Pennsylvania Inheritance Tax
Tuesday, August 26, 2014
Joint Accounts with Children = Poor Estate Plan
Three Reasons Joint Accounts May Be a Poor Estate Plan
By Jeremy A. Wechsler, Esq.
Your Estate Planning & Asset Protection Attorney
Many people see joint ownership of investments, bank accounts and real estate as an inexpensive way to avoid probate since joint property passes automatically to the joint owner upon death. Joint ownership can also be an easy way to plan for incapacity since the joint owner of accounts can pay bills and manage investments if the primary owner falls ill or suffers from dementia. These are all legitimate benefits of joint ownership, but three potential drawbacks exist as well described below. Please note that I am discussing joint ownership with your children or other loved ones, excluding your spouse. Jointly owning property with a spouse is normal and makes complete sense.
Drawbacks to Joint Accounts:
- Risk: Joint owners of accounts have complete, unconditional access and the ability to use the funds for their own purposes. I have seen children who are caring for their parents take money without first making sure the amount is accepted by all the children. In addition, joint assets are available in the case of divorce, creditor claims, bankruptcy, lawsuits and more. Joint assets could be considered as belonging to all joint owners if applying for public benefits or financial aid.
- Inequity. If you have one or more children on certain accounts, but not all children, at your death some children may end up inheriting more than the others. While you may expect that all of the children will share equally (“they will do the right thing”), it is far from a guarantee. If you have several children, you can maintain accounts with each, but you will have to constantly work to make sure the accounts are all at the same level, and there is little guarantee that this plan will actually work. This type of planning will only create discord and conflict in the family later on.
- The Unexpected. A plan based on joint accounts can truly fail if a child passes away before the parent. Then it may be necessary to seek guardianship to manage the funds or they may ultimately pass to the surviving siblings with nothing or only a small portion going to the deceased child's family. For example, a mother put her house in joint ownership with her son to avoid probate and Medicaid’s estate recovery claim. When the son died unexpectedly, the daughter-in-law was left high and dry despite having devoted the prior six years to caring for her husband's mother.
If you are concerned about incapacity, instead of joint accounts, consider using a power of attorney. It is much safer and does not give the appointed agent personal rights over your funds (unlike as a joint owner). The agent has a fiduciary responsibility to you and your beneficiaries.
Regarding probate and ease of administration, joint accounts are convenient but as described above, it presents risks. In Pennsylvania, probate is not a difficult or burdensome process. Also, property passing to children is taxed at a 4.5% inheritance tax rate, which is a relatively low rate compared to historical federal estate tax rates. With a well written will and trust, you can have peace of mind knowing your plan will work just the way you intend it to work, free of conflict and problems. Joint accounts may seem like an easy answer, but often create more headaches. Please review your estate plan to ensure that it will work as you intend for it to work.
Tuesday, July 29, 2014
Same Sex Couples in Pennsylvania
Pennsylvania's DOMA law (Defense of Marriage Act), despite was struck down in May 2014 by a federal court in Whitewood v. Wolf. For same-sex couples, Pennsylvania now has marriage equality, which makes the state more welcoming to same-sex couples.
Whitewood v. Wolf has the following implications for same sex couples in Pennsylvania:
- Same-sex couples in Pennsylvania can now get married in Pennsylvania. Pennsylvania does not recognize common law marriages.
- Pennsylvania will now recognize an out-of-state marriage between two men or two women.
- Same-sex marriages in Pennsylvania are now legal, which has significant implications for Pennsylvania Inheritance Tax purposes. In Pennsylvania, legally married couples pay 0% to transfer assets to each other upon death. Prior to Whitewood v. Wolf, same-sex couples, even if they were married, had to pay a 15% inheritance tax.
Pennsylvania is one of many states to have their DOMA law struck down in the last year. Governor Corbett has decided not to challenge this ruling, effectively making it law. The PA Legislature could always attempt to pass a new law, but the likelihood of this seems slight.
