider based on your personal and financial goals. This post outlines a few alternative charitable giving possibilities to consider when planning your estate.

Charitable Remainder Trust

A Charitable Remainder Unitrust (CRUT) is a gift where property is transferred into a trust and pays annual distributions from its principal until the trust terminates, at which point the remainder amount transfers to the charity. The property transferred into the trust is invested during the life of the trust. This graphic below from the American Cancer Society website illustrates the function of a CRUT:

CRUT Diagram

This option provides an immediate tax deduction to the donor for the charitable gift, as well as annual distributions from the trust. A CRUT is a great option to consider for those who have highly appreciated assets that might be subject to capital gains tax (stocks, real estate, etc.), as a CRUT will help you avoid these taxes.

Benefits of a CRUT:

 Receive income for life or a term of years in return for your gift

 Receive an immediate income tax deduction for a portion of your contribution

 Pay no upfront capital gains tax on appreciated assets you donate

 You can make additional gifts to the trust as your circumstances allow, for additional income and tax benefits

Items to consider:

 A CRUT is an irrevocable gift to the charity

 The level of investment for a CRUT. The typical size that we see at the American Cancer Society for this type of gift is $200,000 or more.

Charitable Gift Annuity

Another gift option is a Charitable Gift Annuity (CGA), where you transfer cash or securities to the charity, which in return pays a fixed income to you or a selected beneficiary for life. The remaining balance passes to the charity when the contract ends at the death of the last beneficiary. This option is good for those who might be interested in supplemental income at a higher return than a low-earning security or CD. CGAs can also be done at a lower investment, with many charities requiring a minimum of $5,000 to $10,000 (ex. American Cancer Society has a $5,000 minimum). Many charities have a CGA program, and you can connect with them to learn more about their program and request a rate illustration.

Benefits of a CGA:

 Receive dependable, fixed income for life in return for your gift

 In many cases, increase the yield you are currently receiving from stocks or CDs

 Receive an immediate income tax deduction for a portion of your gift

 A portion of your annuity payment will be tax-free

Items to consider:

 Beneficiaries must be at least 60 years of age at the time of the gift

 Gift annuity rates are partly determined by the age of the beneficiary

 Charities often have minimum donation requirements for a CGA

 Younger donors may find planning benefits in a deferred gift annuity

Other Creative Gifting Options

There are many other creative ways to do charitable giving with your assets, including gifts of appreciated securities, a retained life estate, a donor advised fund, or gifts of personal property. I will quickly outline each of these gifts below.

Gifts of Appreciated Securities

You transfer appreciated stocks, bonds or mutual fund shares you have owned for one year or more to the charity and receive an immediate income-tax deduction.

Retained Life Estate

One of my personal favorite types of gifts; you transfer your property to charity and continue to live in the property for life or a specified term of years, and continue to be responsible for all taxes and upkeep. The property then passes to the charity when your life estate ends. You get immediate income tax deduction for a portion of the appraised property value and get to use the property for the rest of your life.

Donor Advised Fund

An increasingly popular option in recent years, a donor advised fund (DAF) is an irrevocable gift to a public charity sponsoring your account of cash, securities, or other property. You invest your fund and distributions to charities of your choice are made at your recommendation. This option allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend specific charitable donations to be made from the DAF.

Gifts of personal property

You transfer valuable paintings, antiques, or other personal property to the charity for the charity to use or sell and in return receive an income tax deduction on the appraised value and pay no capital gains tax.

There are numerous creative ways to incorporate charitable giving as part of your estate plans. Some of these options have benefits to you or your beneficiaries during your lifetime, and ultimately can help you with your financial goals. I would recommend taking time to consider your ultimate goals for your estate plan, as well as the goals for your legacy. Then, share these goals with your attorney and financial teams. They can help you narrow down the best options to consider. I also recommend that if you have a charity in mind to include in your estate plans, reach out to them to find out the options they have available to you.

Your legacy is important and can have meaningful and lasting impact in your community, so take the time to understand all of the charitable giving possibilities available to you.

If you are in need of legal advice regarding estate planning and administration, Gove Law Office is here to answer your questions. Please contact Attorney Michael Gove at mgove@govelawoffice.com or 413-583-5196.

