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Protecting Your Assets
220 Broadway (Rte. 1 South), Suite 404
Lynnfield, MA 01940
info@protectingyourassets.com
(978) 210-9666

Glossary

Devise - a testamentary disposition of real or personal property

Donor(s) - The person(s) who create a trust.  Other commonly used terms are settlor, trustor, or trustmaker.  The Donor may or may not also be a Trustee and/or Beneficiary.

Estate - All the assets that a person owns at the time of death, including both real estate and personal property.  This is a general term, and takes on different meanings depending on the context -  for instance, the probate estate vs. the taxable estate.

Personal Representative - Under the Massachusetts Uniform Probate Code (MUPC), this term replaces Executor, Executrix, Administrator, and Administratrix.  The Personal Representative is the person who administers the estate of the deceased.

General Devise - A testamentary gift of a certain dollar amount given upon the giver's death via a Will. For example, "I give $10,000 to my uncle, Elmer Fudd." There is no reference to where that $10,000 will come from. It will be up to the Executor to decide from which account the money should come, or which asset of the estate needs to be liquidated to raise the $10,000.

Homestead Declaration - A document that can be filed with the Registry of Deeds, protecting $500,000 worth of equity in one's primary residence from certain types of creditors.

No-Contest Clause - Also sometimes called an in terrorem clause.  This is language that can be inserted into a Will that discourages heirs from contesting the Will by automatically disinheriting anyone who does so.

Personal Property - Any property that is not real estate. This includes not only personal items such as clothing, jewelry, and automobiles, but also cash, stocks, bonds, CDs, etc.

Probate - A court proceeding in which a deceased person's estate is administered.  It is not necessarily an adversarial proceeding, but in some cases it can become adversarial if any interested party chooses to challenge the validity of a will or the appointment of a particular Personal Representative.

Residue (also called Rest, Residue, and Remainder) - Real or personal property given via a Will that is neither a Specific nor General Devise.

Revocable - This term describes a power reserved to the Donor in many types of trusts. The Donor has the power to change the terms of the trust agreement or to eliminate the trust altogether and regain complete ownership of the trust assets.

Specific Devise - A gift of real or personal property that is specifically referred to in a Will. For example, "I give my 1969 Corvette to my nephew Roger Rabbit," or "I give my beach house on Nantucket to my niece Jessica Rabbit."

Spendthrift Clause - Language that can be inserted into a Trust document that protects a Beneficiary's interest in the trust from most types of creditors.

Testator - A person who makes a Will.

Trust (generally) - An agreement between the person creating the trust (called the Donor) and the person who will manage the trust (called the Trustee) for the benefit of one or more individuals (Beneficiaries).

Trust (Living Trust) - A commonly used term. It is simply a trust that is created during the Donor's lifetime. Assets held by a Living Trust do not have to go through probate upon the Donor's death. This type of trust can be either revocable or irrevocable.

Trust (Testamentary Trust) - Used less often, this type of trust is created upon the death of the Donor. The Donor's Will spells out who the Trustee and Beneficiaries will be, and how the trust property will be managed. This type of trust is useful in some situations, but it does not allow one's estate to avoid probate.

Trust (Supplemental/Special Needs) - A trust drafted to provide items in excess of basic support and not be a countable asset or resource for purposes of determining the Beneficiary's eligibility for Medicaid or similar public benefits.

Will - A document by which a person directs his or her estate to be distributed upon death. It also nominates a Personal Representative to administer the estate, and if applicable, a Guardian to take custody of any minor children of the Testator.  A Will does not have any legal effect until it is filed with the appropriate court when the Testator dies.

FAQ

Why do I need a Will? Won't my estate automatically go to my kids anyway?

Not necessarily. Besides, there are other reasons to have a Will besides the obvious, which is to distribute your property according to your wishes. Having a Will allows you to choose your Executor who will administer your estate, choose a Guardian who will take care of your minor children, and to choose your preferences regarding burial, cremation, which funeral home, which church, what type of service, etc.

If I do not have a Will, do my assets automatically go to the state?

Probably not. If you die intestate (without a Will) you have no say in who will receive your estate, but it will not go to the state unless you die with no relatives. Also, if you die intestate, you have no say in who will be appointed Executor of your estate or who will be appointed as Guardian of your minor children.

Does having a Will prevent my estate from having to go through probate?

No. Actually, having only a Will as an estate plan virtually guarantees that your estate will go through probate, since a Will has no legal effect until filed with the appropriate court. Once the Will is filed, the estate is "opened" and the probate process has begun.