There are strategies that same-sex couples and same-sex families who reside in Pennsylvania can employ to create a better estate plan, taking advantage of all the tax savings available to you. For more information, contact my office today at (215) 706-0200. Jeremy A. Wechsler regularly assists same-sex couples in Pennsylvania, including Bucks County, Philadelphia and Montgomery County, and can help your family maximize tax planning strategies.
Monday, July 28, 2014
Can you avoid PA Inheritance Tax?
Pennsylvania imposes an inheritance tax on all assets that pass to anyone besides a spouse. That includes children, grandchildren, parents, siblings, cousins, domestic partners, and more. The rates are as follows:
- Children/Grandchildren/Stepchildren: 4.5%
- Siblings: 12%
- All others (nieces, nephews, cousins, partners, friends, etc.): 15%
Pennsylvania does not offer a general exemption for inheritance tax. In other words, it starts from the first dollar.
Can you avoid Pennsylvania Inheritance Tax? My clients, who are typically located in Bucks County, Montgomery County, Philadelphia, Delaware County and Chester County, ask this question a lot.
Following are some options to consider reducing inheritance tax for your heirs. You should consult with the Law Offices of Jeremy A. Wechsler or another estate planning law firm before engaging in any inheritance tax reduction strategy.
- Use Life Insurance: Life insurance is generally exempt from PA Inheritance Tax. Your heirs will inherit a tax-free (income tax free, inheritance tax free, estate tax free) liquid asset.
- Lifetime Gifting: Making a gift during your lifetime reduces the inheritance tax on your estate. But you must be careful about gifting, as it can have several serious unintended consequences. Talk to a professional before gifting.
- Purchase Out of State Assets: Your vacation home in Florida is not subject to PA Inheritance Tax. In other words, property not situated in the state does not count for inheritance tax purposes.
For other ideas, contact our firm today at (215) 706-0200 to set up your complimentary consultation. We are happy to assist you with your inheritance tax and estate planning questions.
Wednesday, January 08, 2014
Probate vs Non Probate: What's the difference?
When planning your estate in Pennsylvania, it is important to understand the difference between probate and non-probate assets. Probate is the process through which a court determines how to distribute your property after you die. Some assets are distributed to heirs by the court (probate assets) and some assets bypass the court process and go directly to your beneficiaries (non-probate assets).
The probate process in Pennsylvania includes filing a will and appointing an executor or administrator, collecting assets, paying bills, filing taxes, distributing property to heirs, and filing a final account. This can be a costly and time-consuming process, which is why some people try to avoid probate by having only non-probate assets.
Probate assets are any assets that are owned solely by the decedent. This can include the following:
- Real property that is titled solely in the decedent's name or held as a tenant in common
- Personal property, such as jewelry, furniture, and automobiles
- Bank accounts that are solely in the decedent's name
- An interest in a partnership, corporation, or limited liability company
- Any life insurance policy or brokerage account that lists either the decedent or the estate as the beneficiary
Non-probate assets can include the following:
- Property that is held in joint tenancy or as tenants by the entirety
- Bank or brokerage accounts held in joint tenancy or with payable on death (POD) or transfer on death (TOD) beneficiaries
- Property held in a trust
- Life insurance or brokerage accounts that list someone other than the decedent as the beneficiary
- Retirement accounts
When planning your estate, you need to take into account whether property is probate property or non-probate property. Your will does not control the distribution of non-probate property. Check the ownership of your property and your accounts to make sure jointly owned property will be distributed the way you want it to. It is also important to review your beneficiary designations.
Contact Jeremy A. Wechsler, Esq. to determine whether your property is being distributed the way that you want it to. Jeremy A. Wechsler assists families with probate and estate administration in Philadelphia, Bucks County, Montgomery County, Delaware County and Chester County. Our offices are located in Willow Grove, PA.
