Sullivan Law Blog - M. E. Sullivan Law, LLC

Massachusetts Legislature Passes Law Allowing Remote Notarization During the COVID-19 Crisis

April 30, 2020

On April 27, Massachusetts Governor Charlie Baker signed into law a temporary measure allowing notaries who are attorneys (or their paralegals) to notarize documents using real-time electronic video conferencing. Prior to enactment, to create a self-proving will, a notary was required to be physically present with the signer (testator) and two witnesses which resulted in at least four people being in close proximity (self-proving wills obviate the need for the witnesses to authenticate the will after the testator’s death).
The new law provides a mechanism to notarize documents while accommodating the Massachusetts’ social distancing guidelines that encourage people to stay at least six feet away from each other. Under the new law a notarization for estate planning documents using electronic video conferencing is valid as long as:

  1. the notary observes the signer’s and each witnesses’ execution of the document;
  2. each signer and witness makes an acknowledgement or affirmation to the notary;
  3. the notary, the signer and each witness is physically located within Massachusetts;
  4. each signer and witness provides the notary with satisfactory evidence of identity; and
  5. each signer and witness causes the executed document to be delivered to the notary.

When the notary receives the document, he or she then stamps and signs the executed document, whereupon the notarial act is completed. (There are additional requirements for real estate transactions.) The law allowing remote notarization will automatically be repealed three business days after the termination of the governor’s March 10, 2020 declaration of a state of emergency.

If you know a Massachusetts resident who has a need for estate planning, emergency or otherwise, please ask him or her to contact me directly.

M. E. Sullivan Law, LLC       617 409 3884

Do I Need Estate Tax Planning?

April 11, 2020

The federal government imposes estate tax only on estates that exceed $11,580,000, so most people don’t need federal estate tax planning.* However, because the Massachusetts estate tax threshold is $1,000,000, much smaller estates can benefit from tax planning. For example, a married couple with a $3,000,000 estate could save their heirs more than $100,000 through estate tax planning. Using a trust, a couple could reduce Massachusetts estate taxes by passing $1,000,000 worth of assets (the estate tax threshold) to a trust for the benefit of a surviving spouse. The trust assets could then be available to the surviving spouse during his or her lifetime, but they would not be part of his or her estate, resulting in a lower overall estate tax for the couple. The remainder of this article explains estate taxes and how a credit shelter trust can help reduce them.

Federal Gift & Estate Tax

Each U.S. citizen and lawful permanent resident is allowed a $11,580,000 credit (2020) against the U.S. federal gift and estate tax, and, as a consequence, can give away during life, and bequeath at death, a combined total of $11,580,000 without incurring federal gift and estate tax. The following excluded types of gifts do not count against the lifetime estate and gift tax:

(1) gifts or bequests to a U.S. citizen spouse in any amount (the unlimited marital deduction);

(2) gifts to a non-U.S. citizen spouse up to $157,000 per year (2020, indexed); and

(3) gifts to any other recipient up to $15,000 per person per year (2020, indexed).

In addition, tuition and medical expenses are not taxable gifts when paid on behalf of another person.

Massachusetts Gift & Estate Tax

There is no Massachusetts gift tax, but lifetime gifts that exceed the federal exclusion amounts above (1, 2, & 3) are combined with the value of an individual’s Massachusetts estate at death, and, if the combined value is  greater than $1,000,000, the entire Massachusetts estate is taxable. Consequently, if an individual makes no gifts above the exclusion amounts during his or her lifetime, and the individual’s estate is smaller than $1,000,000, it will not be taxed.

Estate Taxes & Trusts

There are myriad idiosyncrasies in the tax code and numerous trust types to optimize them. One of the most common and useful is the Credit Shelter Trust (“CST”; also known as the Bypass Trust). CSTs allow married couples to take advantage of the unlimited marital deduction by preserving the value of the estate tax exemption from the first spouse to die. To do so, the first spouse bequeaths an amount equal to the estate tax threshold to a Credit Shelter Trust and the remainder to the surviving spouse.  As a consequence, estate tax is eliminated because the amount directed to the trust is at or below the estate tax threshold and the remainder, though above the estate tax threshold, is inherited by the surviving spouse who receives it tax-free due to the unlimited marital deduction. While the surviving spouse can benefit (i.e. receive funds) from the CST during his or her lifetime, it will not be part of his or her estate, and therefore not subject to estate tax at his or her death.

For example, a Massachusetts-resident husband and wife with assets valued at $3,000,000 ($1,500,000 each), would not be subject to the federal estate tax. However, they could use a CST to shelter $1,000,000 from Massachusetts estate taxes, resulting in a $120,000 Massachusetts estate tax savings compared to not using a CST. In the case where they undertook no tax planning, a husband would die leaving his entire $1,500,000 estate to his wife. She would inherit his estate free of tax because of the unlimited marital deduction. Upon her subsequent death, her $3,000,000 estate would be subject to estate tax of $264,000 (8.8%) leaving an overall estate of $2,736,000 for their heirs. Compare that to the alternative scenario wherein they did undertake tax planning using a CST. In that case, the husband would die leaving $1,000,000 to a CST for the benefit of his wife during her life, and, on her death, to their heirs; and his wife would inherit the remaining $500,000. The bequest to the CST would be estate tax free because it is below the Massachusetts estate tax threshold, and the bequest to his wife would be estate tax free because it qualifies for the unlimited marital deduction. However, in this alternative scenario, upon the wife’s subsequent death, her $2,000,000 estate would be taxed at only $144,000 (7.2%) leaving their heirs her estate of $1,856,000 plus the $1,000,000 from the CST, totaling $2,856,000. Consequently, by using a CST for estate tax planning, the couple would be able to pass $120,000 more to their heirs than they would have without tax planning.

