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Philadelphia PA Estate Planning Blog

Monday, November 14, 2011

Estate Planning Misconceptions

 

This week, we have selected five common estate planning misconceptions that we often hear from our clients. 

1. Gifting the house for $1 to my kids is always good idea

Gifting your house to your kids may save some inheritance tax dollars, but there will be no “step up in basis” if the kids try to sell the house after you pass on. To put it simply, there may be more taxes due than if you just left the house in your name. Additionally, once the kids own the house, you’re on the hook if they get into any sort of creditor or marriage trouble.


2. I only need a simple will, or no will at all

Every provision in your will is important. You want your will to be perfect, otherwise it could spell trouble for your family later on. You need to speak with an attorney about what type of estate planning tool you need.


3. I don’t need a will because all of my assets have beneficiaries on them

It always makes sense to have a will, regardless if anything will pass through the will. Inevitably, we find the will always disposes of some assets.


4. A power of attorney is just a form and is the same for everyone

Powers of attorney are subject to the most lawsuits because of this assumption. Your power of attorney needs to be carefully tailored so there aren’t too many powers.


5. I can’t gift more than $13,000 per year

As it stands now, you have a $5 Million lifetime gifting exemption through 2013. You can make the $13k gifts each year without paying taxes or filing gift tax returns. Anything over $13k is not taxed, but must be accounted for. Anything above $5 Million is taxed at 35%. For years, the lifetime exemption was $1 Million, so the $5 Million jump presents a great opportunity for wealthy individuals and families to make transfers.

 

Estate planning should be undertaken with a qualified estate planning attorney. Everyone needs to engage in estate planning to ensure they leave a legacy that's free of conflict and confusion. For a complimentary estate planning consultation, please call our office at (215) 706-0200.

Was this week’s blog entry helpful to you? If so, we encourage you to forward it on to friends and family members who you think may find it informative as well.

Have a great week!


Monday, November 7, 2011

Advantages of Living Trusts

 

Although Living Trusts aren’t a necessity for most people in Pennsylvania, they can still make sense for many, depending on your estate planning goals and concerns.

Here are a few reasons that a living trust might make sense:

  1. Easier transition: Unlike a Will that controls only after you die, a living trust allows you to create an instrument that controls your assets if you became disabled, and after you pass on. In other words, 2-in-1. Yes, you could (and should) have Powers of Attorney in case you become disabled. But for assets in a living trust, the Powers of Attorney won’t be necessary and will therefore be easier on your loved ones.
     
  2. Privacy concerns: A Will, once probated, is public knowledge and can be reviewed by anyone. If you’re concerned about a Will challenge or contest, a living trust might make sense to look into. The living trust and assets held in it never get probated.
     
  3. Avoid Probate: By avoiding probate, your family can save on probate fees and some of the annoyances that come along with probate. Pennsylvania probate isn’t too difficult, but avoiding it will make things easier.
     
  4. Asset Protection for Heirs: A living trust can provide asset protection for your children and grandchildren by protecting your heirs from themselves and others, including creditors, divorcing spouses, etc.


You should determine with an attorney whether a living trust makes sense for you. There are a number of factors that could weigh in favor or against a living trust. The reasons above are just scratching the surface.

A living trust will likely cost more than a Will up front, but could save time and money later on.


Monday, October 31, 2011

Nursing Home Costs - Rising Fast?

MetLife recently released their Market Survey of Long-Term Care Costs for 2011, and the statistics do not bode well for seniors and those that need long-term care. 

A few statistics from the report that you should know about:

  • The average cost of a nursing home (private room) across the USA increased 4.4%, from $229 per day to $239 per day.
     
  • On average across the country, a semi-private room costs $78,110 per year, and a private room costs $87,235 per year.
     
  • In Philadelphia, the average costs are higher. The average private room costs $285 per day, with the high being $325 per day. At the average, the cost per year is $104,025 and at the high, the cost per year is $118,625. Ouch.
     
