Philadelphia PA Estate Planning Blog

If you don't have a Last Will & Testament (or a Living Trust), you are leaving your estate in the hands of the government to determine who will manage it, and who will receive it. Sometimes, this works out okay. But more often, this opens up unresolved family conflicts, battles and arguments.

Why is that the case? Here's an example. You die and leave a $500,000 estate (house, IRA, bank accounts, etc.) without a will (dying without a will is called "intestate"). You have three children. One child has been helping you with your medical care more than others and he thinks he is entitled to more of your estate. He helps himself to more than his fair share of your estate after you die. Your two other children are furious, and they challenge this--in court. If it sounds messy, it is messy.

Creating a will and mapping out your estate plan is the perfect antidote to dilemmas like the one above. By making your wishes clear, and putting one person in charge of your affairs, you have hampered most possible will challenges. Further, by discussing your plan openly with your family (letting them know who the executor will be, why you chose to divide your estate the way you did, etc) will greatly help quash any possible future conflict.

Please call our office today to schedule a complementary estate planning consultation at (215) 706-0200. Don't forget to listen to us on the radio every Saturday at 8:30 AM on AM 1340 WHAT (and listen online at www.am1340what.com).

The U.S. Senate continues to kick around ideas for how to deal with the Federal Estate Tax in 2011 and beyond. Right now, there is no estate tax if you die this year, 2010.


The estate tax is scheduled to come back in 2011 at a 55% tax rate for any estate over about $1 million.

Looks like most middle class Americans will not have to worry much about the estate tax under two different proposals in the Senate right now. The first proposal fell apart a month or two ago, and the new proposal likely won't gain much traction.

Therefore, there is still much uncertainty about estate planning. We see many wills, trusts, etc of married couples that have outdated language regarding A-B trusts, credit shelter trusts, and marital deduction planning. Make sure these documents are reviewed now, and in 2011.


 

Here is the link to the latest article:

https://online.wsj.com/article/SB10001424052748704227304575327131250814258.html?mod=googlenews_wsj

What are living trusts?

A living trust is a valid will substitute in the Commonwealth of Pennsylvania. During your lifetime, you have the ability to place your assets in a trust, designate a trustee (usually yourself while you’re living), a successor trustee (someone to take the job after you pass away), and beneficiaries. A living trust can be superior to a will, depending on the needs, goals and size/complexity of the estate of a particular client. However, living trusts are not for everyone, particularly in Pennsylvania.

Why do people create living trusts?

1. Avoid Probate: Many people create living trusts to avoid probate, the process of proving your will. However, Pennsylvania’s probate process is much simpler compared to other states. Pennsylvania probate is not a court-supervised process, and only takes a relatively short amount of time to become appointed executor. Yes, there are probate fees for the County (probably in the range of $300-$1,000, depending on the size of the estate) but they are relatively modest. Therefore, avoiding probate (assuming you only own property in Pennsylvania) is not a good reason, by itself, to create a living trust.
    
2. Asset Protection: You can’t protect yourself from creditors, spouses, etc. by creating a living trust. But you can potentially protect your children, heirs and other beneficiaries from themselves and from others. A living trust can never guarantee asset protection, but can help fend off predators and creditors, depending on the situation. In addition, the living trust must be set up in a particular way, with limitations on your beneficiaries, in order to effectively protect the assets.
    
3. Seamless Transition: A living trust, if funded during your lifetime, can provide a smoother transition from one generation to the next. With a living trust, you have the potential to carefully lay out a distribution scheme in which the assets can flow to beneficiaries quicker.
    
4. Privacy/Avoid Potential Estate Challenges: A living trust set up properly and funded with all of your probate assets can avoid probate completely, and therefore, is subject to privacy from the public. A potential beneficiary or anyone for that matter can challenge the validity of a trust, but it is much more difficult to do so since they don’t have easy access to the document.
    
5. Control From The Grave: A living trust allows a grantor to control an inheritance long after they pass away. For instance, you can spread out an inheritance over 20 years, or only for certain needs, such as education or health. However, we can do the same thing in a will with a testamentary trust.
    
6. Reduce/Avoid Taxes: Actually, this is a myth. A living trust does not do a better job than a will or any other testamentary device in avoiding death taxes, estate taxes or inheritance taxes. You can take advantage of the marital deduction and unified credit through a will with a testamentary trust and it will have the same effect. Don’t get sold on creating a living trust solely for tax benefits.

Do you recommend a living trust?

Living trusts are expensive to create, and we do not recommend creating one unless you have legitimate concerns about:

• Privacy
• Estate challenges
• Asset protection
• Assets in more than one state

Those concerns, coupled with the desire to avoid probate are good reasons to create a living trust.