Improving the Supplemental or Special Needs Trust

In December 2016, shortly before leaving office, President Obama signed into law the Special Needs Trust Fairness Act, which amended the Social Security Act in a way that is very important to people living with disabilities.

Disabled individuals are often recipients of government benefits that can make the difference in allowing the individual to lead a fuller, more independent life. However, most benefits like these are “needs-based” or “means-tested.” In other words, an award from a lawsuit or a small inheritance could result in the loss of these benefits. Since 1993, the Social Security Act has allowed such funds to be placed into a Supplemental (or Special) Needs Trust (SNT) and then spent on behalf of the individual with disabilities in order to enhance their care by supplementing (but not supplanting) the government benefits.

However, the statute that originally authorized SNTs also required that the trust had to be established by “a parent, grandparent, legal guardian of the individual, or a court,” forcing disabled individuals to rely on people other than themselves, when that might not otherwise be necessary. The two word change that was signed into law in December adds “the individual” to the list of people who are able to create an SNT. The result is that clients, when they are otherwise competent, are now explicitly allowed to create these trusts on their own behalf, without having to involve parents or other family members.

If you are in need of legal advice regarding Supplementary or Special Needs Trusts or another type of trust, Gove Law Office is here to answer your questions. We handle a wide variety of legal needs, including estate planning and administration. For further information, please contact Attorney Michael Gove at mgove@govelawoffice.com or 413-583-5196.

Why You Should Have a Will

By Attorney Gregory R. Bell

There are many reasons why a person should have a will; it is arguably one of the most important things you can do for your family. While by no means an exhaustive list, here are just a few of the benefits:

You decide how your estate will be distributed. If you do not determine through a will who will inherit your estate, the laws of the Commonwealth of Massachusetts make that determination for you through the laws of intestacy (passing having no will). Given that alternative, almost everyone would want to make that decision for themselves and not leave it to the state.

You can decide the personal representative who will administer your estate. You can pick the person you trust to administer your estate, as well as choose an alternate if for any reason your first choice is unable to fulfill that role. And you can give this person expanded powers in the will that make it easier to administer the estate than it would be through the probate process without a will.

You decide who will be guardian of your minor children. If you have minor children, this is a huge decision. You can name who will be the guardian and raise your kids, as well as make sure that guardianship does not go to someone whom you do not want to raise them.

You can disinherit anyone you decide you do not want to share in your estate. For his/her own reasons, an individual may decide to leave nothing or a limited value to a relative that, without a will, might inherit much more. When you create a will, you are making this decision rather than leaving it to the state.

Thinking about creating a will can raise uncomfortable feelings about one’s mortality. But given the many benefits of having a will, there is no good reason to wait. Being prepared ensures that your wishes will be accomplished, while also making the probate process easier for your family.

Gregory R. Bell is an attorney at Gove Law Office, LLC , a general practice law firm with offices in Northampton and Ludlow, MA. The firm handles a wide variety of legal needs, including wills and other areas of estate planning and administration. For more information, please contact the office by calling 413-583-5916 or emailing gbell@govelawoffice.com.

Trusts: More Uses Than You Might Think

Often times, when meeting with clients, I bring up the topic of a trust. Most people immediately dismiss the idea, claiming they’re not worth millions of dollars and don’t need a trust. They’re right — one reason to establish a trust is to help protect large amounts of wealth from high estate tax penalties. But there are four other common reasons to consider a trust, and they don’t depend on you being a multi-millionaire:

  1. Control Assets After Your Death
  2. One of the most common reasons clients use a trust is to have a mechanism in place where they can control the distribution and use of assets after their death. Parents with young children don’t always have a lot of cash assets on hand but they may own property and likely have life insurance, which means if they were to die, there would be significant assets in their estate. If both parents were to pass away, however, their children would become eligible to receive those assets when they turned twenty-one. Instead, by creating a trust, you (or other relatives) can control those assets, and direct the assets be held for the benefit of your children, but not distributed until your children are older, or have reached a specific point in their lives (graduating college, or getting married, for example).

  3. Hold and Share Control of Real Estate or Business Interests
  4. Real property or business assets can be placed into a trust for the purpose of sharing control of the asset between the trustees, or sharing the distribution of the value of the asset between the beneficiaries. Instead of transferring the asset directly to individuals, you can use the trust to make sure the asset will eventually be transferred, but will remain cared for and under a level of control for as long as the trust exists.