Credit shelter trust concepts can also be applied to federal estates greater than $11,580,000, resulting in federal estate tax savings for larger estates. In addition, trusts are extremely flexible instruments and can incorporate additional terms to govern a wide range of beneficiaries, distributions, and timetables to facilitate tax minimization, asset management, disability planning, probate avoidance, and privacy.

If you have questions about the use of trusts to achieve tax or other benefits in your estate plan, please feel free to contact me.

* Unless new laws are passed, the federal gift and estate tax threshold will revert to $5,000,000 (adjusted for inflation) on Jan 1, 2026.

Urge the Massachusetts Legislature to Allow Remote Notarization during the COVID-19 Crisis

April 5, 2020

Facing heightened risks during the ongoing COVID-19 state of emergency, multiple nurses at Boston-area hospitals have called to ask if wills and other estate planning documents can be created quickly for them. While documents can be created quickly, Massachusetts’ requirements for self-proving wills require a physical presence of the individual (testator), two disinterested witnesses, and a notary to attest to all signatures. (Self-proving wills do not need the witnesses to authenticate the will after the testator’s death). During the current emergency, document signing is a problem because Social Distancing dictates that testators, disinterested witnesses, and estate attorneys not congregate in a way that would be conducive to witnessing signatures.

There are bills for Remote Notarization pending at the Massachusetts Legislature that, if enacted, would provide a solution (HD.4999, SD.2882 – An Act relative to remote notarization during COVID-19 state of emergency). The Legislature can and should act on these proposals to allow the use of video conferencing for remote notarization during the crisis. Enactment of these bills would, at no cost to the Commonwealth, allow estate planners to provide some comfort to healthcare workers, first responders, the elderly, and other at-risk populations who wish to effectively memorialize their final wishes.

Time is of the essence. Please contact your legislator and ask them to support Remote Notarization for the duration of the emergency. The links to the bills (HD.4999, SD.2882) provide a list of cosponsors. Our front-line healthcare workers and first responders, indeed all citizens of the Commonwealth, deserve this.

If you know a Massachusetts resident who has a need for estate planning, emergency or otherwise, please ask him or her to contact me directly.

Probate Explained

March 15, 2020

Probate is the state-sponsored process of transferring the assets owned by an individual at death to the rightful recipients. Whether or not a loved one’s assets need to be probated depends on how he or she held title to them and the overall value of the assets.

Probate is not required for assets that have (a) joint tenant owners (e.g. a house), (b) beneficiary designations (e.g. a life insurance policy or retirement plan), or (c) a trust as owner of record. The value of a probate estate excludes non-probate assets.

When probate is required, estates in Massachusetts are administered using one of three different procedures depending on their size and complexity. Small probate estates can often be administered with a minimum of court supervision using the Voluntary Administration rules. Larger estates must petition the Probate Court to use either the Formal Administration rules or the Informal Administration rules, depending on the degree to which interested parties will need the probate court to adjudicate unknown or disputed issues concerning the estate. No matter which type of administration an estate uses, the rights of creditors are limited, so even relatively small creditor claims may be worth discussion with an attorney.

Voluntary Administration, available for probate estates with a car and additional assets valued at $25,000 or less, requires the submission of a few forms and a fee of $115. Once accepted by the probate court the Voluntary Personal Representative has limited authority to receive payments, deliver assets, and discharge liabilities with a minimum of court supervision through Voluntary Administration rules.

Informal Administration generally begins with notice to interested parties, a petition to appoint a Personal Representative (“PR”, formerly Executor), the filing of a packet of forms and payment of a $390 fee. The PR can then administer the estate in accordance with the will, or if there is none, the rules of intestate succession, without direct supervision of the probate court. Informal Administration can be very efficient when administration is routine and the interested parties are in agreement. If a party objects to some aspect of the probate or there are disputes about the estate, Formal Administration provides a process wherein the probate court adjudicates disputes regarding the estate.

Formal probate matters are typically heard by a judge and may involve one or more hearings before the court. Unlike informal probate, in a formal proceeding the court officially determines the decedent’s domicile at death, the heirs of the estate, and the status of testacy, i.e., whether a decedent left a valid will or died intestate. There are a whole host of problems that can require Formal Administration. Aside from addressing disputes that arise from Informal Administrations, many cases begin under Formal Administration when, for example:

    • the original will has handwritten words added or crossed out;
    • there is no official death certificate;
    • the location or identity of any heir at law or devisee is unknown;
    • the person to be appointed PR does not have priority for appointment by statute or by renunciation and/or nomination;
    • an heir at law or a devisee, is an incapacitated person, a protected person, or a minor and is not represented by a conservator, or is only represented by a guardian who is also the petitioner.

As a result, Formal Administration is generally longer, more complicated and more expensive than Informal Administration.

If you, or someone you know is administering the estate of a loved one, please contact me to help optimize the efficiency of administration and the value of bequests to beneficiaries. A short conversation may make a big difference.