If you want to know more about what tools make sense for your estate, whether it is large or small, contact our office today at (215)706-0200 or info@jawatlaw.com. We offer complementary initial consultations to determine if we’re a good fit.

When we are concerned about the well-being of our children, estate planning quickly becomes complex.

Why?

Because if we have concerns about our children but love them unconditionally, we want to make sure they spend their inheritance wisely. Yet, we often hesitate about limiting their ability to control their inheritance.

Clearly, we must find a compromise – we can’t discount our concerns and fears, and we also can’t discount the fact that we feel we should completely trust our children.

When we create a trust for our children, we’re setting rules. Rules are found everywhere, from home, to the work place, and our society at large. Why shouldn't we have rules for a trust? When we give our children money to spend, sometimes we give it to them unconditionally as a gift. But more often, we give them money for specific things—a new down payment on a home, a new car, education, money towards a marriage, etc. If we gave our children money towards a masters degree, and they ended up going to the casino and spending it all, would we be very happy?

Having an independent co-trustee coupled with rules on trust distributions protects your children from themselves and others. It says to your children, I love you very much, and I want the best for you for the rest of your life and even perhaps your own children’s lives. Of course, others will look at the same plan and shrug their heads, saying they can’t fathom telling their kids how to spend their money.

You have to decide which camp you fit into – the freedom camp or the control camp. There is a compromise. But you cannot have absolutely freedom and absolute control.

At our office, we see many old powers of attorney documents. Typically, they’re about one to three pages each. Often, these Financial Powers of Attorney documents are missing key language in the beginning and end. Additionally, the powers that are granted to the agent are often vague.

Your powers of attorney should be customized, detailed and complete.

For instance, do you want your agent to be able to make unlimited gifts to any person or entity? Do you want your agent to be able to change the beneficiary of your IRA or life insurance policy? These types of powers can be dangerous, even with a trusted agent.

Make sure your attorney is counseling you on what is in your power of attorney. Our powers of attorney document is usually not less than twenty pages. Why? We carefully define each power, and we also include several limitations, depending on the needs of the client.

Remember, these documents need to be reviewed and possibly updated every few years. Don’t put it away and forget about it.

Sometimes, the catalyst for estate planning is when you see someone in a situation where there was a poor plan or no plan at all and as a result, something bad occurs. Another catalyst is that you've had a scare of your own. For clients that fall into one of these two categories, it is easy to show them the logic of planning for the worst case scenario.

However, for the remaining clients who do not have any urgent reason to do estate planning, it is often times more difficult to show them the value of planning for the worst case scenario. By worst case scenario, we mean scenarios such as giving children an inheritance, only to watch them go bankrupt and have the inheritance go down the tubes... Or two siblings get along now, and have gotten along all their lives, but after mom or dad (or both) pass, something happens that triggers a major conflict between the two.

Reality check: These scenarios and others are not pleasant to think about. But like it or not, they happen more often than we'd like them to happen.

In fact, this is usually one of the biggest challenges in estate planning -- presenting a range of worst case scenarios to people based on their family situation. Unfortunately, many estate planning attorneys will tell you only what you want to hear, and will not present such scenarios for you to consider.

As uncomfortable as it may be to face certain facts and possible outcomes, by doing just that, you will sleep better at night knowing that you have a comprehensive plan. Consider the definition of estate planning:

• Have complete control of your property while you are alive;
• Take care of you and your loved ones during disability or incapacity;
• After you pass, give what you own to whom you want, the way you want, and when you want.
• Furthermore, save every last tax dollar, professional fee and court cost to the maximum extent possible.

Considering that complete definition, it's easy to see how an estate plan that is comprehensive can provide all of the above.

It's also easy to observe that a plan completed in 15 minutes probably won't account for every part of the definition.

You should not walk away from careful and comprehensive planning -- work through the challenges, and let the attorney help you find the solutions.

On the flip side, don't overthink it. Overthinking leads to exhaustion and complacency, and you will end up with no plan at all.

Please check out our new Probate Resource Center for Pennsylvania. In the new resource center, you'll find information about how probate works, the steps to probating an estate, links to important resources, questions and answers, and more.

Our firm works with our clients during the most difficult times in their lives to make sure the probate process is not burdensome. We know our clients and prospective clients want to get educated about how probate works, so we've put together some great resources to help achieve that goal.

Keep in mind that Pennsylvania probate is different than other states, such as California.

If you have any probate and/or estate administration matters that need attention, our firm is pleased to be able to offer our assistance.

One of the more challenging aspects of estate planning can sometimes be choosing our agents—who will manage our affairs when we become sick (power of attorney), and who will manage them when we die (executor of a will or trustee of a trust). Not only do we need to choose agents, but we always need to choose at least two backup agents just in case the initial agent can’t or won’t take on the role.

