Posts Categorized: Estate Planning

Massachusetts Homestead Law

On Friday, December 17, 2010, Massachusetts Governor Deval Patrick signed a Massachusetts Homestead Law and FormsThe new Homestead law, scheduled to take effect in 90 days, will not only help homeowners, the new law also removes a lot of confusion surrounding the existing Homestead law.

 

First, the new law automatically gives every Massachusetts homeowner $125,000.00 of equity protection for their primary residence, even if they never file an actual Declaration of Homestead form at the registry of deeds. If a homeowner does file the Declaration of Homestead, they will be given the full $500,000.00 creditor protection of the equity in their home.Second, the new law makes clear that a homeowner does not have to file a new Declaration of Homestead every time they refinance their home. This has been an open question prior to the signing of this law.Third, the new law also makes clear that property held in a revocable trust may be protected by a Declaration of Homestead. This too has been a confusing and uncertain area. In February 2010, the United States Bankruptcy Court for Massachusetts decided In re: Olga M. Rodrigues.

This decision found that property held in a revocable trust could be protected by a Declaration of Homestead during a bankruptcy proceeding. However, it remained uncertain whether Massachusetts courts would follow this federal court ruling. The legislature settled this uncertainty with the new Homestead law.New Declaration of Homestead forms should be available as the effective day of the new law approaches. However, existing Homesteads are grandfathered under the new law. So if you have already filed a Homestead at the registry of deeds, it should not be necessary to file a new form.Richard Howe, the Register of Deeds for Middlesex North District Registry of Deeds, continues to update the new law on his blog.

ESTATE TAX UPDATE

At least for the next two years, things could not be much better on the estate tax planning front. On December 17, 2010, President Obama signed the “Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010,” which extends the so-called “Bush Tax Cuts.” The new tax law increases the dollar amount that may pass estate-tax-free to $5,000,000.00 per person ($10,000,000.00 per married couple). This new law will be in place for estates of people who die in 2011 and 2012.

Without this new law, estate taxes were scheduled to be reinstated January 1, 2011, on estates over $1,000,000.00. With the passage of this new law, it is estimated that only 4,000 estates will be required to pay any federal estate taxes at all.

Estate and inheritance taxes may still be imposed by individual states, but the federal estate tax – which could have been as high as 55% – was the most feared by estate planners and individuals. If you are wondering about what states do not have any estate tax, Forbes Magazine published a map that shows each state, what their rates are, and how much may be exempted before the state estate tax is imposed.

White House Press Release highlights other tax benefits of the new law

Preventing A Challenge To A Will

In my last post, I talked about how Wills may be challenged. In this post I will suggest some things that you can do to avoid a potential Will contest. No one who goes to the effort and expense of preparing a Will wants the document to cause trouble within the family. In fact, for most people, the very reason they are doing a Will is so that their family will have written instruction for the distribution of their estate. I often hear from clients that they have peace of mind after signing their Will. So, what can you and your attorney do to reduce the risks of a Will challenge?
1. Disinheriting heirs: you are absolutely free to omit an adult child from your Will: it’s your estate and you can give it to whomever you wish. But, make sure the Will specifically states you have done this intentionally and leaving out that child or other heir was not a mistake. Attorneys differ on whether to include a reason why the child has been left out. My opinion is that no reason should be stated in the Will itself. For example, if the Will states that the reason a child has been omitted is because they have been “taken care of during lifetime,” the child may challenge that wording or try and prove that they were not actually “taken care of” by the parent. Thus, that would mean there was a mistake when the Will was written.

My preference is to have the parent write a separate letter explaining why they have not given anything to that child. If the dispute ever ends up in Court, the letter would establish that the child was not omitted by mistake.

2. Undue Influence Prevention: Preventing a Will challenge based on undue influence is the responsibility of both the attorney and the client. First, the attorney should not allow anyone other than the client to attend the meetings. Allowing a child or other beneficiary to participate in meetings with the client could be opening the courthouse door to any other person who feels they were treated unfairly in the Will. It is sometimes difficult for a client to understand that the reason for prohibiting anyone else to attend meetings is to protect the client’s final wishes. It is not an indictment of the child. It is the attorney’s job to make clear that they have one client, and that client is the person signing the Will.

3. Copies of the Will: I strongly advise clients to not give out copies of their Will. If the Will is changed down the road, it is better that there be no copies of the prior Will in existence. If a child has an expectation of an inheritance, and a later Will reduces or eliminates that inheritance, an objection to the new Will is almost a certainty.
Ninety-nine percent of all Wills are probated without any issues arising. However, if you anticipate there may be a challenge to your Will, tell your attorney about your concerns. Both of you can then put in place measurers to prevent a successful challenge.

Grounds for Challenging a Will in Massachusetts

A lot of time and thought goes into the preparation of a Will, and when someone signs it, they expect that the document will stand as their last instruction for how their assets should be distributed. They have every right to assume this. However, sometimes a challenge made be made to the Will. Although the vast majority of Wills presented to the Probate Courts in Massachusetts are accepted and the directions followed without any disputes, occasionally a Will is contested.

In Massachusetts, Will contests fall into three general categories: Mistakes, incapacity of the testator, and fraud or undue influence.

