Advance directives are legal instruments that appoint someone to make decisions on your behalf. With respect to healthcare decisions, a health care proxy appoints someone to make health care decision for you in case of incapacity. Similarly, a durable power of attorney appoints someone to make financial decisions on your behalf and can be useful if you become incapacitated and your family needs access to your assets.
A testamentary trust is a trust created by a will. In Massachusetts, assets left to a surviving spouse by way of a properly drafted testamentary trust are not subject to the Medicaid/MassHealth five-year lookback period applicable to nursing home benefit applications.
A trust created during lifetime (a “living” or “inter vivos” trust) may be revocable, which means it can be revoked or changed by the settlor (the trust creator), or irrevocable, which means it cannot be changed by the settlor. Revocable trusts are commonly used to preserve assets from estate taxes or to avoid probate. Irrevocable trusts are commonly used for asset protection and to preserve assets from nursing home costs.
A trust is a legal arrangement that can provide flexibility for the ownership of certain assets, enabling you and your heirs to achieve a number of goals that cannot be achieved otherwise. The term trust describes the holding of property by a trustee in the accordance of the provisions of a contract for the benefit of one or more persons called beneficiaries. The trustee is the legal owner of the trust property, and the beneficiaries are the equitable owners of the trust property. With certain trusts, a person may be both a trustee and a beneficiary of the same trust. In other types of trusts, the roles must be held by different entities or people.
If you own property with another person as joint tenants with rights of survivorship, or in the case of married couples, as tenants by the entirety, that is, not as tenants in common, the property will pass directly to the surviving joint tenant upon your death and will not be part of your probate estate or governed by your will (or the laws of intestacy if you die without a will).
A will must be signed in the presence of at least two witnesses and certain formalities must be followed or the will may be found to be invalid. A will that is formally executed in front of at least two witnesses with all signatures notarized is deemed to be “self-proving” and may be admitted to probate without the testimony of witnesses or other additional proof. Even if a will is held to be valid in spite of errors in execution, such a challenge can be costly and difficult, and it is best avoided in the first instance by proper execution. In Massachusetts, a will may refer to a memorandum that distributes certain items of tangible personal property, such a furniture, jewelry, and collectibles, that may be amended without the formalities of a will.
A will provides for the distribution of certain property owned by you at your death, and generally you may dispose of such property in any manner you desire, a major exception being statutory law that prohibits the disinheritance of a surviving spouse. Your will does not govern the disposition of your property that is controlled by titling, beneficiary designations, or payable on death designations. These assets pass automatically at death to those designated.
If you die intestate (without a will), Massachusetts statutory law will determine who receives your property by default. Typically, the distribution is to your spouse or children, or if none, to other family members. The statutory plan may or may not reflect your actual wishes. A will allows you to change the default statutory distribution scheme to suit your wishes, as well as to make a number of personal decisions to suit your objectives that the default provisions cannot address.
Every estate plan is different and depends on the individual’s goals as well as family dynamics, so it is difficult to generalize. However, a number of estate plans require HIPAA waivers, healthcare proxies, and durable powers of attorney to facilitate financial and healthcare decision if you become incapacitated, and wills to dispose of your assets upon death. Some individuals may also benefit for the establishment of living trusts. Living trusts are more likely to be recommended where there are tax issues, minor beneficiaries, and in the case of blended families.
As noted, your estate includes everything you own. While certain things are obvious, like real estate and personal property (bank accounts, clothes, jewelry, etc.) other interests are also included in your probate estate at death, interests that are less apparent, such as your share of ownership in a business, the value of retirement plans and insurance policies, intellectual property, and possibly assets held in a trust you created, depending on the authority you have over the trust.