  • Assisted Living Facilities: On average, they cost $3,477 per month, an increase of $184 or 5.6% from 2010. 
     
  • Home Health Care: Average hourly rate is $21, and the daily rate for Adult Day Services is $70.

We continue to point out to our clients that long-term care costs are rising, probably faster than inflation. If you have concerns about long-term care costs, you should speak with an elder law attorney who can help your family plan craft a plan for preserving part of your estate in case long-term care is needed. Elder law professionals have a variety of tools available, such as long-term care insurance, trusts, sophisticated gifting strategies, and more.

 


Monday, October 24, 2011

Did Steve Jobs Have An Estate Plan?

Even several weeks after his death, people are still talking about Steve Jobs and his contributions to the technological advances we've made in the last 30 years. Just last week, there was a memorial for Apple employees, shutting down every Apple store for a couple of hours, to celebrate the life of Steve Jobs. I remember using the Mac Classic, a black and white Apple computer from the 1980’s, and being fascinated by what was then advanced technology (no WiFi, no Facebook, no internet but still great!). People are going to be talking about Steve Jobs for a long time.

As your estate planning attorney, I was intensely curious about what type of estate plan Jobs created. We have plenty of wealthy individuals who have not engaged in estate planning, and their affairs are simply a mess.  People like Elvis Presley, Sammy Davis Jr. and others lost a huge amount of their estate to unnecessary taxes because they didn’t plan properly. We can learn a lot from their mistakes. But we can also learn from those who actually did take the time to plan, like Steve Jobs. To be honest, the less we can learn about their estate plan, the better their estate plan probably was!

To read more about what Steve Jobs did and didn’t do, check out the Forbes article on his estate plan here.

Every estate plan is different. Most people don’t have the wealth that Steve Jobs had. Nonetheless, everyone needs a plan that works for them and avoids disputes, excessive taxes, and unhappy heirs. If Steve Jobs didn’t put the proper plan in place, we will surely find out sooner or later.

Have a great week!


Monday, October 17, 2011

CLASS Dismissed

Last week, the Obama administration formally shut down the CLASS Program, part of the Affordable Care Act (Obamacare). CLASS would establish a long-term care insurance program that individuals could pay into and then receive a daily benefit if they needed long term care.

But, the experts figured out that not enough people would sign up for the voluntary program. Thus, it would end up becoming insolvent, adding to the deficit and costing taxpayers.

Insolvent? Adding to the deficit? Costing taxpayers a lot? Sounds like Medicaid, Medicare and other entitlement programs!

Our political leaders just can’t seem to find a way around the problem of ballooning long-term care expenses. Meanwhile, a nursing home costs approximately $8,000 per month and at least 33% of people will spend on average 3 years in a nursing home during their lives. Do the math, and that adds up to almost $300,000.

Yes, Medicaid will cover the cost of nursing home care, but only when you have nothing left. The CLASS program aimed to fix this problem, but it was a failure.


Monday, October 10, 2011

7 Estate Planning Questions

 

Top 7 Estate Planning Questions That Clients Ask

1. What if I don’t have a Power of Attorney, what happens?

You need to make sure you have a Power of Attorney, no matter what age you are. If something happens to you and you can’t make decisions for yourself, you need to make sure someone is appointed to handle your affairs. If you don’t, a guardian may need to be appointed for you. That means going through the courts, something that no one wants to be bothered with.

2. Is probate a big deal in Pennsylvania? Do I need a living trust?

Probate is not the scary process that it used to be, at least in Pennsylvania. Most people in Pennsylvania opt to have a will over a living trust because probate is rather straightforward. Sometimes, an attorney may need to be retained to help with probate affairs, but many times, a family can do it themselves.

3. Why do I need a will if most of my assets are joint or have beneficiaries?

Regardless of if your assets are jointly titled and have beneficiary designations, it still makes a lot of sense to have a will.

First, you may acquire new assets or move assets around during the course of your life. You may forget to re-title beneficiaries, or you may not title the asset jointly.

