Category Archives: estate

Estate Tax Planning in Massachusetts – 2018 and Beyond

Innovation Jam_IdeasDale Kaiser and Rachel Ziegler of the Kaiser Law Group are speaking this month at the 2018 New England Institute on Taxation of the Massachusetts Association of Accountants.  The topic of our talk is “Estate Tax Planning in Massachusetts – 2018 and Beyond” and focuses on estate planning and estate tax planning strategies in Massachusetts following the passage of the federal Tax Cuts and Jobs Act.

The Tax Cuts and Jobs Act made significant changes to the federal estate tax law.  It increased the federal estate tax exemption to $11.18 million for individuals or $22.36 million for married couples.  The result of this change is that very few individuals and couples need to plan for federal estate taxes.

Yet, the Massachusetts estate tax exemption remains $1 million.  This means many of us will pay Massachusetts estate taxes.  It continues to be important – even essential – to do proper estate planning, with estate tax planning, in Massachusetts.

Our talk focuses on four (4) strategies to minimize estate taxes that remain important in Massachusetts.  These strategies include the following:

  1. Revocable trusts with Massachusetts estate tax planning provisions for married couples.
  2. Lifetime gifting, including annual exclusion and taxable gifts.
  3. Strategic planning with portability.
  4. Planning for out of state real estate after the 2016 case, Commissioner of Revenue v. Dassori.

We highlight many interesting examples of these strategies from our practice.

If you want to learn more, please contact us.

What you need to know about Isabella Stewart Gardner’s Will (before listening to WBUR’s “Last Seen”)

300px-Rembrandt_Christ_in_the_Storm_on_the_Lake_of_GalileeWBUR’s new podcast series – Last Seen – provides a new look at the 1990 Isabella Stewart Gardner Museum art heist.  If you grew up in Boston or have lived here since the 90s, you’ve no doubt heard a lot about the St. Patrick’s eve theft of thirteen works of art – valued today at half a billion dollars – that remains unsolved.  But “Last Seen” provides investigative journalism way beyond what you’ve already heard.  I have been listening each Monday morning on the edge of my car seat, wishing my commute were longer.  It is truly that good.

If you have visited the Gardner Museum, you cannot help but be struck by the empty frames that remain on the walls where the stolen paintings used to hang.   The frames and spaces remain empty – like a crime scene – to remind visitors that the paintings remain at large.  Gardner museum director of security (and candidate for Secretary of State) Anthony Amore has committed his work and life to finding the stolen artwork, and wants the FBI and the community to have the same commitment.

But there is another reason the frames remain empty – the terms of Mrs. Gardner’s Will require it.   In her Will, Mrs. Gardner left the museum, her artwork, and an endowment to be held for public enjoyment, but the Will also included very stringent restrictions.  The museum was to remain unchanged from the time of her death, and any change would cause the museum and its artwork would pass to Harvard College.  The terms of the Will mean that artwork is not to be moved, with no exceptions.

There is however a precedent for change to the museum.  In the years after the heist, the Trustees believed the museum needed an update and expansion so the Trustees sought court approval for a restoration and expansion project – a deviation from the terms of the Will.  In 2009, a Massachusetts court approved the project, holding that the deviation was reasonable and consistent with Mrs. Gardner’s primary purpose.   The new wing, designed by Renzo Piano, is beautiful and modern, and totally different from the rest.

The museum Trustees have never sought to obtain court approval to deviate again from the Will’s terms to fill or cover up the spaces left by the thieves.  I suspect they never will.  To do so would be to give up on their quest to retrieve the artwork.

Image of Rembrandt, The Storm on the Sea of Galilee, from Wikipedia.

Aretha died intestate. What happens if you do?

ArethaYou may have heard the news that Aretha Franklin died on August 16, 2018 without a Will or Trust.  This means she died “intestate”.   With an estimated net worth of $80 million, her failure to prepare an estate plan was clearly a mistake.  Many are left wondering what will happen to her estate.

The recent news may leave you wondering – what will happen to your estate if you die intestate?

What happens if you die intestate?

If you die intestate, a state court will appoint someone as the Personal Representative or Administrator of your estate.  That person’s job will be to distribute your assets among your family members as state law requires.  He or she will not have discretion to determine how assets are distributed or held, but will be bound by state law and the court’s authority and instruction.

