Frequently Used Terms

Important Documents

These documents are extremely important as they impact you during your lifetime and, without these documents, a bad situation is made much worse for the primaries loved ones. Without these documents, we will have to file with Probate court to appoint a guardian and/or a conservator. This takes time and money and leads to much more frustration and stress to an already challenging situation.

Health Care Proxy

The primary individual appoints an agent to legally make healthcare decisions on behalf of the patient, when he or she is incapable of making and executing the healthcare decisions stipulated in the proxy.

HIPAA Privacy Release

A document to make certain the agent named in the health care proxy can obtain or instruct medical records and information to be sent to another doctor or hospital. 

Living Will

The primary individuals own statement if I am brain dead go ahead and “pull the plug.” This takes a very difficult decision away from a loved one.

Durable Power of Attorney

The primary individual appoints an agent to legally make financial related decisions on their behalf when he or she is incapable of making and executing the financial decisions stipulated in the proxy.

Will

Instructs your wishes regarding distribution of your probate assets. Parents with young children name the guardian of their minor children in their will. 

Frequently Used Terms

Probate

The process to re-title probate assets. Probate asset is any asset that the decedent owned without a joint owner or named beneficiary. Probate is a public process.

Trust

A trust is a free-standing legal entity created by a written instrument which sets forth in detail how it must be administered. Trusts have tremendous flexibility, which is why they are so widely used by estate planners.  From a personal standpoint, trusts can allow you to carry out your goals and expectations for the application of your assets for your loved ones and for you. From a financial perspective, trusts can enable you to save taxes, fulfill your charitable ambitions and/or protect or preserve your assets.  A trust for the benefit of a second spouse can ensure that he is provided for during life in the manner to which he was accustomed when his wife was living, while ensuring that the assets will remain for the benefit of the children of his marriage to his late wife (and not diverted to a new wife and children). 

Parents of young children can create a trust to ensure that wishes for the benefit of their children will be fulfilled in the event of their untimely deaths. A trust is a contract. It creates a fiduciary relationship in which one party, known as a grantor/settlor/donor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.

Revocable Trust

A revocable trust is one in which the Grantor reserves the right to amend and revoke during their lifetime. In most cases the grantor is also the trustee and beneficiary. A revocable trust is a great tool to minimize estate tax, keep your affairs private and avoid probate. It makes the estate settlement experience much easier and cost efficient. 

Irrevocable Trust

An irrevocable trust is one in which the Grantor cannot alter or amend the trust. There are many variations and purposes to establish an irrevocable trust. 

Gift Trust

A great tool to use to get assets out of donor’s estate without providing beneficiary(ies) with complete control of assets.

Supplemental Special Needs Trust

A trust created for a chronically and severely disabled beneficiary which supplements government benefits, such as Medicaid. 

Declaration of Homestead

Provides protection from certain creditors on your primary residence. The new law creates an automatic $125,000 protection on homes that do not have a homestead declaration filed. However, if you file a homestead it will protect $250,000 for each owner and $500,000 if you are over the age of 62.

Please note, if you are purchasing your new principal residence, your closing attorney must provide you, as a mortgagor, with notice of your right to declare a homestead protection. At that time, you will be asked to acknowledge receipt of this notice in writing.

Prenuptial Agreement – an agreement made by a couple before they marry concerning the ownership of their respective assets should the marriage fail and upon a death.

Estate Tax

The Estate Tax is a tax on your right to transfer property at your death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

$1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent's dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, $5,490,000 in 2017, and $11,180,000 in 2018.

The threshold for Massachusetts is $1,000,000.

Business Formations

LLC

A limited liability company (LLC) is a corporate structure whereby the members of the company cannot be held personally liable for the company's debts or liabilities. Limited liability companies are essentially hybrid entities that combine the characteristics of a corporation and a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships.

S Corporations

Corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.