How long does the probate process take?

It depends on several factors, but generally 1½ years.

How much does probate cost?

Court costs, other expenses, and attorney fees generally run about 3% of the value of the estate.

How can I avoid probate?

One of the best ways to avoid probate is with a Living Trust. A Living Trust (also known as a revocable or inter vivos trust) is a separate legal entity you create to own property, such as your home or investments. The trust is called a Living Trust because it is meant to function while you are alive. You control the property in the trust, and, whenever you wish, you can change the trust terms, transfer property in and out of the trust, or end the trust altogether.

If I create a Living Trust and I am the Trustee, what happens if I become incapacitated or incompetent?

When you create the trust you will appoint one or more successor trustees who can take over the management of the trust for you quickly, smoothly, and privately without any court intervention. This way, you avoid a costly, time-consuming, and embarrassing guardianship or conservatorship proceeding.

But if I avoid probate with a Trust, why do I need an Executor?

You may neglect to place all of your current assets into the trust, or acquire an asset some time after creating the trust and forget to put it into the trust. Your Executor can gather any such assets and your Will directs him or her to "pour-over" those assets into your Trust upon your death. Then those assets will be distributed according to the terms of the trust, or managed for your heirs for a period of time - whichever you choose. Also, your final tax refund check will be payable to you personally, not to your trust. Therefore, you will want to appoint an Executor in a Will who can get permission from the court to endorse and deposit the refund check into your trust. Finally, assets such as vehicles will not be titled in the name of your trust. An individual is allowed to have one vehicle and up to $15,000 in other assets (but not real estate) without having to go through a full, formal probate process.

Does establishing a Living Trust automatically protect my assets from lawsuits, nursing home expenses, and taxes?

No. However, there are other types of trusts that can accomplish those goals. We would be happy to discuss those options with you if you are concerned about them.

I carry significant liability insurance coverage. Why should I be interested in asset protection?

If you review your insurance policy, you'll find that it does not cover you for punitive damages or intentional wrongdoing. In addition, with the ongoing crisis in the insurance industry, the financial stability of liability insurance companies is never certain, and the scope of coverage seems to be decreasing all the time. Insurance companies regularly deny claims. Finally, a claim can always be made which will exceed your coverage limits. Prudent planning would include a combination of asset protection strategies and liability insurance.

Are the proceeds of a life insurance policy tax-free?

Yes and no. When the beneficiary of a life insurance policy receives a death benefit under the policy, he or she does not have to pay income tax on that money. However, there may be an estate tax. In 2011, unless Congress acts to the contrary, the estate tax rate will be 55%.

Is there a way to avoid estate tax on the proceeds of a life insurance policy?

Yes. You can establish a special type of trust called an "Irrevocable Life Insurance Trust" or "ILIT" (pronounced "eye-lit") for short. If you already own a life insurance policy, you can set up an ILIT and transfer ownership of the insurance policy to the trust. If you do not already own a life insurance policy, you can set up an ILIT and then have the ILIT purchase the policy.

Do mortgage companies/banks require a homestead?

No. They do not require a homestead because it does not offer them any additional protection. Their protection comes from recording the mortgage at the registry of deeds, making it a secured loan.

Do mortgage companies/banks automatically apply for homesteads for their mortgagors?

No. It is up to the buyer to apply for the additional protection provided by the Homestead Act.

Do closing attorneys file homesteads?

No. At most closings, there is only one lawyer, and he or she works for the mortgage company/bank, not the buyer. That attorney is not representing the buyer's best interest. A buyer can and should hire his own attorney to represent him at the closing. A buyer's attorney should prepare and record a homestead declaration for his client.

Is a mortgage company/bank obligated to inform me of my rights as a buyer under the Homestead Act?

The homestead statute does require that the closing (bank's) attorney tell the buyer that he has the right to declare a homestead. See Chapter 395 of the 2010 Acts, which replaces Chapter 188 of Mass General Laws: "In all mortgage transactions, the closing attorney or settlement agent shall provide the mortgagor with notice of the right to declare homestead protection..."

Can I disinherit my spouse?

Can I disinherit my spouse?
Yes, but not entirely. If a testator does not provide for his or her spouse in a will, the surviving spouse may "waive the will" pursuant to G.L. c. 191, §15. Depending on the size of the estate and whether the testator died with issue or kindred, the surviving spouse will receive a certain proportion of the estate.

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