Monday, December 30, 2013
Common Excuses for Estate Planning Procrastination
Procrastination and estate planning is common, but nevertheless unfortunate. Without a proper estate plan, you risk family conflict, more burdens on your family at a delicate time, and ultimately less money for your loved ones. I have heard many excuses for failure to plan during my years of practice, and described a few of my ‘favorites’ below.
Excuse 1: My Estate Is Too Small
A common excuse I hear often from folks is that they do not have enough money to worry about planning their estate. However, this is an awful misconception about estate planning. Whether it be four figures or seven figures, the conflicts are the same. Sometimes, a $1,000 will create more conflict than $1 million! The amount does not matter. Without a solid plan, the possibility of conflict grows exponentially. In addition, regardless of your net worth, you need a plan for incapacity and long-term care. Everyone needs an estate plan.
Excuse 2: Indecision
If you are having trouble deciding whom your Executor and/or beneficiaries will be, you are in good company. However, I often see people continuously delay planning because they are ‘stuck’ on one decision. My best advice is, make the best decision you can make in the moment. You can modify your estate plan in the future. Also, having a plan on paper will give you a better perspective, and give you time to consider future changes. Life is not static, and just as we are continually faced with new circumstances, your estate plan must reflect those changes.
Excuse 3: General Delay / Too Many Other Things To Do
Our 24/7 society where we are all juggling too many things makes it challenging to set aside time for estate planning. Unfortunately, I have seen too often people who have failed to plan, only to be suddenly faced with unfortunate circumstances. None of us have a crystal ball, and we have to be ready for the curveballs. Now is the moment to invest some time to begin your estate plan or review an existing plan.
Excuse 4: It Costs Too Much
A well-crafted estate plan is an investment for you and your loved ones. It can save on unnecessary government fees and taxes, as well as additional attorney fees later on. An estate plan may expose planning opportunities for your family to preserve assets in case of entrance into a nursing home, among other opportunities. Seek a qualified attorney that you feel confident will recommend a pragmatic plan for you. Avoid searching for the cheapest solution (i.e., a ‘simple will’). A will is just the tip of the iceberg. I analogize an estate plan to a car. A will is a single part of a plan, like a steering wheel. A car will not work with a steering wheel alone. Seek common sense solutions that fit your needs; that may include a trust or other tools. A good attorney will explain why he or she is recommending those items and explain the costs involved.
Conclusion: Make a resolution to start your estate plan in 2014, or if you have an estate plan, take some time to review it this year. Try to avoid these common excuses (and many others) that deter proper planning.
For a review of your current plan or if you are without a plan, please call my office at (215) 706-0200 to schedule your consultation today.
Friday, December 27, 2013
If you have recently lost a loved one in Pennsylvania, you may be faced with the Pennsylvania probate process. In Philadelphia, Bucks County, Montgomery County and Delaware County (areas where we practice), probate generally works the same.
Probate is the process of the county Register of Wills appointing an Executor or Administrator. Whether or not an individual has a will, probate is still typically required.
Sometimes, probate can be handled without attorney assistance in Pennsylvania. However, many Executors or Administrators decide to hire a probate attorney to assist them with ensuring accounting is done properly, creditor issues are dealt with, inheritance taxes and estate taxes are filed properly, etc. Also, an attorney is needed if there are family conflicts, will challenges or estate contests.
You may feel overwhelmed when you realize you have to probate a will and settle an estate. If you need assistance, please call our office at (215) 706-0200. The Law Offices of Jeremy A. Wechsler regularly helps clients navigate the probate and estate administration process in Philadelphia, Bucks County, Montgomery County, Delaware County and other areas in Pennsylvania.
The key to successful probate in Pennsylvania is competent representation to ensure the Executor or Administrator does not face personal liability. Please call us today at (215) 706-0200 to schedule your initial telephone consultation to determine if we can assist you.
