Clients seeking an estate plan from a Cape Cod attorney come to us often because they live locally, and they know that we understand the added complexities of Cape Cod estate plans. That complexity is, in a word (or two), real estate. While many other estates in communities around Massachusetts will certainly have the family residence as a primary asset, such residences are particularly valuable on Cape Cod because of the region’s premium on being a vacation destination. What follows a Sandwich estate planning attorney’s profile on the community’s unique estate tax planning needs in light of the Massachusetts Estate Tax threshold of 1 million dollars.
A History of Real Estate Values in Sandwich
Almost no community in the United States was untouched from the real estate bubble and subsequent crash in 2007. As the below chart shows, real estate in Sandwich shows almost no overall gain over the period of a decade from January 2001 to January 2012. But factors like inflation, population increases, increased scarcity of buildable lots on Cape Cod, and the baby boomer generation reaching its retirement age demonstrate that there should be several upward forces in this market that will show at some point.
Still, the median sale price for a home in Sandwich as of March 2012 was about $340,000 or $455,000 in East Sandwich. We’ll just call the amount $400,000 to keep things simple. Also, to keep things simple (and conservative), we’re going to assume that home values appreciate each year at the rate of inflation, and assume (again conservatively) that the rate of inflation is 5%. At this rate, if a Sandwich homeowner couple lived for 20 years from today, then his or her house at this low appreciation rate would by itself be $1,061,000, (over the 1 million dollar limit).
Assets of a Husband – Retired with a 401k
In this example we have a husband who has worked twenty years at the local power plant, and has a healthy retirement account of approximately $300,000. Many of our clients for estate planning in Sandwich have retirement accounts with higher and lower amounts (some none), but for this example it seems like a good amount to demonstrate the Massachusetts estate tax hazard when the first of a couple passes away. So in this case we’ll assume that the husband during his life spent some of his retirement until about $150,000 was left, and that there was another $20,000 for his share of the couple’s joint checking account at a local Sandwich bank.
Keep in mind that under Massachusetts law, if a spouse in a married couple dies without a will, he leaves the entirety of his estate to his wife. And under both state and federal tax laws, a spouse can leave an unlimited amount to his or her survivor without estate tax liability.
Assets of the Surviving Wife – Retired with an IRA
The wife in this example is a local Sandwich school teacher who had saved enough by the time her husband passed away to have about $200,000 in an IRA account. She also, as we described above, inherited a total of $170,000 from her husband when he died, bringing her total assets, with her share of the joint checking account to about $390,000.
It is imperative to note here that the difficulty of estate planning for people in Sandwich or anywhere else, is the inevitable consideration that we are not going to live forever. This is often what most affects our clients’ ability to develop a comprehensive estate plan. And while young couples are able to brush the exercise off under a “just in case” mentality, older couples often to take these decisions quite a bit more seriously.
Other Unforeseen Sandwich Estate Planning Tax Risks
- If a family has a second home, this may be a good indicator that there will be some tax assessed on their estate.
- In addition to the appreciation of real estate, money in such assets as stock portfolios might also bring unexpected tax consequences on an overall estate.
- Inheritances from family members that predecease the estate holders might also bring asset thresholds over the 1 million dollar Massachusetts mark.
Basic Considerations for Sandwich Estate Plans
Clients in this practice come from a background as diverse as the customers you would find in the local Stop & Shop grocery store. And accordingly these people and their families have an equally diverse set of principles and goals. For purposes of estate planning (versus Medicaid planning) we can split the groups into three categories:
- 1. Simple Estates – Needing merely a health care proxy, power of attorney, and a will that determines to whom personal property should go.
- 2. Moderate Estates – Where there is a family home, we are now recommending that the home be placed in a trust to avoid the new messy MUPC provisions governing real estate.
- 3. Larger Estates – For any estates closing on the $1 million Massachusetts threshold, an estate tax avoidance plan is an important consideration.
And since we can hardly recommend which estate planning techniques to employ on a website, we encourage you to call our Sandwich estate planning attorneys today, or email at atty.mcnamara@comcast.net to schedule a free consultation.