  5. Protect Assets Prior to Applying for Medicare Assistance
  6. To be approved for nursing home care through Medicare, you cannot have any significant assets in your own name. The government, however, looks to see if the applicant has gifted away assets any time over the last five years (this is referred to as the “five year look back period”). It’s important to consider moving assets out of your name earlier so you can avoid the five year look back period, but transferring your house or cash assets directly to your children can be filled with risks. One way to minimize those risks is to transfer assets into an irrevocable trust, which moves them out of your name without granting full ownership in any individual.

  7. Provide for the Care and Protection of Your Pets
  8. Recent changes in Massachusetts law allow you to leave money in trust for your pets. These Pet Trusts can provide guidance about the level of care the pet should receive, and leave room to name both a caretaker for the pet and someone to ensure the trust is being enforced. (For more information, see our earlier post about Pet Trusts.)

If you have questions about trusts, or any estate planning issues, contact us at mgove@govelawoffice.com or 413-570-3170.

New Rules for Notices in Probate Administration

Recent statutory changes now require that anyone filing an estate in the Probate Court must also provide notice of the filing to the Division of Medical Assistance, regardless of whether the filing is informal or formal. The DMA must be provided notice of the filing seven days before the petition is filed with the court. (The new procedure is outlined here.)

This new requirement adds to the many steps that must be undertaken to correctly probate an estate.

If you have any questions regarding the administration of an estate, or would like to discuss your estate plans, contact us at mgove@govelawoffice.com or 413-570-3170.

Use Supplemental Needs Trusts to Ensure Benefits Are Not Lost

When someone suffers from a physical or mental disability, they may be eligible for state and federal benefits. Many benefit programs, however, are “need based,” which means the individual is prohibited from having too much income or too many assets. The asset limitations can often be as low as $2,000, which means that even the smallest, well-meaning gifts or bequests from family members to the disabled individual can have dire consequences for that individual’s care.

To avoid an inadvertent disqualification, any gifts or bequests to the disabled individual should be made to a Supplemental Needs Trust (SNT) which names the disabled individual as the beneficiary, but allows an independent trustee to determine exactly how and when money is spent on the beneficiary’s behalf. The funds and assets in the SNT can be used to pay for additional services or care which are not covered by the benefit programs. These services and care can include:

• Transportation
• Training and rehabilitation programs
• Specialized equipment
• Medical expenses
• Entertainment
• Home health aide expenses
• Items and possessions to enhance quality of life.

An SNT can hold most types of assets, and can even be the beneficiary of a life insurance policy. The most important thing to remember, however, is that an SNT should be drafted in advance to ensure it accomplishes the desires of the person funding the trust and meets the needs of the disabled beneficiary.

If you have any questions about Supplemental Needs Trusts, would like to gift money to someone with a disability, or would like to discuss other estate planning questions, contact us at mgove@govelawoffice.com or 413-570-3170.

Draft a Will, So There’s a Way

If you die in Massachusetts without a last will and testament, you’re leaving a lot of things up to chance – state law will control how your property will be distributed, and a probate and family court judge will have to determine who might be the best person to handle your estate, or the best person to take care of your children.

In contrast, having a last will and testament in place allows you to provide instructions that will control or influence these decisions, and will almost always be enforced by a judge. In the document, you can distribute your property to different people or charities, and these gifts can be compelled by the beneficiary. Within your will, you can also name a person to serve as your personal representative (formerly known as the executor) and that choice will be respected unless the court finds the person you chose cannot faithfully fulfill their duties. Finally, your will can also name the person or people you would like to be responsible for any of your children, when necessary. If the court finds the named guardian is willing and able to serve, your choice will then have priority over other qualified people.

Drafting a will is a simple process that requires a short conversation with your estate planning attorney and a review of the document to make sure it reflects your wishes. You should also consider amending your will if you’ve been married or divorced, if you’ve had more children or would like to add, remove, or change your beneficiaries, or if you’ve moved from another state.

If you need to discuss drafting your will, or have questions about any other estate planning issues, contact me at mgove@govelawoffice.com or 413-570-3170.