If you reside in Massachusetts at your death, your assets will be divided among your family members pursuant to Massachusetts Probate Code.   Essentially, Massachusetts law imposes a plan for division of your assets because you did not make a plan yourself.

Is intestacy a bad thing? 

Many people die intestate – celebrities like Aretha, Prince, and Picasso, and many ordinary people.  There are a lot of downsides to dying without an estate plan.  Here are a few of the most important:

  1. You may have wanted a disposition of your assets among your family members that is different from what state law requires.
  2. The process of disposing of your assets will be more costly and time consuming.
  3. Your creditors will be able to reach all of your assets to satisfy any debts or claims.
  4. Your family may be more likely to fight or disagree with one another, resulting in hurt feelings and fractured relationships.
  5. The court will choose who will serve as Personal Representative or Administrator from among your family members based on relationship, not ability. The person appointed may not be the best choice or do the best job.
  6. Outright distributions of cash and other assets may be made to minors, disabled persons or spendthrifts, resulting in bad consequences.
  7. More federal and/or state estate taxes may be due.

State intestacy laws are merely default rules.  I do not recommend relying upon them to accomplish your goals or protect your family.

Image by Brett Jordan from flickr.

Tuition bill got you down? These new 529 Plan rules may help.

college move inThe IRS recently released new guidance for Section 529 plans.  529 plans are tax-advantaged investment accounts established to fund a child’s or grandchild’s education.  New laws – including the 2017 Tax Cuts and Jobs Act – changed Section 529 laws.  In July, IRS issued Notice 2018-58 as temporary guidance about the changed laws.  This temporary guidance will ultimately become part of more permanent regulations.

There are three changes addressed in the Notice.

Elementary or Secondary School Tuition. The new guidance allows distributions from 529 plans to be used to pay for tuition only at elementary and secondary private and religious schools up to $10,000 per year.  Previously, 529 plan distributions could only be used for higher education.   Parents and grandparents now have more flexibility to fund a child’s complete education in a tax-advantaged manner.

How can this help you?  You wish to fund your grandchild’s complete education, including her tuition at a private elementary and secondary school as well as a college education.  You make contributions to a 529 account for her.  Each year she attends private school, distributions of up to $10,000 can be used to pay the private school tuition.

Tuition Refunds May be Recontributed to the 529 Account. If a distribution from a 529 is made to an educational institution and is subsequently refunded for any reason, the refunded money can be recontributed to the 529 plan.   Previously, the refund would have been subject to tax and potentially a penalty.   The IRS requires that the refund be recontributed to the account within 60 days of receipt.

How can this help you?  You took a distribution from your child’s 529 account and paid the full year’s tuition to the university.  Your child leaves school after first semester and the university refunds the second semester’s tuition.  The refund may be recontributed to the 529 account.

Rollovers to ABLE Accounts. ABLE accounts are tax-advantaged savings plans for disabled individuals that can be used to pay for qualified disability expenses.  The IRS now allows funds in a 529 plan account to be rolled over to an ABLE account without taxes or penalties, subject to contribution limitations.  This allows the parents or grandparents of a disabled minor or young adult who is unlikely to go to college to move 529 assets to a more appropriate ABLE account.

How can this help you?  You funded a 529 account when your child was young to fund his college education.  The child is now college age, but due to his or her disability, is unable to attend college.  You can rollover the 529 to an ABLE account and use the funds to pay for certain expenses arising from the child’s disability.

The benefits of funding 529 plans are numerous.  Most importantly, 529 contributions by parents and grandparents result in income and estate tax savings.  In addition, 529 plans are simple to set up and inexpensive to administer.  For a more in depth discussion of the benefits of 529 plans, see my prior post.

The “Tarses Family Toilets” at MASS MoCA. Named museum “gallery” or estate planning joke?

IMG_2682 (002) 16605260788_20d34384f0_zThe “Rachel and Jay Tarses Emergency Exit”? The “Tarses Family Toilets”?  I spotted these unusual (and somewhat amusing) named “galleries” on my recent visit to the Massachusetts Museum of Contemporary Art (MASS MoCA) in North Adams, Massachusetts.

