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Pennsylvania Inheritance Tax

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.


Tuesday, December 31, 2013

Same Sex Couples in Pennsylvania

Pennsylvania currently has a DOMA law (Defense of Marriage Act), despite the U.S. DOMA law was struck down in 2013. For same-sex couples, this makes Pennsylvania a generally unwelcoming state, particularly if you wish to get married in Pennsylvania.

Pennsylvania's DOMA law has the following implications for same-sex couples:

  • Same-sex couples in Pennsylvania cannot get married in Pennsylvania. There are also no civil unions, domestic partnerships, or common law marriages in Pennsylvania.
  • Pennsylvania will not recognize an out-of-state marriage between two men or two women.
  • If you are a married same-sex couple living in Pennsylvania, the federal government will recognize your marriage for tax purposes. However, in Pennsylvania, you will still have to file your PA taxes separately. 
  • Same-sex marriages in Pennsylvania are not recognized as marriages for Pennsylvania Inheritance Tax purposes. In Pennsylvania, legally married couples pay 0% to transfer assets to each other upon death. For marriages not recognized in Pennsylvania, couples must pay 15% to transfer assets to each other upon death.

Pennsylvania is not welcoming to gay couples who wish to get married. The laws may change in the future, so it is important to keep up-to-date. 

There are strategies that same-sex couples and same-sex families who reside in Pennsylvania can employ to reduce inheritance taxes and taxes in general. 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, 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

Pennsylvania Probate

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 complementary 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


Monday, January 30, 2012

Gifting the House For $1: Good Idea or Not?

 

Many people ask us if it is a good idea to give their home to their children. While it is relatively easy to do, giving away your house can have major tax consequences, among other negative results.
 
GIFT TAX ISSUES: When you give anyone property valued at more than $13,000 in any one year, you have to file a gift tax form.  Also, under current law you can gift a total of $5.12 million over your lifetime without incurring a gift tax. If your residence is worth less than $5.12 million, you likely won't have to pay any gift taxes, but you will still have to file a gift tax form. Congress may change the gift tax exemption, which is now scheduled to revert to $1 million in 2013 unless Congress acts.
 
CAPITAL GAINS TAX ISSUES: While you may not have to pay gift taxes on the gift, if your children sell the house right away, they may be facing steep taxes. The reason is that when you give away your property, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient. For example, suppose you bought the house years ago for $150,000 and it is now worth $350,000. If you give your house to your children, the tax basis will be $150,000. If the children sell the house, they will have to pay capital gains taxes on the difference between $150,000 and the selling price. The only way for your children to avoid the taxes is for them to live in the house for at least two years before selling it. In that case, they can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.
 
Inherited property does not face the same taxes as gifted property. If the children were to inherit the property, the property's tax basis would be "stepped up," which means the basis would be the current value of the property. However, the home will remain in your estate, which may have estate tax consequences.
 
PA INHERITANCE TAX ISSUES: In Pennsylvania, there is no gift tax. However, to avoid PA Inheritance Taxes (the rate is 4.5% for assets passed to children or grandchildren), you must live at least one year from the time the gift was made. Often times, 4.5% of inheritance tax is worth paying rather than gifting the house in this manner, due to the risks involved.
 
ASSET PROTECTION ISSUES: By transferring your house to your children, you are making all of their future financial and family problems YOUR problems. That means the house could end up being taken away due to creditor problems, bankruptcy, litigation, or divorce. Would you want your son-in-law to get part of your house while you're still living?
 
MEDICAID/LONG-TERM CARE ISSUES: Beyond the tax consequences, gifting a house to children can affect your eligibility for Medicaid coverage of long-term care.  There are other options for giving your house to your children, including putting it in a trust or selling it to them. Before you give away your home, consult with an elder law firm such as our law firm, where we can advise you on the best method for passing on your home.
 
CONCLUSION: "Gifting the house for $1" is a phrase that's tossed around quite a bit, and several families go ahead with this planning. As you can see, casual planning like this is fraught with potential landmines. Be careful. There are options out there to transfer the house properly. Speak with an estate planning or elder law attorney about this type of planning.

Monday, December 12, 2011

Estate Tax Update / 4 Common Estate Planning Questions

 

Q&A: Four Commonly Asked Estate Planning Questions

 

1. Most of my assets are jointly titled, or they are qualified accounts with beneficiaries named. So do I still need a Will? Having a Will is still a necessity, but it can be more or less important to you depending on your estate. A Will is always needed to make sure an Executor is named, and take care of assets that are not titled jointly or with beneficiaries. It always makes sense to have a Will no matter what your circumstances.

 

2. How can I plan for avoiding Pennsylvania Inheritance Taxes? Most assets are subject to PA Inheritance Tax. However, one asset that's typically not subject to PA Inheritance Tax is life insurance. Life insurance also provides liquidity upon death to pay taxes, fees, etc. The inheritance tax rates are 0% between spouses, and 4.5% to kids and grandkids.

 

3. I have two kids, can't I just name both of them as Co-Executors? That may seem harmless, but could cause big problems for your estate later on. Putting two or more people in charge of one task is a recipe for conflict. Would it make sense to have two CEO's in charge of a company? Both children can be treated equally under the Will while one serves as Executor. Bottom line: Choose one primary, and two backup Executors.

 

4. What is the "Five Year Lookback Period"? When a client is in a nursing home or will be heading there and wants to qualify for Medicaid, federal law requires that any gifts made within the five previous years be accounted for. A gift made within five years could cause a penalty (based on a formula) that will prevent one from receiving benefits for a certain period of time. Qualifying for Medicaid is become increasingly complicated, and the best advice is to plan early while you're still healthy.

 

Have more questions? Email us at info@jawatlaw.com.

Latest News on the Federal Estate Tax

What's happening with the federal estate tax? Recently, a Democratic Congressman proposed a bill in the House of Representatives to lower the federal estate tax to a $1 Million exemption per person. Currently, the exemption is $5 Million. If the bill passed, many more people would be hit by the tax. 

 

The bill has no chance of passing, and the estate tax exemption will remain at approximately $5 Million for 2012. However, we will be watching 2013 closely, when the current law expires. Congress and the President will need to act at some point in 2012 to avoid the estate tax going back to $1 Million in 2013. Who knows what Congress will do... or when they will do it. We'll keep a watch and keep you updated.

 

Article Link: McDermott Tries To Rewrite Estate Tax

 


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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.

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