Thursday, November 07, 2013
Beware of Using Joint Accounts With Children
Joint Accounts with Children: Convenient, But Dangerous
By Jeremy A. Wechsler, Esq.
Your Estate Planning & Asset Protection Attorney
Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones, particularly for single or widowed clients. But while joint accounts can be useful in certain circumstances, they can have dire consequences if not used properly. Adding a loved one to a bank account can expose your account to the loved one's creditors as well as affect long-term care planning.
The first problem with joint accounts is that once money is deposited into the account, it belongs to both account holders equally, regardless of who deposited the money. Account holders can withdraw, spend, or transfer money in the account without the consent of the other person on the account. When one account holder dies, the money in the account automatically goes to the other account holder without passing through probate.
The second problem with joint accounts is that it makes the account vulnerable to all the account owner's creditors. For example, suppose you add your daughter to your bank account. If she falls behind on credit card debt and gets sued, the credit card company can use the money in the joint account to pay off your daughter's debt. Or if she gets divorced, the money in the account could be considered her assets and be divided up in the divorce.
Third, joint accounts can also affect Medicaid eligibility. When a person applies for Medicaid long-term care coverage, the state looks at the applicant's assets to see if the applicant qualifies for assistance. While a joint account may have two names on it, most states assume the applicant owns the entire amount in the account regardless of who contributed money to the account. If your name is on a joint account and you enter a nursing home, the state will assume the assets in the account belong to you unless you can prove that you did not contribute to it.
In addition, if you are a joint owner of a bank account and you or the other owner transfers assets out of the account, this can be considered an improper transfer of assets for Medicaid purposes. This means that either one of you could be ineligible for Medicaid for a period of time, depending on the amount of money in the account. The same thing happens if a joint owner is removed from a bank account. For example, if your spouse enters a nursing home and you remove her name from the joint bank account, it will be considered an improper transfer of assets.
There is a better way to conduct estate planning and plan for disability. A power of attorney will ensure family members have access to your finances in the case of your disability. For a comprehensive review of your plan and more sophisticated strategies, please contact my law office for a complimentary consultation at (215) 706-0200.
Friday, July 26, 2013
A Great Estate Planning Tool: Life Insurance
What if we told you that there is a financial product available that does the following:
Transfers wealth tax-free to your spouse and/or your heirs (that includes Pennsylvania inheritance tax, federal estate tax, federal income tax and state income tax).
Ensures that any income loss as a result of your death does not affect your spouse or family negatively.
Provide safety of investment from market risk or market loss.
Provide you with long term care coverage if you need it.
Certain life insurance policies can achieve all of those goals! Yes, not everyone can get covered or is eligible, but you'd be surprised how insurance companies are rapidly changing and covering more individuals under these types of policies.
One of the greatest benefits of these policies is providing you with long term care coverage if you ever require it. Your death benefit would be used towards your long term care costs. That means no traditional long term care policy is needed, and your estate won't be diminished if you need care, leaving nothing for your family.
Interested in learning more about this type of life insurance? Call us today at (215) 706-0200 to schedule your complimentary consultation.
Thursday, April 11, 2013
Pennsylvania Inheritance Tax Basics
Pennsylvania Inheritance Tax Basics
When you die in the Commonwealth of Pennsylvania, any property or assets that you leave to other people is subject to the Pennsylvania Inheritance Tax. This is in addition to possible federal estate taxes. Currently, in 2013, the federal estate tax exemption is over $5 million per person, so most people are not affected by the federal estate tax.
Typically, but not always, the Executor or Administrator of the estate pays the inheritance tax on behalf of all beneficiaries of the estate before any of the property is distributed to beneficiaries.
ARE YOU AN EXECUTOR AND NEED ASSISTANCE WITH INHERITANCE TAXES? CONTACT US TODAY.
Pennsylvania mandates that inheritance tax be paid nine months after the decedent dies.
The estate can receive a discount if the Executor pays within 3 months.