Walking through the museum, my initial thought was that this was evidence of charitable gift planning gone awry.  Here’s what I theorized may have happened.  Mr. and Mrs. Tarses made a generous charitable donation to MASS MoCA – during their lifetimes, from a Trust, or even after their deaths – without imposing any restrictions on its use.  Out of available galleries to name, scholarships to endow, or other respectable naming opportunities, MASS MoCA decided to take the money but be utilitarian and name the emergency exit and the toilets in their honor.  Poor Tarses family!  I can only imagine the angry call that was made to that Estate Planning attorney!  Perhaps, I thought, I should reconsider my typical recommendation that clients give unrestricted charitable gifts to avoid future hassles and litigation.

But, after a little research, I think my initial thought was wrong.  The named emergency exit and toilets were an irreverent joke – a snub to stuffy art museums, overeager museum development officers, and stodgy estate planning attorneys.  How do I know?  Jay Tarses is a very successful American television comedy writer and producer.  He started in the 1960s as a production assistant for Candid Camera.  He made his name (and presumably his money) in the 1970s as the creator of The Carol Burnett Show and The Bob Newhart Show, and later produced The Slap Maxwell Show and The Days and Nights of Molly Dodd.  He’s been credited as a maverick in the development and popularity of the half-hour comedy series, and proclaims himself a Hollywood outsider.  He’s also a MASS MoCA Trustee.

In short, it seems Jay Tarses is an irreverent, funny guy who likes to be unique.  The manner in which he has made charitable gifts seems to be no exception.  If you, like Jay Tarses, wish to accomplish a unique goal as part of your estate or charitable gift planning, a good estate planning attorney can help.  Just be sure it’s one who’ll get the joke.

Image of emergency exit from flickr, Frank Hebbert.

This Cobbler’s Kids Have Nice Shoes (Nike Kyrie 4s, to be exact)

Kids shoesI’m sending my children away this summer – one to overnight camp for the first time and the other for an extended stay with her grandparents thousands of miles away.  For me, it will mean (albeit temporarily) a return to a kid-free lifestyle – a busy parent’s “dream come true”.  I can’t deny my excitement, but I also find myself worried.  What if something were to happen to them while they are away – a medical emergency, for instance?  Who will make the medical decisions for them?  Could delays in medical decisionmaking have bad consequences?

To ease my worries, at least in part, I’m sending my daughter to her grandparents’ house with a legal document in hand that authorizes them to make medical decisions for her.  The document is an Appointment of Temporary Agent for the Care of a Minor.  In the Appointment, my husband and I will authorize her grandparents to make medical decisions in an emergency.  This may include taking her to an emergency room or authorizing needed diagnostic or surgical procedures.  In addition, it will authorize them to take her to a pediatrician or urgent care center for more routine care to treat minor illnesses, such as an ear or respiratory infection.

To be effective under Massachusetts law, the Appointment must be signed by both my husband and me.  It must state that we temporarily delegate to the grandparents our parental powers, including the authority to consent to medical treatment.  It must be signed by them and witnessed by two adults.  It may remain effective for up to sixty days.

If you too are sending your kids away this summer or in the future, be a responsible parent and consider executing an Appointment of Temporary Agent for the Care of a Minor.

Charitable Remainder Trusts – Case Studies

steps lightIn my previous post, I discussed the structure and tax benefits of Charitable Remainder Trusts, and the ways in which CRTs can be used to meet various estate planning goals.  The following case studies from our practice illustrate how our clients have used CRTs to meet their goals.


Case Study #1

Client Goal – To sell highly appreciated stock without paying substantial capital gains taxes  

Howard owned stock in a highly appreciated life sciences corporation.  The stock was valued at over $1 million and had a very low tax basis.  Howard wished to sell the stock to take advantage of market growth, but the capital gains tax due following the sale would be substantial.  Instead of selling the stock himself, Howard established a Charitable Remainder Unitrust (CRUT).  He transferred the stock to the CRUT, and the CRUT sold the stock.  Howard received an income tax deduction when the CRUT was established and deferred capital gains taxes.  He and his wife will receive from the CRUT annual payments of 30% of the trust assets for their lifetimes.

Case Study #2

Client Goal – To generate income for retirement

Bob and Nancy owned a Massachusetts vacation home valued at over $5 million.  Bob had inherited the house many decades ago and it had a low tax basis.   The couple’s other assets – including retirement accounts, investment accounts, and a primary residence – were modest and therefore insufficient for retirement.  Bob and Nancy, now in their mid 60s, wished to sell the house so they would have sufficient income for their retirements.  Rather than sell the house and incur capital gains taxes, Bob and Nancy established a Flip CRUT to which they deeded the house.  They received an income tax deduction and deferred capital gains taxes.  Following the sale of the house, and for the remainder of their lifetimes, Bob and Nancy will receive quarterly payments of 6% of the trust assets.  These payments will allow them to retire comfortably.