Second, there are bound to be assets that WILL pass through the will! It always happens. Plus, even if that doesn’t happen, a will is important for other reasons, such as making sure you have an Executor appointed.

Finally, if you are married, a will may not be as important upon the first-to-die, but upon the second-to-die, a will becomes essential because it’s likely that many of those joint assets are no longer jointly held, and will pass through the will.

4. Where do I store my documents, and should an attorney keep a copy?

We generally recommend you purchase a fire-proof records safe for your home and store your original estate planning documents there. They will be safe, but more accessible than a bank safe deposit box. As your estate planning law firm, we keep a copy of your documents on our secure LegalVault service, which also provides you and your health care providers access to your documents.

5. Can I write my plan myself or with a LegalZoom type of service?

Of course you can, but it’s probably not a good idea. Would you skip the doctor’s office and diagnose yourself if you’re feeling sick? Estate planning is best done with an attorney who understands how all of the pieces of the puzzle fit together. Estate planning includes wills, powers of attorneys, and trusts, but it also includes strategies while you’re alive, and strategies for the next generation. Even a “simple” plan is best done with an attorney, because as of our experiences show, even the simple plans require customizations.

6. How often should I update my plan?

Check your documents at least every three years to make sure they still seem current. We recommend that you update the plan when you see a need for a change, and update your powers of attorney every five years.

7. What are the taxes at death and how do I avoid them?

There are both federal estate and state inheritance taxes. Most people today don’t worry about federal estate taxes today, because only folks with more than $5 Million of assets are affected. 

Pennsylvania has a state inheritance tax, and any asset transferred upon death in Pennsylvania is possibly subject to inheritance tax, with very few exceptions. The tax rates are relatively small (4.5% to kids and grandkids), so most of the time, planning to avoid PA inheritance taxes is not worth it. However, every case is different and we can discuss estate and inheritance tax planning strategies with you that may make sense.


Monday, October 3, 2011

Is it time for a WILL review?

Is it time to update your LAST WILL & TESTAMENT? You don't know until you review it! We've put together a few tips this week for when it's a good time for you to pull the will out of storage and give it a review. 

1. THE WILL IS FIVE OR MORE YEARS OLD: You should review your estate plan at least every five years, even if you feel nothing has changed. It's a good habit to get into, so that you can be sure your plan works for you.

2. YOU DO NOT UNDERSTAND THE WILL: If you see parts of the will you simply do not understand, you may want to get it reviewed. Chances are, some of the sections or the language may simply be out of date.

3. YOU GET RE-MARRIED, DIVORCED, OR ARE NOW WIDOWED: The change in your marital status should prompt a will review and mostly likely require significant changes to your WILL.

4. YOUR KIDS WERE YOUNG WHEN YOU WROTE YOUR WILL: Now that the children are older, maybe out of college or even married with children, you probably have quite a few revisions to make in your will. 

5. NEW GRANDKIDS: You may wish to leave grandkids a direct inheritance, or not. But either way, you should make sure your will is reviewed when you have new grandkids. If they come into the inheritance early for some reason, you want to ensure that proper plans are made.

6. YOUR WEALTH HAS CHANGED FOR THE BETTER OR WORSE: Significant changes in your wealth should prompt a review of your will. There may be new strategies, depending on what types of assets you have and what your goals are.

Do you need a review of your Last Will & Testament? Call us to schedule a no-obligation Will review at (215) 706-0200. We'll take 30 minutes of your time and tell you whether you may need an update or not.


Monday, September 26, 2011

Estate Planning Tips

This week, I reached into my grab bag for a few best practices in estate planning. Everyone must have an estate plan because without one, you risk leaving your affairs a mess for others. Here are a few tips and ideas:

  1. KEEP IT CURRENT:
    Keep your Powers of Attorney up-to-date. In the event of a disability, you want to ensure financial institutions and medical providers will accept these documents without reservation. Update them every 3-5 years.
     
