Monday, January 16, 2017

Swap (Substitution) Powers in Trusts Can Reduce Income Taxes

Swap powers are an important but often overlooked opportunity in estate planning. Understanding what allowances swap powers provide can result in significant tax liability reductions. Attorneys working with clients to preserve assets should be aware of the potential benefits of swap powers and work them into estate planning strategies.
What are swap powers?
Swap powers grant the right to substitute—or swap—property of equal value in a trust. This causes a change in the cost basis of the property. Since the new basis will reduce capital gains, tax liability should be minimized when the asset is transferred.
Swap powers provide the ability to move a highly appreciated, low basis asset from an irrevocable trust into a grantor's estate. This means that the low basis is “stepped up” to the fair market value on the date of death of the grantor.
What makes swap powers important?
Many clients have assets in irrevocable trusts to protect themselves from estate taxes. Estate tax thresholds have been raised significantly. At the same time, income tax rates have been increased. These new income tax thresholds have been labeled as the new “death tax”. With this “death tax,” an important estate plan strategy is to make sure that heirs can take advantage of the step-up in basis when grantors pass away.
Under IRC 1014, one can receive a step-up in basis for assets held in one’s estate at death. This means that assets are reappraised at the fair market value at the date of death of the grantor. Heirs inherit the asset under this new cost basis, usually minimizing capital gains taxes if they sell the appreciated asset at a later date.
What’s important to note is that this step up provision does not apply to irrevocable trusts, since these are not considered part of the grantor’s estate. Without the provisions of IRC 1014, assets in the trust would be subject to higher capital gains taxes when sold.
If the grantor possesses a highly appreciated asset in the trust and wants to receive a step up in basis when passing this asset to heirs at death, it may be best to use swap powers in order to take advantage of the provisions applicable to estates.

Monday, January 9, 2017

The Purpose of a Gun or Firearm Trust

Americans as a whole passionately believe in gun ownership.  We express our Second Amendment right with approximately 233 million guns in private hands across the country.  It’s part of our ethos, along with self-reliance.  But with any right comes a duty to be accountable and responsible it seems to me. 

It is widely known that 7 of 10 Americans have no estate plans at all.  And a big percentage of most of those 10 own one or more firearms.  Firearms are not like stock certificates – whipping out a share of Microsoft and showing it off in Starbucks is not currently a crime.  The display of a firearm in the wrong setting may constitute “brandishing” which generally IS a crime.
The definition of a firearm includes guns but also “silencers”, “any other weapons” or “destructive devices”.  These last three, while not “guns”, are regulated as firearms under Title II of the Gun Control Act of 1968 (the National Firearms Act) along with machine guns, short-barreled rifles, and short-barreled shotguns which certainly are guns.  Title I of the 1968 Act regulates pistols, rifles, shotguns, giving much autonomy to state regulation of guns.
It’s no crime to own a stock certificate at 18.  It’s no crime to let somebody have the combination to your fireproof safe where you store it.  When you are at your broker’s office, showing off your Microsoft Stock Certificate Number 0001 and passing it around to let everyone handle it - it’s no crime.  If somebody was convicted of domestic violence, or if they use controlled substance, they can still have access to your stock certificate or even get it as a gift.
With a firearm, all of these things might constitute state and/or federal felonies with horrific penalties.  Mere access to a firearm, actual or constructive possession, a seemingly innocent transfer of a firearm can be crimes.  The definition of what constitutes a “transfer” under state or federal law is amorphous. 
A “gun trust” could be written as a “purpose trust” (often invalid from the start) or is more commonly a conventional living trust merely used to expedite acquisition of an NFA firearm.  Using an entity such as a corporation or trust avoids having to ask the local Chief Law Enforcement Officer to sign off on a request to transfer an NFA firearm.  An entity, like a trust, has no face or fingerprints so an application can be sent directly to the BATFE for a tax stamp to approve the transfer.  But the real issues addressed by instead using a real “purpose-built” gun trust are far more important.
So far, most Americans are not timely estate planners.  Firearms of any type introduce a whole new set of issues considering that some are heirlooms or badges of honor.  Passing on a firearms legacy must be done within the law with careful consideration of what it requires.
The Gun Docx® Trust system was developed for WealthCounsel members to help their firearms owning clients to do just that… and to avoid accidental felonies in the process.