1. Mistakes In Execution or Mistake By The Testator

Mistake In Execution

This challenge is based on the document form. The Massachusetts statute that controls Will executions, M.G.L. ch. 19oB, sec 2-502, provides that a Will must be in writing, signed by the testator (or by someone else at the specific direction of the testator), and signed by two or more competent witnesses.

The possible mistakes can be: the Will was not signed by the testator, no witnesses signed the Will, the Will is not in writing, or the testator did not know he was signing a Will.

Any bequest to a witness, or the spouse of a witness, who is also a beneficiary under the Will is void, unless two other witnesses also sign. M.G.L. ch 190B, sec 2-505.

Oral Wills – called Nuncupative Wills – are allowed in very limited circumstances.

Mistake by The Testator

This challenge is based primarily on the contents of the Will. A challenge may be based on the fact a child or other natural heir was omitted from the Will. This type of challenge may be avoided by making it clear in the Will that anyone omitted was omitted intentionally.

The person presenting the Will to the Probate Court has the burden of showing the Will was properly executed. This is usually easily established by the execution language at the end of the Will in which the executor declares that they have signed the document in front of witnesses, acknowledge that the document is their Will, and that they have signed it voluntarily. The witnesses then sign an Affidavit stating they observed the testator signing the Will.
2. Incapacity

This challenge is based on the mental condition of the testator. The person contesting the Will charges that the testator was not of sound mind when the Will was exexuted. The legal presumption is that the testator was of sound mind at the time of execution, and anyone contesting this has the burden of proof.

A person signing a Will must be competent at the time of execution, understand what is in their estate, and know who would be the natural heirs to that estate. This does not mean the testator must follow any distribution plan, it simply means the testator must be aware what they own and who would be in line to receive their estate.

An interesting case discussing that the timeframe for capacity is at the time of signing, and that someone may lack capacity at other times. O’Rourke v. Hunter, 446 Mass. 814, 827, 848 N.E. 2d 382, 391 (2006).

3. Fraud and Undue Influence

This challenge is based on the contents of the document, the behavior of third parties, and on whether the testator signed the Will with a full understanding of the circumstances. These are actually two separate challenges.

A fraud challenge maintains that the testator was deceived prior to signing the Will. Although the testator acted freely, a misrepresentation led them to sign a Will they never would have signed had they known the truth.

An undue influence challenge maintains that the testator’s own free will was overcome through coercion, and the resulting Will benefits the person who applied that pressure. There are many cases in Massachusetts that have examined undue influence claims, and the courts look at variety of factors to determine if a Will was the result of undue influence. Some of the important factors mentioned in the cases are: the age and health of the testator, the relationship of the testator to the person exerting pressure, and the opportunity of that person to exercise pressure.

One of the earliest cases discussing undue influence:
Neill v. Brackett, 234 Mass. 367, 369, 126 N.E. 93, 94 (1920).

The person challenging the Will has the burden of proving that the Will was the result of fraud or undue influence.

QUESTIONS ABOUT THE ESTATE TAX?

If you have questions about what is going to happen to the Estate Tax for people dying in 2011 and beyond, you are not alone. Just Google “estate tax.” I did, and got 179,000,000 results! In those results were the Internal Revenue Service Frequently Asked Questions on Estate Taxes , a poll being done by the Wall Street Journal asking How Much the Estate Tax Should Be, (not surprisingly, 63% of the poll voters think the estate tax should be repealed all together), and thousands of articles about the general mess Congress has created by not resolving this issue.

As most people know by now, without Congressional action, the federal estate tax is coming back on January 1, 2011. Unless Congress can come up with an alternative plan, have it pass both houses, and get it signed by President Obama, estates over $1,000,000 will be paying 55% in taxes. Although that may seem like a large estate, if you live in the Northeast, where property values remain higher than other parts of the country, many people are approaching that figure.

So what are people with estates over $1,000,000 supposed to do? The answer, I believe, depends on several factors:

How much over $1,000,000 is the projected estate?

If the estate is barely over the amount, allowed deductions from the estate may reduce the gross estate to below the $1,000,000 mark.

The age and health of the person doing the planning.

If the person is relatively young, it may just not make sense to start gifting money away. Congress may not be able to resolve this issue before January 2011, but may do so in the next few years.

For some older people with significant wealth, however, gifting may be the right choice. The gift tax rate this year, for amounts gifted over $13,000, is 35%. Still high, but lower than the 55% estate tax rate. “Gifting on the Rise as Rich Look to Duck 55% Tax”;

The current distribution plan for the estate.

If there are charitable bequests already incorporated into the plan, those bequests may bring the taxable estate below the $1,000,000 mark;

How much the person cares about the estate being taxed.

Some notable, very wealthy individuals are actually in favor of the estate tax. Bill Gates and Warren Buffett are two of the most quoted. “How Billionaires are Fighting Over Taxes” Although most people would prefer to avoid paying taxes, it may be that planning to avoid the tax is not what the client wishes.

Unfortunately, there is no simple answer for everyone with a taxable estate. If you have not heard from your attorney, it may be a good idea to give them a call before the end of this year and ask for a review of your estate plan distribution.