  2. DON’T LET PROBATE SCARE YOU:
    In Pennsylvania, don’t let the probate process scare you into writing big expensive estate plans to avoid probate. Probate is a relatively easy process in Pennsylvania compared to other states.
     
  3. FOLLOW THE THREE C’S:
    In your estate plan, be CLEAR, be CONSISTENT, and be CAREFUL. Make sure you’re working with an attorney who only practices estate planning so you can rest assured knowing your plan meets this criteria. Make sure the language is clear, that nothing in the plan conflicts, and that you think through what you want your plan to say.
     
  4. HOPE FOR THE BEST, PLAN FOR THE WORST:
    Estate planning is about as exciting as going to a dentist for many people. No one wants to do it, but it must be done. While you’re planning, make sure you plan for the worst-case scenario. For example, leaving your son a large inheritance and the chance that he could have creditor problems or he gets divorced and his ex-wife wants half of the estate. Yes, there are strategies we can put in place to protect an inheritance from these types of situations.
     
  5. GIFT PROPERLY:
    Want to downsize, help your kids while you’re still living, or take care of the grandkids? Writing a check may make them smile, but there are other ways to make gifts, such as setting up life insurance policies inside trusts (great for asset protection) and creating a pension for life for your kids. If you want to gift, make sure you explore your options with qualified professionals. Doing so may provide multiple benefits to you and your heirs.

Monday, September 19, 2011

Five Myths About "Living Trusts"

Is the Revocable Living Trust, sometimes just called a Living Trust, the ultimate estate planning tool? It depends who you ask, and what state you’re in.

In Pennsylvania, Living Trusts aren’t used commonly as an estate planning tool. Instead, practitioners in Pennsylvania, as well as clients, tend to favor Wills as the fundamental estate planning tool.

Here are five myths about Living Trusts in Pennsylvania:

Myth #1: Living Trusts save, reduce or avoid taxes:
A Living Trust is NOT a tax reduction or avoidance strategy. You simply cannot avoid estate or inheritance taxes by using a living trust. It used to be that more people were effected by the federal estate tax, and that married couples could reduce their estate tax by using credit shelter trusts. But you could do the same thing in a Will!

Myth #2: They prevent estate challenges:
A Will is easier to challenge than a Living Trust, because a Will is probated and is public. However, just because a Living Trust isn’t probated, doesn’t mean it can’t be challenged in court. It just takes a little more time, effort and money to do so.

Myth #3: They avoid probate because probate should be avoided:
Pennsylvania probate is pretty simple, and a run-of-the-mill estate can be probated by the Executor him or herself without the help of an attorney. So probate shouldn't necessarily be avoided at all costs and you shouldn't be scared of probate in PA. Yes, living trusts avoid probate, but your living trust must be 100% funded with ALL of your stuff to do that! Even missing ONE small bank account means your loved ones will have to go through probate. Anyway, probate is not a big deal in Pennsylvania, unlike in other states such as California (yes, living trusts are popular there because probate is a COURT supervised process!).

Myth #4: A Living Trust will make things easier at the end of my life:
Not really… It is probably takes just as much work to probate the will, settle the estate, etc., as it does to manage an ongoing trust. Trusts need to comply with many rules, tax returns must be filed annually for trusts, and more. A living trust will usually require the help and services of a professional.

Myth #5: I need a living trust to shelter assets from nursing home costs:
A living trust would NOT be a good tool to use if you want to shelter some of your assets from being spent down by nursing homes. You need to use a Medicaid Asset Protection Trust, which is IRREVOCABLE, and establish and fund this trust when you’re still healthy. A living trust used in a situation like this would be a disservice to you and your family.

LIVING TRUSTS MAKE SENSE IN SOME SITUATIONS, BUT NOT ALL SITUATIONS.  Estate planning is an individual process that's unique for everyone. A qualified attorney can help guide you to what estate planning tools you need.

Want more information on what estate planning tools make sense for you? Call us today at (215) 706-0200 to schedule your complimentary visit.