Please contact us to investigate you firearms trust options, we offer 3 levels on gun trusts in both Massachusetts and New Hampshire.  

Tuesday, October 18, 2016

Top Reasons Everyone Needs a Comprehensive Power of Attorney

The benefits of a highly detailed, comprehensive power of attorney are numerous. Unfortunately, many powers of attorney are more general in nature and can actually cause more problems than they solve, especially for our senior population. Here we highlight the benefits of a comprehensive, detailed power of attorney, including some of the provisions that should be included. A proper starting point is to emphasize that the proper use of a power of attorney as an estate planning and elder law document depends on the reliability and honesty of the appointed agent. 

The agent under a power of attorney has traditionally been called an "attorney-in-fact" or sometimes just "attorney." However, confusion over these terms has encouraged the terminology to change so more recent state statutes tend to use the label "agent" for the person receiving power by the document.

The "law of agency" governs the agent under a power of attorney. The law of agency is the body of statutes and common law court decisions built up over centuries that dictate how and to what degree an agent is authorized to act on behalf of the "principal"—in other words, the individual who has appointed the agent to represent him or her. Powers of attorney are a species of agency-creating document. In most states, powers of attorney can be and most often are unilateral contracts – that is, signed only by the principal, but accepted by the agent by the act of performance.

Much has been written about financial exploitation of individuals, particularly seniors and other vulnerable people, by people who take advantage of them through undue influence, hidden transactions, identity theft and the like. Even though exploitation risks exist, there are great benefits to one individual (the principal) privately empowering another person (the agent) to act on the principal's behalf to perform certain financial functions.

A comprehensive power of attorney may include a grant of power for the agent to represent and advocate for the principal in regard to health care decisions. Such health care powers are more commonly addressed in a separate "health care power of attorney," which may be a distinct document or combined with other health topics in an "advance health care directive."

Another important preliminary consideration about powers of attorney is "durability." Powers of attorney are voluntary delegations of authority by the principal to the agent. The principal has not given up his or her own power to do these same functions but has granted legal authority to the agent to perform various tasks on the principal's behalf. All states have adopted a "durability" statute that allows principals to include in their powers of attorney a simple declaration that no power granted by the principal in this document will become invalid upon the subsequent mental incapacity of the principal. The result is a "durable power of attorney" – a document that continues to be valid until a stated termination date or event occurs, or the principal dies. Absent durability provisions, the power of attorney terminates upon the principal’s death or incapacity.

Having covered the explanation of what a durable power of attorney is, let us look at the top benefits of having a comprehensive durable power of attorney.

1. Provides the ability to choose who will make decisions for you (rather than a court).

If someone has signed a power of attorney and later becomes incapacitated and unable to make decisions, the agent named can step into the shoes of the incapacitated person and make important financial decisions. Without a power of attorney, a guardianship or conservatorship may need to be established, and can be very expensive.

2. Avoids the necessity of a guardianship or conservatorship.

Someone who does not have a comprehensive power of attorney at the time they become incapacitated would have no alternative than to have someone else petition the court to appoint a guardian or conservator. The court will choose who is appointed to manage the financial and/or health affairs of the incapacitated person, and the court will continue to monitor the situation as long as the incapacitated person is alive. While not only a costly process, another detriment is the fact that the incapacitated person has no input on who will be appointed to serve.

3. Provides family members a good opportunity to discuss wishes and desires.

There is much thought and consideration that goes into the creation of a comprehensive power of attorney. One of the most important decisions is who will serve as the agent. When a parent or loved one makes the decision to sign a power of attorney, it is a good opportunity for the parent to discuss wishes and expectations with the family and, in particular, the person named as agent in the power of attorney.

4. The more comprehensive the power of attorney, the better.

As people age, their needs change and their power of attorney should reflect that. Seniors have concerns about long-term care, applying for government benefits to pay for care, as well as choosing the proper care providers. Without allowing, the agent to perform these tasks and more, precious time and money may be wasted. 

