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Legal Notes

Attorney Pamela OddyAttorney Pamela OddyMost couples that I work with to create an estate plan have chosen not to share their finances with their children. When to tell children about a parent’s finances is tricky at best. There are many times that I receive telephone calls from a worried and frightened adult child stating that his/her parent has just had a massive stroke or has just been diagnosed with Alzheimer’s and the child hopes that I have a record of the parent’s finances. The parent’s lawyer is not always a good place to turn for this information because the parent might not have seen or talked to the lawyer for many years, making any financial information gathered during the will interview obsolete. Oftentimes, the child does not even know what bank holds the parent’s checking account or if the parent has certificates of deposit or if the parent has investments of any kind and where they are.

When to tell children about a parent’s finances is tricky at best.

Sometimes, there is an immature or troubled child that makes the parent reluctant to share any knowledge about finances. Sometimes, the parent is involved in a second marriage with children from both marriages, which makes it quite complicated to explain anything about finances. And sometimes the parent just does not want to share anything, instead keeping everything private.

The bottom line is that there is no magic time to share your finances with your children, but here are some suggestions to help you determine when is the right time to open up and sit your children down and explain what’s what and also what’s where:

1. Make a list of your assets, similar to a spreadsheet, that contains the name or names on each asset and where it is. For example, list all bank accounts separately and put the account number and bank where these bank accounts are. A good idea is to update this list every year—make it a New Year’s resolution to redraft the list. If there are no changes, fine, but if there are changes, make sure they are noted on your list. Be sure to tell your children where they can find the list. What good is making out the list if no one knows where it is?

2. Tell your children who your lawyer is and also who your financial advisor is. Often, the financial advisor will have information on investments or mutual funds or stock portfolios that your children would have no way of knowing. The lawyer just might be holding the parent’s original will and powers of attorney.

3. Perhaps hold a family meeting so that you can explain a.) where your list is; b.) why you chose one child over another to be your power of attorney and personal representative (formerly known as “executor”) of your will; and c.) what your end of life medical decisions would be if you were not mentally able to make those decisions.

This information is designed to allow and facilitate the child to help the parent when the parent is no longer able to make decisions. It is not a time to let the child guess what assets the parent has or wonder if the parent has any life insurance or suspect that the parent has pre-paid the funeral or surmise that the lawyer is holding the parent’s original will. The end of life is not a time to be doing any of these things because it could actually result in prohibiting the child from helping the parent just when the parent really needs the help. The timing of sharing the parent’s finances with a child is a moving target and cannot be prejudged as to when is the best time, but, at some point, it absolutely needs to be done.

Attorney Seunghee ChaAttorney Seunghee Cha“When I am an old woman I shall wear purple/With a red hat which doesn’t go, and doesn’t suit me . . .” Penned in 1961 by the English poet Jenny Joseph at age 29, Warning is hailed as the most popular post-war poem in the UK. The poet muses about making up for the sobriety of youth: going out in slippers in the rain, picking flowers in other people’s gardens, and eating only bread and pickle for a week.

Caring for a loved one is a difficult balancing act between empowerment and protection.

The truth is, we would be alarmed to see our loved one behave so, with labels such as dementia, self-neglect, and elder abuse. Warning is used in trainings of professionals, including doctors and attorneys, who serve elderly people with diminished capacity. 

Caring for a loved one is a difficult balancing act between empowerment and protection. Families often lack basic knowledge about complex capacity issues they encounter. A better understanding will help identify planning opportunities and the right time for intervention. 

Here is a brief summary of general legal standards of capacity for common transactions and decisions: 

First, the most fundamental tenets: Legal adults are presumed to have capacity until proven otherwise; you have the right to make bad decisions.   

Testamentary capacity: You know the natural objects of your bounty and understand the nature and extent of your property, and you can interrelate such knowledge and understanding to create a rational plan to dispose of property. The ability to manage all your affairs is not necessary; you need the requisite capacity only at the time of executing the will—not before or after. 

Contractual capacity: You understand the nature and effect of the business transaction. If the transaction is complicated, a higher level of understanding is necessary.

Durable power of attorney: The requisite capacity to appoint an agent to handle your financial and legal affairs is the same as contractual capacity. 

Health care decisions: You understand the benefits and risks posed by a medical treatment and alternatives to the proposed treatment, and you can communicate your decisions.   

Donative capacity: You understand the nature and purpose of the gift and the extent of property to be gifted, and you know the natural objects of your bounty and the effect of the gift. 

Capacity to convey real estate: You understand the nature and effect of the transfer at the time of executing the deed. 

Clinical assessments must consider the specifics, nuances, and temporality of one’s capacity; appreciating the multifaceted nature of the ability to manage one’s own affairs is essential to self-determination and compassionate caregiving. 

Ms. Joseph died in 2018. Her beloved poem has inspired the Red Hat Society, for women over 50 to explore the power of fun and friendship.

older person (gender unknown) looking at face of phoneRecently, an investigative reporter interviewed a retired school principal who was a victim of a Jamaican lottery scam. Over time she gave about $27,000 to the scammer. Other victims of these scams lost their entire life savings. The scam begins with a telephone call mailing or informing the victim that they have won a large amount of money in a lottery. The scammers then inform their victims that they first need to send a certain sum of money for “fees” and/or “taxes” on these “winnings” before receiving the funds. Once a person responds and sends money, the scammers continue to repeatedly request more funds, with each request giving differing types of bogus reasons to release the funds. The scammers may also send a victim a fake, authentic-looking check that they claim is to pay for the fees or taxes. The victim is instructed to deposit this check into their bank account. That fake check will definitely bounce. By the time it is discovered that this check is fraudulent, the funds have already been collected by the scammers from the victim’s account, and the victim is responsible for the amount of the check and for the bounced check fees.

