Photo courtesty/Anna Stills
Listen to this article now
All of us received great news this month: The Commonwealth of Massachusetts doubled the amount we can leave to our families without paying an estate tax. For decades, anyone who left less than $1 million could give away everything tax-free in his or her will. Now, if you leave less than $2 million there is no estate tax due. If you leave at least $2 million, the state will impose a tax, but everything below that amount goes tax-free to your spouse and chidren.
The new tax threshold makes estate planning simpler. Fewer people will need trusts. For decades, lawyers have drafted revocable trusts to reduce estate taxes for a married couple. The purpose of any revocable trust is to keep your assets in your reach but out of your possession. The trust becomes the new owner of assets you put in it. If the trust is revocable, you are the trustee as long as you're alive and capable. You can spend what is in the trust, according to directions you give yourself to follow as trustee. You also name a successor trustee, who will step in when you can't manage your affairs or when you die. Then your trust will be irrevocable.
Revocable trusts, which automatically convert to irrevocable trusts, are a well-regarded device to pass assets to spouses and children outside of probate court. That's why they are a tool every estate planning attorney recommends when you approach the threshold for the Massachusetts estate tax. (There is a federal estate tax. But at least until 2026, it has a $12.9 million threshold, which very few people will reach.) Now some people who would have created trusts to avoid Massachusetts' estate tax won't need them. It's not worth the effort to revoke a trust already written. But they could become less common for many people going forward.
Let's turn from estate planning to elder law, where the focus is on protecting you while you're alive, instead of what you'll leave after you die. Most people seek an elder law attorney when they realize how quickly a nursing home bill can deplete their life savings: $150,000.00 a year is standard. Most people will turn to MassHealth, our conduit for Medicaid funds, to pay for the nursing home.
MassHealth pays for 70 percent of the nursing home bills in our state. But before MassHealth agrees to pay your nursing home bill, it wants to know you're impoverished because Medicaid is a program to help poor people. MassHealth won't pay a nickel of your nursing home bill unless you can prove that you own nothing more than $2000.00.
Your elder law attorney will often draft an irrevocable trust to get your property -- most importantly your house -- out of your ownership and under the control of a trustee. You will be able to live in the house but a trust will own it instead of you. If you already have a revocable trust in your estate plan, that trust will become irrevocable too late to help you with MassHealth. Revocable trusts are useless when you apply for MassHealth.
The $2 million threshold is irrelevant when you're asking MassHealth to pay for your nursing home. Their threshold is a thousand times lower. If your attorney practices both estate planning and elder law, he or she can maximize your family legacy without shortchanging your own needs. Planning simultaneously for your estate and for yourself will open tax issues that get complicated quickly. Your best guidance will come from an attorney who covers the full spectrum -- your plans while you're alive and your plans for afterward.
PHILIP ARCIDIACONO, ESQ., IS THE PRINCIPAL OF ARCHDEACON LAW ASSOCIATES, A LAW FIRM IN CONCORD AND LUNENBURG, MASSACHUSETTS, THAT SPECIALIZES IN ELDER LAW AND ESTATE PLANNING. HE CAN BE REACHED AT PA@ARCHDEACONLAW.COM. THE FIRM'S WEBSITE IS WWW.ARCHDEACONLAW.COM.