5. Prevents questions about principal's intent.

Many of us have read about court battles over a person's intent once that person has become incapacitated. A well-drafted power of attorney, along with other health care directives, can eliminate the need for family members to argue or disagree over a loved one's wishes. Once written down, this document is excellent evidence of their intent and is difficult to dispute.

6. Prevents delays in asset protection planning.

A comprehensive power of attorney should include all of the powers required to do effective asset protection planning. If the power of attorney does not include a specific power, it can greatly dampen the agent's ability to complete the planning and could result in thousands of dollars lost. While some powers of attorney seem long, it is necessary to include all of the powers necessary to carry out proper planning.

7. Protects the agent from claims of financial abuse.

Comprehensive powers of attorney often allow the agent to make substantial gifts to self or others in order to carry out asset protection planning objectives. Without the power of attorney authorizing this, the agent (often a family member) could be at risk for financial abuse allegations.

8. Allows agents to talk to other agencies.

An agent under a power of attorney is often in the position of trying to reconcile bank charges, make arrangements for health care, engage professionals for services to be provided to the principal, and much more. Without a comprehensive power of attorney giving authority to the agent, many companies will refuse to disclose any information or provide services to the incapacitated person. This can result in a great deal of frustration on the part of the family, as well as lost time and money.

9. Allows an agent to perform planning and transactions to make the principal eligible for public benefits.

One could argue that transferring assets from the principal to others in order to make the principal eligible for public benefits--Medicaid and/or non-service-connected Veterans Administration benefits--is not in the best interests of the principal, but rather in the best interests of the transferees. In fact, one reason that a comprehensive durable power of attorney is essential in elder law is that a Judge may not be willing to authorize a conservator to protect assets for others while enhancing the ward/protected person's eligibility for public benefits. However, that may have been the wish of the incapacitated person and one that would remain unfulfilled if a power of attorney were not in place.

10. Provides immediate access to critical assets.

A well-crafted power of attorney includes provisions that allow the agent to access critical assets, such as the principal’s digital assets or safety deposit box, to continue to pay bills, access funds, etc. in a timely manner. Absent these provisions, court approval will be required before anyone can access these assets. Digital assets are also important because older powers of attorney did not address digital assets, yet more and more individuals have digital accounts.  

11. Provides peace of mind for everyone involved.

Taking the time to sign a power of attorney lessens the burden on family members who would otherwise have to go to court to get authority for performing basic tasks, like writing a check or arranging for home health services. Knowing this has been taken care of in advance is of great comfort to families and loved ones.

This discussion of the Reasons Why Everyone Needs a Comprehensive Power of Attorney could be expanded by many more. Which benefits are most important depends on the situation of the principal and their loved ones. This is why a comprehensive power of attorney is so essential: Nobody can predict exactly which powers will be needed in the future. The planning goal is to have a power of attorney in place that empowers a succession of trustworthy agents to do whatever needs to be done in the future. Please call us if we can be of assistance in any way or if you have any questions about durable powers of attorney.

Justin Peltier is an estate planning attorney with offices located in Merrimac, MA with the sole focus of estate planning, elder law, probate and trust administration and business planning. Please view our website for more information at You can also reach me directly at or (978) 319-6006.

Sunday, September 13, 2015

Proper LLC Formation and Governance: Sweating the Details

Setting up an LLC can, of course, offer many advantages. Chief among those advantages is an LLC’s flexibility. With less stringent requirements for compliance and less necessary paperwork than S-Corps and C-Corps, LLCs are easier to form and easier to keep in good legal standing.

The flexibility of an LLC, however, is not permission to be informal in its creation or operation. Consider the recent case before the 8th Circuit Court of Appeals, Robl Construction, Inc. v. Homoly.

Background. In 2002 Robl and Homoly formed a Kansas LLC, owning 60% and 40%, respectively. The Company began to have financial problems in 2004, operating at a loss between 2006 and 2011. During this time, Robl periodically advanced a total of $431,544 to the Company. Such advances are the subject of the parties’ dispute, with Robl contending that Homoly personally guaranteed to pay his portion of the advances, pursuant to the terms of the parties’ Buy-Sell Agreement, and also claiming that Homoly had breached such Agreement by failing to repay his 40% share of the loan.