Case Study #3

Client Goal – To be charitable

Samuel was unmarried and never had any children.  His total assets were valued at approximately $6 million.  Samuel was philanthropic by nature and specifically wished to benefit charities that provided educational opportunities for gifted children.  Therefore, Samuel established a CRUT to which he transferred ownership of approximately $1 million of appreciated real estate and investments.  He received an income tax deduction and, if the house were sold, would be able to defer capital gains taxes.  For the remainder of his lifetime, Samuel received annual payments of 5% of the total trust assets to supplement his retirement income.  On his death, the remaining trust assets passed to a charitable foundation whose purpose was to fund educational opportunities for gifted children.

Case Study #4

Client Goal – To provide future income to a child

Eleanor was in her late 80s with declining health.  Her husband had predeceased her by many years and she had one daughter, Janice.  Eleanor was seeking ways in which to pass a portion of her $8 million dollar estate to Janice prior to her death.  Eleanor made substantial taxable gifts,.  She also established a CRUT that would pay to Janice a unitrust percentage of 5% for a term of twenty (20) years.  The CRUT was funded with marketable securities with a low tax basis.  Eleanor received an immediate income tax deduction.  Janice will receive supplementary income for twenty (20) years.  At the end of the term, Janice will select public charities to which the trust remainder will pass.

Charitable Remainder Trusts – A Versatile Estate Planning Tool

SwissA Charitable Remainder Trust (CRT) is an irrevocable trust that provides for periodic payments to be paid to individual beneficiaries with a remainder paid to a charity.  CRTs are versatile estate planning tools that can be used to meet various goals – to reduce income taxes, to defer capital gains taxes, to generate lifetime income for the donor or others, and to benefit charities.

A CRT may be funded by a donor with cash, securities, real estate or tangible personal property (such as artwork).  The CRT terms must provide that the donor (and/or his or her spouse or other family member) receive periodic payments for life or a term of years.  The payments may be a percentage of the trust assets (a “unitrust” percentage between 5% and 50% of the total trust assets) or a fixed annuity amount.  The payments may be made annually or more frequently.  The CRT terms may vary in other ways.

At the end of the term or on the death of the surviving beneficiary, the remaining assets in the CRT are paid to a charity or charities selected by the donor.  The donor may select the charities when the CRT is established, but may change the charities at a later time.  To qualify under tax laws, the remainder passing to charity must be at least 10% of the total fair market value of the trust assets.

CRTs offer significant tax benefits.  When the CRT is established, the donor receives an income tax deduction for the value of the remainder that passes to charities.  In addition, capital gains taxes are deferred until distributions are made.

CRTs are a versatile estate planning tool.  We have used them in our practice to meet a variety of client goals.  Stay tuned for an upcoming post on case studies from our practice.

Image from flickr/Jinho Jung

Will your Executor have access to your emails?

cellphoneAre you wondering what will happen to your Facebook account, emails, online photos and other digital assets after your death?  If so, you may soon have a clearer answer under Massachusetts law.  Norfolk Probate Court will soon decide whether a Personal Representative appointed in Massachusetts may access the emails of a deceased person in the case of Ajemian v. Yahoo!.  The case has worked its way through the Massachusetts courts for the last several years.

Ajemian is an interesting case with potentially significant implications.  John Ajemian died in August 2006.  He died intestate (without a Will) and at the time of his death owned a Yahoo email account.  His siblings were appointed as Personal Representatives (PRs) of his estate by Norfolk Probate Court.  After their appointment they asked Yahoo for access to John’s email account.  Yahoo denied their request.  So the PRs brought an action in Norfolk Probate Court to obtain access, but the court denied their petition.  The court held that Yahoo was prohibited from disclosing the emails under the Stored Communications Act (SCA), a federal law designed to maintain the privacy of electronic communications held by internet service providers.

On appeal, the Massachusetts Supreme Judicial Court held in October 2017 that Yahoo was not prohibited from releasing the emails to the PRs under the SCA.  The reason was two fold.   First, the emails were property of John’s estate over which the PRs could exercise control and ownership.  Second, the PRs could “lawfully consent” to the release of the emails, an exception to the disclosure prohibition of the SCA.

