The older most people are, the more likely they are to be wealthier than when they were young. Owning more wealth has its own problems, one of which is the worry about what to do with any wealth when you pass away. A real estate attorney can help you to prepare an estate plan that includes what to do with assets that you own right now and into the future, as well as what you can do to prepare for the potential eventuality that you die earlier than expected or become mentally incapacitated and unable to make any decisions about your day to day life and any assets that you still own.
Most older people who own any wealth at all have a good idea of who they might want to see inherit their assets when they pass away. They may be family members, close friends, charities and other organizations, even pets. A plan that describes in detail who your beneficiaries are going to be and how assets are divided up is best made earlier rather than later. If someone dies before making a will or depositing assets in a trust, then the Probate and Family Law Court will be used to decide the details of inheritance under Massachusetts’ intestacy rules. A real estate attorney can advise how to make a will and what the advantages might be of depositing assets in a living trust.
Wills and trusts: what’s the difference?
Both wills and trusts can be used to determine what happens to your assets after death and in many cases, you might be advised to use both in an estate plan. In a will, you name who you propose to be beneficiaries and what of your remaining assets at death should go to each beneficiary. You also name an executor who is the person who administers your estate after you die and arranges for your beneficiaries to obtain assets as determined by the will minus any taxes and debts owed. You might also name a power of attorney who is a person who administers your estate on your behalf if you become unable to make decisions by yourself.
All wills in Massachusetts must go through a process called probate. This is when your death is notified to the county court of the county you lived in and a petition for probate is filed. The purpose of probate is to ensure that assets are distributed correctly according to your wishes. Probate will also be involved if there is no will and then the court will appoint an administrator and make decisions about your assets according to state intestacy rules.
You still own all the assets named in the will until your death, so you can do what you like with them as long as you are alive and mentally capable of making sound decisions.
You can also create a trust in which some or all of your assets are placed ‘in trust’ for named beneficiaries. By creating a trust, your beneficiaries can avoid having to wait for probate to be completed. There are two major types of trust, each of which has its own advantages and disadvantages.
An irrevocable trust is a trust which cannot, except in exceptional circumstances, be altered once it has been created. Your assets that have been deposited in the trust are then no longer legally yours, but belong to the trust until you die or until a date determined by you in the terms of the trust. They are then distributed to the beneficiaries named in the trust according to the terms of the trust.
A revocable trust is one which can be altered after it has been created. Like the irrevocable trust, the assets placed in the trust belong to the trust unless you change your mind or you die. Unlike an irrevocable trust, you still reserve the right to reclaim some or all of the assets named in the trust, but you are also liable for taxes and other financial liens related to the value of the trust’s assets.
What are the advantages of an irrevocable trust compared to a revocable trust?
Both types of trust have an advantage over a will in that the assets under the control of the trust do not have to go through probate and can be promptly distributed after your death. This does create a degree of certainty for both the grantor (the person who created the trust in the first place), and the trustee (who administers the trust) as well as the beneficiaries.
The main advantage of the irrevocable trust, compared to the revocable trust, is that once the trust has been created, the assets deposited in it are no longer yours. This means that these assets cannot be used in any lawsuit against you and cannot be counted for taxation. As long as you create the irrevocable trust at least five years before you apply you may also qualify for benefits from MassHealth as the assets deposited in the trust cannot be used when assessing eligibility.
If on the other hand you create a revocable trust, then none of these advantages apply to you. The assets in the trust can be used in a lawsuit against you, taxes may still apply and the assets named in the trust will be assessed by MassHealth if applying for benefits.
Note that the assets in the trust cannot be used to disqualify future beneficiaries from obtaining benefits or paying extra taxes as they belong to the trust until the time for distribution arrives.
So, what about the disadvantages of an irrevocable trust?
Creating an irrevocable trust can be somewhat of a gamble. Few people know for sure just when they are going to die. If contemplating creating an irrevocable trust, you don’t want to do so too early, as once completed, you then have no control over the assets and cannot, under exceptional circumstances, retrieve them if you think you need them. You also don’t want to leave it too late, especially if you are thinking of applying for MassHealth benefits later.
The challenges of deciding what to do with any assets you own may become more complex the wealthier you are. This is a very good reason for making sure you use a knowledgeable real estate attorney to help you plan what to do with your estate and explain the advantages and disadvantages of each alternative you have available to make use of, taking into account your own particular circumstances.
For more information, visit our website Mucci Legal or contact us for a free initial legal consultation today.