Homoly in turn argued that while the advances may have been a loan, Homoly never personally guaranteed to repay it. In the absence of a clearly drafted LLC operating agreement, the dispute centered on e-mail correspondence between the parties as well as interpretation of their written agreements.

April 1, 2015 – a decision. On appeal following the lower court’s summary judgment in favor of Homoly, the 8th Circuit reversed and remanded for further proceedings, ruling that the evidence was not so one-sided that Homoly must prevail as a matter of law, and that a reasonable jury could return a verdict for Robl on its breach of contract claim.

As a lesson hard learned in forming an LLC and then operating it, this case is very instructive. For a more in-depth review and analysis, you can download to the WealthCounsel Thought Paper, Robl Construction, Inc. v. Homoly: A Lesson in Proper LLC Governance

Takeaways. While parties rarely enter into a business relationship expecting failure as an outcome, unfortunately the scenario above is far too common. As counsel for any newly formed or existing LLC, it would be wise to offer one’s client the following advice prior to LLC formation:

  • Expect the best, but assume the worst. Draft your LLC documents, specifically your operating agreement, with “worst-case scenarios” in mind.  
  • Formalize all agreements. Resist the temptation to make “gentleman’s agreements” with business partners for the sake of time or convenience.
  • Keep in mind that email is discoverable and may be relied upon to determine the parties’ intent should a dispute arise.
  • Read and understand agreements before signing them and realize that ignorance of the law (or the terms of the contract) is no defense.  
  • Comply with the terms of an entity’s governing documents at all stages of a proposed action or transaction.  
  • Consider amending the terms of an entity’s governing documents if they no longer meet the needs of the entity or serve the intent of its owners.
Justin Peltier is an estate planning attorney with offices located in Merrimac, MA with the sole focus of estate planning, elder law, probate and trust administration and business planning. Please view our website for more information at or join our social media community below. You can also reach me directly at


Tuesday, October 21, 2014

Benefits of Proper Estate Planning

What is Estate Planning?