While the SJC decision was a victory for the PRs, the court declined to determine whether Yahoo was required to disclose the emails under Yahoo’s terms of service agreement (TOS) with John.  Yahoo argued that the TOS gives it the authority to terminate the account at any time which allows it to deny the PR’s access.  The SJC remanded to the Probate Court to determine whether Yahoo could withhold the emails under the TOS.

Yahoo petitioned to the Supreme Court, but the Supreme Court declined to hear the case in late March 2018.   This means the case is now in the hands of Norfolk Probate Court again to determine whether Yahoo can deny the PRs access to the emails based on the provisions of the TOS.

I am eagerly awaiting the decision of Norfolk Probate.  It will have widespread implications in determining whether and how PRs may access the digital assets of a decedent in Massachusetts.  Even after Norfolk Probate decides, questions will likely remain.  Will a PR be able to access a digital asset if the TOS explicitly prohibits access by a PR or states that the account terminates at death?  Will the PR’s authority over the decedent’s assets trump the provisions of the TOS?  What if access to the digital assets is not addressed in the decedent’s estate plan?

Stay tuned for additional updates about the Ajemian case and estate planning for digital assets.  This is an interesting and developing area of the law.

IRS offering same sex couples restored exclusion amount

HumptyIt’s tax season again, which means that it’s time to file your gift tax return if you made taxable gifts in 2017.   This year’s gift tax return instructions contain an interesting change for taxpayers who made taxable gifts to a same sex spouse prior to the Supreme Court’s decision in United States v. Windsor.  (If you, like me, have been thinking that our federal government did nothing kind in 2017, you’ll like this one.)

First, some background.  The Defense of Marriage Act (DOMA) was the federal law that prohibited same sex marriage.  Under DOMA, a taxpayer who made gifts to his same sex spouse in excess of the annual exclusion was required to use some of his applicable exclusion amount because the gifts were not eligible for the marital deduction.   In addition, a taxpayer who established a trust for the benefit of a much younger same sex spouse (who qualified as a “skip” person under generation skipping transfer (GST) tax law) was required to allocate a portion of his GST tax exemption to the trust if he wanted the trust to be GST exempt.

Heterosexual married couples were required to do neither.  A heterosexual married taxpayer could make unlimited gifts to a spouse without allocating application exclusion.  In addition, a heterosexual spouse would never be considered a “skip” person for GST purposes, no matter the age difference.

In 2013, in Windsor, the Supreme Court held that DOMA was unconstitutional. Shortly after Windsor, the IRS issued new rules that stated that same sex marriages would be treated the same as heterosexual marriages under federal tax law.  Gifts between same sex couples would be treated the same as gifts between heterosexual couples.  The gifts would be eligible for the unlimited marital deduction, no applicable exclusion would have to be used, and the spouse would not be considered a “skip” person for GST purposes.

But the injustice imposed by DOMA prior to 2013 was not remedied until 2017 when the IRS released Notice 2017-15.   In 2017, the IRS now offers the following two (2) remedies for same sex taxpayers:

  • Restoration of Applicable Exclusion Amount. A taxpayer who used his applicable exclusion when reporting gifts to a same sex spouse can now file a gift tax return and request that his exclusion be “restored”.  The taxpayer can get back his previously used exclusion by filing a gift tax return with a calculation of what he used in prior tax years.  This can be done even if the limitations period has run, which means the exclusion can be restored back to the beginning of the marriage, as long as the marriage was recognized under state law.  If the taxpayer would have to make a QTIP or QDOT election to qualify the gift for the unlimited marital deduction, he will also have to file a request for 9100 relief.
  • Recalculation of the Available GST Exemption. The IRS will treat as void certain allocations of GST exemption to transfers to a same sex spouse and/or his or her descendants.  This allows the taxpayer to recalculate his remaining GST exemption and get back GST exemption allocated on prior returns.  As above, to obtain relief, the taxpayer must file a gift tax return and explain the recalculation of his or her GST exemption.

In both cases, the IRS states its preference that the restoration and recalculation be done on the first gift tax return required to be filed after issuance.  This means the requests for recalculation should be made on the 2017 return, if 2017 gifts were made.

Image of Denslow’s Humpty Dumpty 1904 from Wikipedia.