Tuesday, September 13, 2011

IRA's and Estate Planning

IRA’s are increasingly becoming an important part of estate planning for middle class families, particularly those who have worked and saved their whole lives. Sometimes, you will need to live off of the income of your IRA in retirement, but sometimes you will have other sources of income that cover your life expenses.

When your IRA isn’t needed to live on during retirement, it can present great estate planning opportunities for you and your family. You can structure your IRA to leave a pension for life for your kids or grandkids, while allowing the IRA to grow tax-deferred, or if it’s a Roth IRA, tax-free.

To make sure the IRA stays safe and allows for maximum growth, an IRA Inheritance Trust is necessary to accomplish this goal.

How do you know if you need this kind of trust? Here are a few factors to consider when thinking about whether you might need an IRA Inheritance Trust:

  • Size of IRA: Is your IRA worth at least over $500,000? If so, it may be a sign you should consider a trust.
     
  • How many beneficiaries? If each beneficiary (a kid, grandkid, etc) may get $500,000 or more each out of your IRA, then you should consider a trust.
     
  • Ages of beneficiaries: If you are leaving the IRA to several people, some older and some younger, it’s important to establish the IRA trust so that each share can be measured on his or her own life expectancy. The younger the beneficiary, the higher the life expectancy and the lower the RMD. The lower the RMD, the more ability the IRA has to grow and "stretch" out over time.
     
  • Issues and challenges for beneficiaries: Are your beneficiaries spendthrifts? Are they too young for you to know if they might turn out to be? What about creditor problems, bankruptcy issues, special needs, divorces and more… These are all reasons that you want to protect and shelter the IRA in a trust for beneficiaries.
     
  • Your goals: Depending on your estate planning goals and the factors above, an IRA Inheritance Trust may or may not make sense for you. It’s best to consider whether you need this type of trust with a qualified attorney who is analyzing your entire estate plan. This is simply one tool in the toolbox that can be used to effectively plan with certain cases.

Wednesday, September 7, 2011

Fall 2011 Estate Planning Essentials

 

Our blog entry this week focuses on five topics that have been hot button issues for clients over the last few months. Estate planning continues to evolve and therefore, we must continue to “think different."

Estate Planning in General: Estate planning today isn’t what it was 5 or 10 years ago. For most families that I see today, saving estate tax dollars is not an objective, because there are simply no taxes to begin with! But just because the tax problem went away (at least for the time being) doesn’t mean you shouldn’t plan. Our clients come to us to make sure their kids and grandkids will be taken care of properly, and that their estate is setup and optimized properly to achieve those goals. In other words, there are many more reasons to engage in estate planning than simply to save taxes.

Powers of Attorney: To put it bluntly, we are living longer. A Will by itself won’t suffice anymore. A Will is a death document, and only kicks in upon your passing. As we live longer, we have more time where we may be incapacitated or incompetent to make decisions. Therefore, powers of attorney, appointing someone to take over your affairs, continue to become more essential.

Long-Term Care: Long-term care costs are rising. See last week's blog entry on the latest average costs in Pennsylvania for long-term care. It is essential that middle class families plan for long-term care costs. There are strategies that can be employed to save at least part of your estate from costs that could ravage your estate.

Non-Probate Assets: More and more, people are acquiring assets that don’t pass their Will, such as IRA’s, 401(k)’s, life insurance, and annuities. In general, any asset with a beneficiary designation form avoids the Will and avoids probate. But it doesn’t mean you shouldn’t plan or protect those assets with trusts or other devices, and it doesn’t mean you should ignore them when planning your Will and estate.

Gifting: 2011 and 2012 present great opportunities to make large gifts without incurring gift taxes. You can optimize your estate plan and take care of your kids or grandkids with life insurance, pensions for life, and other great tools. Gifting may be more limited come 2013, so now is the time to act.

Fall is typically our busiest time for estate planning. Make your appointment now and reserve some time with me today if you want to optimize your estate plan. Call my office today at (215) 706-0200 or schedule an appointment online on our web site.


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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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