What is Estate PlanningBelieve it or not, you have an estate. In fact, nearly everyone does. Your estate is comprised of everything you own— your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, personal possessions. No matter how large or how modest, everyone has an estate and something in common—you can’t take it with you when you die.
When that happens—and it is a “when” and not an “if”—you probably want to control how those things are given to the people or organizations you care most about. To ensure your wishes are carried out, you need to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will, of course, want this to happen with the least amount paid in taxes, legal fees, and court costs.
That is estate planning—making a plan in advance and naming whom you want to receive the things you own after you die. However, good estate planning is much more than that. It should also:
  • Include instructions for passing your values (religion, education, hard work, etc.) in addition to your valuables.
  • Include instructions for your care if you become disabled before you die.
  • Name a guardian and an inheritance manager for minor children.
  • Provide for family members with special needs without disrupting government benefits.
  • Provide for loved ones who might be irresponsible with money or who may need future protection from creditors or divorce.
  • Include life insurance to provide for your family at your death, disability income insurance to replace your income if you cannot work due to illness or injury, and long-term care insurance to help pay for your care in case of an extended illness or injury.
  • Provide for the transfer of your business at your retirement, disability, or death.
  • Minimize taxes, court costs, and unnecessary legal fees.
  • Be an ongoing process, not a one-time event. Your plan should be reviewed and updated as your family and financial situations (and laws) change over your lifetime.
Estate planning is for everyone.
It is not just for “retired” people, although people do tend to think about it more as they get older. Unfortunately, we can’t successfully predict how long we will live, and illness and accidents happen to people of all ages.
Estate planning is not just for “the wealthy,” either, although people who have built some wealth do often think more about how to preserve it. Good estate planning often means more to families with modest assets, because they can afford to lose the least.
Too many people don’t plan.
Individuals put off estate planning because they think they don’t own enough, they’re not old enough, they’re busy, think they have plenty of time, they’re confused and don’t know who can help them, or they just don’t want to think it. Then, when something happens to them, their families have to pick up the pieces.
If you don’t have a plan, your state has one for you, but you probably won’t like it.
At disability: If your name is on the title of your assets and you can’t conduct business due to mental or physical incapacity, only a court appointee can sign for you. The court, not your family, will control how your assets are used to care for you through a conservatorship or guardianship (depending on the term used in your state). It can become expensive and time consuming, it is open to the public, and it can be difficult to end even if you recover.
At your death: If you die without an intentional estate plan, your assets will be distributed according to the probate laws in your state. In many states, if you are married and have children, your spouse and children will each receive a share. That means your spouse could receive only a fraction of your estate, which may not be enough to live on. If you have minor children, the court will control their inheritance. If both parents die (i.e., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.
Given the choice—and you do have the choice—wouldn’t you prefer these matters be handled privately by your family, not by the courts? Wouldn’t you prefer to keep control of who receives what and when? And, if you have young children, wouldn’t you prefer to have a say in who will raise them if you can’t?
An estate plan begins with a will or living trust.
A will provides your instructions, but it does not avoid probate. Any assets titled in your name or directed by your will must go through your state’s probate process before they can be distributed to your heirs. (If you own property in other states, your family will probably face multiple probates, each one according to the laws in that state.) The process varies greatly from state to state, but it can become expensive with legal fees, executor fees, and court costs. It can also take anywhere from nine months to two years or longer. With rare exception, probate files are open to the public and excluded heirs are encouraged to come forward and seek a share of your estate. In short, the court system, not your family, controls the process.
Not everything you own will go through probate. Jointly-owned property and assets that let you name a beneficiary (for example, life insurance, IRAs, 401(k)s, annuities, etc.) are not controlled by your will and usually will transfer to the new owner or beneficiary without probate. But there are many problems with joint ownership, and avoidance of probate is not guaranteed. For example, if a valid beneficiary is not named, the assets will have to go through probate and will be distributed along with the rest of your estate. If you name a minor as a beneficiary, the court will probably insist on a guardianship until the child legally becomes an adult.
For these reasons a revocable living trust is preferred by many families and professionals. It can avoid probate at death (including multiple probates if you own property in other states), prevent court control of assets at incapacity, bring all of your assets (even those with beneficiary designations) together into one plan, provide maximum privacy, is valid in every state, and can be changed by you at any time. It can also reflect your love and values to your family and future generations.
Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age you want them to inherit. Your trust can continue longer to provide for a loved one with special needs, or to protect the assets from beneficiaries’ creditors, spouses, and irresponsible spending.
A living trust is more expensive initially than a will, but considering it can avoid court interference at incapacity and death, many people consider it to be a bargain.
Planning your estate will help you organize your records and correct titles and beneficiary designations.
Would your family know where to find your financial records, titles, and insurance policies if something happened to you? Planning your estate now will help you organize your records, locate titles and beneficiary designations, and find and correct errors.
Most people don’t give much thought to the wording they put on titles and beneficiary designations. You may have good intentions, but an innocent error can create all kinds of problems for your family at your disability and/or death. Beneficiary designations are often out-of-date or otherwise invalid. Naming the wrong beneficiary on your tax-deferred plan can lead to devastating tax consequences. It is much better for you to take the time to do this correctly now than for your family to pay an attorney to try to fix things later.
Estate planning does not have to be expensive.
If you don’t think you can afford a complex estate plan now, start with what you can afford. For a young family or single adult, that may mean a will, term life insurance, and powers of attorney for your assets and health care decisions. Then, let your planning develop and expand as your needs change and your financial situation improves. Don’t try to do this yourself to save money. An experienced attorney will be able to provide critical guidance and peace of mind that your documents are prepared properly.
The best time to plan your estate is now.
None of us really likes to think about our own mortality or the possibility of being unable to make decisions for ourselves. This is exactly why so many families are caught off-guard and unprepared when incapacity or death does strike. Don’t wait. You can put something in place now and change it later…which is exactly the way estate planning should be done.
The best benefit is peace of mind.
Knowing you have a properly prepared plan in place - one that contains your instructions and will protect your family - will give you and your family peace of mind. This is one of the most thoughtful and considerate things you can do for yourself and for those you love.