Victims can become angry and distrustful of the very people who are trying to help them.

These scammers are excellent con artists and can be very charming and very convincing.  They may send very official looking documentation complete with legitimate looking stamps and seals. There may also even be a call from someone claiming to be a legitimate governmental authority. Their victims are not necessarily people who suffer from cognitive impairments.  Many are competent adults, who are well-educated, well-read, and intelligent. Victims of these scams can be anyone of any age, but older adults are usually targeted. Family and friends can become estranged from victims because they were unable to convince the victims that they were scammed. Victims can become angry and distrustful of the very people who are trying to help them.  

To prevent becoming a victim, never respond to any correspondence or phone call that claims you won a lottery or any contest that you never legitimately entered. If you already had phone contact with a scammer, hang up when called again. It is not rude to hang up on a criminal. Foreign lotteries are illegal in the U.S. and playing a foreign lottery is a violation of federal law. Furthermore, winners of legitimate contests or legal lotteries are never required to pay any fee or pre-pay taxes on any winnings at all.

Attorney Seunghee ChaAttorney Seunghee ChaThe Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which went into effect on January 1, 2020, brings sweeping changes to estate planning with qualified retirement assets. These changes include removal of maximum age limits on IRA contributions (formerly capped at age 70½) and raising the required minimum distribution age to 72 from 70½. 

Most notably, the new federal law eliminates “stretch” payouts for many surviving beneficiaries (i.e., payout over the life of a surviving beneficiary). The new law requires a maximum payout period of ten years after the employee/IRA owner’s death for distributions from defined contribution plans [e.g., 401(k) plans] and IRAs. 

Most notably, the new federal law eliminates “stretch” payouts for many surviving beneficiaries (i.e., payout over the life of a surviving beneficiary).

The SECURE Act makes exceptions for distributions to “eligible designated beneficiaries”: the employee/IRA owner’s surviving spouse or minor child, a disabled or chronically ill individual, or an individual who is not more than ten years younger than the employee/IRA owner. The elimination of the stretch payout to those other than eligible designated beneficiaries means less tax-deferred growth. 

Another important, but less talked about, aspect of the new law is a provision that makes it easier for employers to offer annuity products in their retirement plans. The result could mean larger percentages of annuities in retirement accounts. Employees would be well advised to speak to an independent fee-only financial planner before making any decisions regarding annuities in their retirement plans.

Many people relied on stretch payouts in formulating their estate plans, and drafted trust provisions accordingly. If you have a trust that is the beneficiary of your retirement plan, the elimination of the stretch payouts may affect your estate planning and cause your trust to no longer accomplish what you intended. Even if you do not have a trust as part of your estate plan, you may have designated certain individuals as direct beneficiaries of your retirement plan to optimize the stretch payout. 

Retirement assets constitute a big part of people’s wealth. Given the SECURE Act’s major impact on the future growth and income tax liability of these assets, it is advisable to evaluate how the new law affects your family and your estate plan.

Attorney Pamela OddyAttorney Pamela OddyThe most difficult question that I often ask my clients when drafting an estate plan is not a legal question. It is a personal one; it is an emotional one. The question starts with the phrase “Are you ready . . .” and then is followed by “. . . to turn your house over to your children?”  Or “. . . to have your son or daughter make medical treatment decisions for you?” Or “. . . to let your son or daughter begin the process of taking control of your financial assets?” These questions are not really legal in nature but, rather, they are designed to ferret out whether or not the clients are ready to begin an estate plan that encompasses the gradual turning over of assets and control to the next generation.

A gift or outright transfer made outside of the five year look back period is not considered when applying for MassHealth benefits.

One of the biggest reasons to ask this question of readiness is because of the five year look back when it comes to MassHealth applications to pay for nursing home care. A gift or outright transfer made outside of the five year look back period is not considered when applying for MassHealth benefits. Therefore, it is always better to try to have the transfers and gifts made as early as practical. Hence the question: “Are you ready?”

Sometimes, the response I receive from my clients is very illuminating. For example, one spouse could respond by saying that she/he is absolutely ready to turn the house over to their children and has been ready for quite some time. The other spouse, however, has a different response because he/she is not ready, either to give up control, or to share control with their children. Sometimes, there may be an issue with a child as to divorce or a pending lawsuit or recent bankruptcy which gives the parent pause to turn over the house to the children (a trust might solve this issue). More often than not the reason the parent is not ready is because he/she is not ready to share control or give it up entirely. Fear of losing control is a huge factor in making these decisions. 

If no decision is made with the house, for example, it may be too late to make any kind of a transfer when faced with one of the spouses entering a nursing home because of the five year look back requirement. It is always better to make these decisions to transfer assets earlier rather than later.

But the answer always boils down to the question that begins with “Are you ready . . .?” So I ask my clients “Are you ready? What are you ready to do?” The estate plan lies within the clients’ response.

The views expressed in this column represent general information. To address your particular and specific needs consult your own attorney. If you need help with referral to an attorney, contact the Franklin County Bar Association at 413-773-9839 or the Worcester County Bar Association at 978-752-1311. Elder law resources may be found through the National Academy of Elder Law Attorneys, Massachusetts Chapter, at massnaela.com or 617-566-5640. Community Legal Aid (CLA) provides legal services free to people age 60 and older for civil legal matters with an emphasis on access to health care coverage (MassHealth and Medicare) and public benefits as well as tenants’ rights. A request for legal assistance can be made by phone at 413-774-3747 or toll-free 1-855-252-5342 during their intake hours (Monday, Tuesday, Thursday, and Friday from 9:30 a.m. to 12:15 p.m. and Wednesday from 1:30 p.m. to 4:15 p.m.) or any time online by visiting communitylegal.org.