Health Care Proxies and Medical Directives: Guiding Your Health Care

In the last post, we discussed how a durable power of attorney allows another person to act on your behalf, especially at a time when you may be incapacitated.  A health care proxy document plays the same role for medical care – if you’re unable to make informed medical decisions, your health care proxy grants that authority to someone else.  As a result, a health care proxy is one of the most important estate planning documents everyone should have.

A health care proxy only becomes effective when the attending physician has determined you are unable to make informed decisions about your medical care.  At that time, your proxy will become authorized to make decisions on your behalf.  You can, however, limit your proxy’s authority by specifying that certain care should, or should not, be administered in specific situations.  You can amend or withdraw the health care proxy at any time, unless a court has determined that you are incompetent to do so.

If you become incapacitated, and do not have a health care proxy in place, the hospital or your family may be forced to ask the Probate Court to impose a guardianship, which can be a time-consuming and expensive process.  A simple and easily completed health care proxy can help avoid this situation.

In addition to a health care proxy, you should also consider completing a medical directive, which will outline specific medical situations and provide guidance to your proxy regarding what your wishes are for each situation.

If you have questions about health care proxies, durable powers of attorney, or any other estate planning issues, contact me at mgove@govelawoffice.com or 413-570-3170.

Durable Powers of Attorney: The Key to Managing Your Affairs and Business

A durable power of attorney is a document that gives another person the authority to act on your behalf, and is something that everyone should have completed.

A durable power of attorney can take effect immediately or at some point in the future — many durable powers of attorney are drafted to “spring” into place only if you become incapacitated. A durable power of attorney can grant as much or as little authority as you like, and can exclude the authority to take specific actions. You can execute more than one power of attorney, and grant different powers to different people: for instance, a business owner may execute a power of attorney regarding operation of the business to her office manager, and execute a second power of attorney giving her husband the authority to handle the rest of her affairs.

If you become incapacitated and do not have a durable power of attorney, anyone trying to manage your affairs may be forced to ask the Probate Court to create a conservatorship, which can be a time consuming and expensive proposition. In contrast, drafting a durable power of attorney can help avoid many problems, and is a cost effective and important step in your estate plan.

If you need to execute or update your power of attorney, or have any questions about drafting an estate plan, contact me at mgove@govelawoffice.com or 413-570-3170.

Taking Care of Your Smallest “Children”

For many of us (myself included), pets play an important role in our lives. Whether dogs, cats, birds, small mammals, reptiles, or other animals, they become part of your family and, in exchange for providing comfort and love, they ask only for shelter, food, and the occasional belly rub. But what will happen to your pets if you’re no longer available to take care of them? In Massachusetts, under G.L. c. 203E, § 408, you can create a Trust for Care of an Animal (a “Pet Trust”) to provide for your pet’s needs when you’re not able to.

To ensure that your pet receives the care they deserve, and that trust funds are being used for that purpose and are not expended frivolously, a Pet Trust should identify people to serve in at least three roles. The first role is the trustee. The trustee is the person in charge of maintaining and investing the funds held by the trust, providing an accounting of the funds when requested, and disbursing the funds for the care of your pet when needed.

The second role is a caretaker. The caretaker is the person who will actually house, feed, or care for your pet, and will make requests to the trustee for the costs of this care. This person should be someone who cares about animals, has a close tie to you or your pet, and who would have the ability and time to care for your pet.

The third role is the trust enforcer. The enforcer is the person who will act on your pet’s behalf, and who can force the trustee to take action or to disburse funds for the care of your pet. (The caretaker can also force the trustee to take action, but having separate people fill these roles will help ensure the requests for funds are both reasonable and balance the immediate needs of the pet against the desire to maintain trust principal for the pet in the future.)

You can provide additional guidance within the Pet Trust to describe the care your pets should receive, to address different situations that might arise, and to name one or more people that the trustee, caretaker, and enforcer could refer to when big decisions need to be made. A Pet Trust will continue to exist until the death of your last pet. If necessary, the probate court can name the trustee or enforcer, and an application to do so can be made by any interested individual or charitable organization, but naming these individuals (along with alternates) in your trust document will allow you to choose the right people to fill those roles, and will give you security that your pets will be well cared for no matter what.

If you have any questions about the creation of pet trusts, or any other estate planning issues, contact me at mgove@govelawoffice.com or 413-570-3170.