Saturday, June 28, 2014

4 Reasons Why a Living Trust is Preferred over a Will


Posted on: June 26th, 2014
Many consumers and professionals now prefer an estate plan that uses a revocable living trust over a will as the primary estate planning document. Here are four reasons why:
  1. A properly prepared and funded revocable living trust plan avoids probate at death, including multiple probates if you own property in other states. A will must go through probate to be verified and enforced, and if you own property in more than one state, your family could face multiple probates, each one according to the laws in that state. Avoiding the cost of probate is often a factor when choosing a living trust, but many people are just as interested in avoiding the court process altogether, along with its delays, lack of privacy, loss of control and emotional stress.
  2. A properly prepared and funded living trust avoids court interference at incapacity. Most people prefer to have their care and assets managed privately by people they know and trust, instead of being placed in a court guardianship, which is costly, time consuming, public and stressful. It’s important to note that a will is of no help at incapacity because a will can only go into effect when you die.
  3. A living trust brings all of your assets together under one plan with one set of instructions. (Possible exceptions are IRAs and other tax-deferred plans.) This makes it much easier to provide fair inheritances to your beneficiaries, as opposed to trying to balance inheritances with beneficiary designations and joint ownership because of fluctuating values of investment accounts, life insurance policies and other assets. By contrast, a will only controls assets that are titled solely in your name; it does not control most jointly owned assets or those for which you have named a valid beneficiary.
  4. A properly prepared and funded living trust is more private than a will and is not as easily contested. Because probate is a public process, disgruntled heirs and other interested parties are invited to submit claims and contest your will, and unwanted solicitors can have access to your family’s personal and financial information. While a living trust cannot guarantee complete privacy, it is much more private than a will, which is guaranteed to be made public through probate.

What, then, is a properly prepared and funded living trust? “Properly prepared” means the documents are written correctly according to the law and your desires. This is best accomplished by having an experienced estate planning attorney prepare your trust. “Properly funded” means you all assets are properly titled in the name of your revocable living trust and proper beneficiary designation forms are completed naming your revocable living trust as beneficiary. Your revocable living trust only controls the assets that have been transferred to it. If you forget to put an asset into your trust, it will be added to your trust after you die through probate before it can be distributed along with your other assets according to your desires as set forth in your revocable living trust.
For all your Massachusetts estate planning needs, contact Massachusetts estate planning attorney Justin Peltier here:

Monday, March 31, 2014

Trust Based Estate Plans vs. Will Based Plans

Many people now choose a revocable living trust instead of relying on a will or joint ownership in their estate planning. A living trust that has been properly prepared and funded with your assets can provide many benefits for you and your loved ones.

How many of these benefits of a revocable living trust are you familiar with?
  • Avoids the time and expense of probate when you die.
  • Avoids multiple probates if you own assets in more than one state.
  • Provides easier, more efficient administration of your estate.
  • Prevents court interference at incapacity.
  • Gives you and your family maximum privacy by avoiding public court processes.
  • Minimizes emotional stress on your family.
  • Brings all of your assets into one plan controlled by one set of instructions.
  • Prevents unintentional disinheriting.
  • Makes it easier to make equitable (fair) distributions to your beneficiaries.
  • Lets you keep assets in the trust until your beneficiaries reach the age(s) you want them to inherit.
  • Can continue longer to provide for a loved one with special needs.
  • Assets can remain in the trust and be protected from beneficiaries’ creditors, spouses, divorce proceedings, irresponsible spending and future death taxes.
  • Prevents the court from controlling inheritance of minor children.
  • More difficult than a will to contest.
  • Provides effective pre-nuptial protection.
  • Can be changed or cancelled at any time.
  • Allows for professional asset management with a professional trustee.
  • Can include tax planning to reduce or eliminate state and/or federal estate taxes.
  • Lets you keep maximum control while you are living (even if incapacitated) and after you die.
  • Peace of mind.

It will probably cost more initially to set up a well-drafted living trust than to have a will prepared. One reason is that a living trust usually has more provisions because it deals with issues while you are living as well as after you die, and a will only deals with issues after you die. When comparing costs, remember that the true cost of a will must include the costs of probate when you die, of a possible conservatorship if you become incapacitated and the costs of a guardianship if you leave assets to minor children.

After weighing the costs and benefits, it is easy to see why so many people and professionals prefer a living trust.