Extensions can be granted, but interest starts to run after 9 months.
The PA Inheritance Tax rates for 2013 and beyond (at least as of now) are:
- 0%: Legally married spouses (No common law marriage), Charities
- 4.5%: Children, Grandchildren (Direct Descendants)
- 12%: Siblings
- 15%: All others (Includes domestic partners, friends, etc.)
MAKE SURE YOU FILE YOUR INHERITANCE TAXES CORRECTLY THE FIRST TIME. CONTACT OUR FIRM TODAY FOR ASSISTANCE.
Most property is subject to inheritance tax.
Jointly owned property is taxed at the share the person owned (i.e., if a person owned 50% of a property, that 50% share would be taxable).
One way to avoid inheritance tax in PA is to establish an irrevocable trust, or simply gift assets (unconditional giving, no strings attached) to someone. You must outlive them at least one year in order for the gift or trust to be complete so that no inheritance tax is due on that property. Be careful what you gift to someone and do not make gifts without the advice of an attorney and financial professional. If you gift someone a house, and you still want to live in it while he or she owns it, you could be making a risky move, especially if that person gets in trouble.
Also, life insurance is typically inheritance tax free. Life insurance is a great wealth transfer tool, and our firm regularly helps individuals and families with their life insurance needs.
We would advise you not to do any inheritance tax planning without the assistance of a qualified estate planning attorney. Please call our office today at 215-706-0200 or email us to schedule a complimentary appointment.
Thursday, July 26, 2012
Five Things You Can Do NOW to Improve Your Estate Plan
Estate planning is about as exciting as going to the dentist. But just like the upkeep of your teeth to prevent cavities, root canals, etc., keeping up your estate plan can help avoid bigger problems and conflicts later down the road.
Everyone should have a plan, no matter how much or little wealth you have. Furthermore, your life and circumstances will continue to change, and so should your plan. Get a check-up at least every few years!
Here are the five things you can do NOW to enhance your current plan:
1. Organize - Your plan won't be helpful to you or your family if no one can find it. Make sure you keep the originals in a fire-proof safe at home, and leave instructions for your Executor and Agent to be Power of Attorney.
2. Communicate - Surprises when a plan is needed is never fun. Talk to your Executor and Power of Attorney in advance
3. Supplement - Funeral instructions, last wishes, health care concerns - these are all things with which you can supplement your plan.
4. Consider an irrevocable burial reserve and make all of your last arrangements now - it will be one less step for your family
5. Electronic data - make a plan for your electronic data. Think of all of the "stuff" we have on our computer today. Photos, sensitive financial information, etc. What's your plan to ensure that your electronic data is handled the way you want it to be handled?
Tuesday, June 05, 2012
Jeremy Wechsler Releases New Book on Estate Planning
Looking for a great resource on estate and retirement planning? Jeremy Wechsler, your Estate & Elder Law Attorney, recently co-authored a new book with Peter R. Wechsler, his father and Your Retirement Quarterback. The book is an easy read but full of valuable information on estate and retirement planning.
Learn more about the book here: http://solvingtheretirementpuzzle.com
The Law Offices of Jeremy A. Wechsler assist clients with Estate Planning matters in Willow Grove, PA as well as Abington, Hatboro, Dresher, Horsham, Bryn Athyn, Huntingdon Valley, Fort Washington, Jenkintown, Glenside, Oreland, Warminister, Wyncote, Ambler, Elkins Park, Flourtown, Philadelphia, Warrington, Cheltenham, Gwynedd Valley, Jamison, Feasterville Trevose, Richboro, North Wales, Blue Bell, Lafayette Hill, King of Prussia, Collegeville, Oaks, Phoenixville, Oxford Valley, Langhorne, Penndel, Bristol, Fairless Hills, Bensalem, Plymouth Meeting, Furlong, Philadelphia County, Bucks County and Montgomery County.