Planning for Life

By Harry S. Margolis

The case of Phannenstiehl v. Phannenstiehl (475 Mass. 105, 2016) established the rule that if your parents create a trust for your benefit and leave discretion over distributions in the hands of the trustee, the funds in that trust will not be considered part of the marital estate upon your divorce. (See our description of this case: In Pfannenstiehl Case, MA SJC Affirms Use of Asset Protection Trusts.) A recent Massachusetts Appeals Court decision appears to narrow this rule. 

By Harry S. Margolis

Perhaps only of interest to estate planners, but of great interest to them, the Massachusetts Supreme Judicial Court has ruled in Shaffer v. Commissioner or Revenue (SJC-12812, July 10, 2020) that out-of-state QTIP trusts are includible in the Massachusetts estates of surviving spouses if the deceased spouse's estate filed a federal QTIP election for the estate. This is probably relevant mostly for larger estates and for older trusts, since given the current $11.58 million federal estate tax threshold, few estates today need to file a federal QTIP election.

By Harry S. Margolis

With the current federal estate tax threshold set at $11.58 million (over $23 million for a married couple) in 2020, fewer than 2,000 estates are expected to pay any tax this year. That's out of more than 2.8 million deaths, or approximately 0.07% of all estates. (The threshold for Massachusetts estates is $1 million.)

By Harry S. Margolis

That house on the Cape, Martha's Vineyard, or in the Berkshires, what happens when the owner dies and is not a Massachusetts resident? Is it subject to the Massachusetts estate tax?

Yes.

And it's a bit complicated.

By Harry S. Margolis

How often should you review your estate plan? The answer, like that to many other legal questions, is it depends. It depends on how old you are and whether there has been a significant change in your circumstances. If you are over age 60 and you haven't updated your estate plan in many decades (which is the norm among our clients), it's almost certain that you need to update your documents. After that, you should review your plan every five years or so. But if you're younger, you don't need to do so nearly as often.

Age

Here are a few age ranges and what they mean in terms of estate planning:

By Harry S. Margolis

With the threshold for federal estate taxes now at $11.58 million (in 2020), you probably don't have to worry about it or do any planning to avoid it. Very few Americans have federally taxable estates. But the threshold for Massachusetts residents is $1 million. So, if you live in Massachusetts and your estate is above $1 million—which isn't hard if you own a house in many communities in this state—should you engage in estate tax planning?

By Harry S. Margolis

In December 2017, while it was still pending, I wrote a post about the competing versions of the GOP tax law with regard to federal estate tax. The House bill would have eliminated it entirely. The Senate version, which ultimately passed, doubled the threshold for taxation to $11.2 million for individuals and $22.4 million for married couples (as of 2020, the estate tax threshold is now at $11.58 million). At the risk of getting too political, I made my pitch as to why an estate tax is important in terms of equity and democracy.

By Harry S. Margolis

When I originally wrote this post in 2017, the U.S. House and Senate were poised to eliminate the federal estate tax for all but the richest Americans, raising the estate tax threshold from the then current $5.5 million for individuals (and $11 million for married couples) to $11 million (and $22 million, respectively). The House bill would have ultimately eliminated the tax all together in 2024. This was the culmination of a long-term campaign against the estate tax which began more than two decades ago when the threshold for taxation was just $600,000.

Already, the result had been that only about 5,000 estates per year pay estate taxes, down from 52,000 in 2000.

By Harry S. Margolis

So, what's a QTIP trust? "QTIP" stands for qualified terminable interest property. Total legal gobbledygook, right? So forget the words. What it means is a trust that you leave for your spouse that gives him the right to all of the income and limits his right to the principal. Those limits can be total, meaning no right to principal, or minor, meaning simply limited by the HEMS standard (for health, education, maintenance and financial security) or fully available but controlled by a trustee other than your spouse.  

By Harry S. Margolis

With the threshold for federal estate taxes set at $11.58 million as of 2020 (it adjusts each year for inflation), very few estates have to file a federal estate tax return. In contrast, the Massachusetts threshold is $1 million, meaning that many more estates must file a Massachusetts return. For estates that fall between $1 million and $11.58 million, it can still make sense to file a federal return if the decedent left a surviving spouse.

This is for two reasons: portability and capital gains step up.