For some of our clients, it is easy to choose agents – maybe a husband or wife, an only child, and another close relative. For others, they just aren’t sure who to choose!

While contemplating who to select as your agent, you should really consider talking to them about the roles they will fill and also make sure they are willing to accept the role.

For your initial agent, let them know that they will be the first person to be in charge if something were to happen to you. Let them know where you have kept your original estate planning documents, and let them know if you have any copies of the documents and where they are as well. Also, let them know where they can find a list of your assets, including bank accounts, securities, investments, IRA’s, etc. They will need this information!

You should tell your agents that by agreeing to the role, they will be accepting a major responsibility, one that must be taken seriously. You must let them know that they must act in your best interests, and that you’ve put safeguards into place to make sure that occurs.

You should explain your health care preferences and end of life preferences to your agent. Even though you’ve written down your preferences on your living will and health care power of attorney, it’s still important to verbally communicate your wishes so that your agent is clear about your instructions. You should let your agent know that if you were at an end-of-life situation and you asked for “the plug to be pulled”, your agent would still have to confirm those instructions with the doctor in charge, which could be a painful decision for the agent to make.

In summary, your agent should know as much as possible now about your plan. There should be no surprises as to who the agents are, what you expect from them, and what your medical preferences are. Your agents should always be people you trust without a doubt.

Remember, make sure you review your plan every few years to make sure that the agents you selected then are the agents you would like to have listed now.

Our firm has the expertise necessary to help you choose agents, and make sure you have a well-crafted legacy plan. Please contact us today at info@jawatlaw.com or by calling (215) 706-0200 for your complementary consultation.

When I assist people in estate planning, we look at many scenarios.  We plan for the “god forbids” and hope they never happen, but if they do, that they happen far down the road. Who wants to plan 20, 30 or 40 years out when their true concern is how bad or good their portfolio will look tomorrow?

I understand. In these uncertain times (and yes, we see a recovery happening, but who knows how much or how fast?), many people are afraid to engage in estate planning. Forget uncertain times… even in good times, 60% or more of adults in this country don’t plan! It’s no wonder I get calls daily to help clean up messes on estates where the deceased person left no will.

For those that don’t plan during uncertain times, they likely believe that whatever they put on paper today, will change tomorrow. Very true. However, I approach estate planning as a lifelong process, one that doesn’t stop after the first time you create a plan. Just as our lives change on a regular basis, so to should our estate plan. If we thought about estate planning as a one-time process, we would all be in a stalemate.

Remember, what you put on paper today is not written in stone. You can always change it tomorrow. In fact, I encourage my clients to continue to update their plan (with the assistance of an attorney) whenever something significant in their lives change, and to at least review their plan every few years.

For our readers that do have plans, have you thought about your plan, and has it been reviewed and updated in the last few years? For those that don’t have plans, is it because it just hasn’t been the “right time” yet? Even in the most uncertain of times, having a plan will only benefit your heirs and loved ones. Now is the right time to update your plan, and to create one if you don’t yet have one.

One of the most difficult tasks in any estate plan is choosing who will manage your affairs while you’re alive and after you pass away. In addition, if you have children under eighteen, you also must consider who will step in as guardians if need be. An agent is a broad term, and emcompasses several roles, depending on what components of an estate plan you put into place. Agents include powers of attorney, personal representatives of the estate, trustees and fiduciaries.

Below are some ideas to start with on how you might go about filling these important roles. After reading this article and gathering some ideas, you should seek the assistance of a qualified estate planning attorney to help you make these decisions.

• Who do you trust? Trust is key in appointing anyone to serve in these important roles. When I think of trust, I think of a gut feeling that I have about a person. I ask, will that person have my best interests at heart when they are acting on my behalf? Finding someone you can place your trust in for these roles is easier said than done. Whatever you do, don’t simple choose someone because of convenience.
   
• Who is capable? Assuming most people are good-natured, the next question becomes, who can actually manage your affairs, your estate and your children? Sometimes, managing the affairs of someone else can be extremely complex, depending on the assets that the person has. Consider whether that person will have to hire an attorney to help him/her manage your affairs. That can get costly.
   
• Who would agree to the role? Just because you have decided to appoint someone does not mean they will agree to serve. In fact, a person filling a role can resign at anytime. Make sure the person you appoint is on board to serve.
   
• Who will the backups be? In the event that your first choice cannot serve in the role, you must make sure you have at least one, if not two trusted backups. You must make sure the backups are trustworthy, capable and willing to serve as well.
   
• When does it make sense to appoint two or more people to fill one role? Typically, I do not recommend setting up your appointments like this. Consider this: You really want to have whoever is dealing with your affairs to speak with one voice. There is much potential for disagreement and discord if two or more people are filling one role. Remember, your goal is to create a smooth transition, not hamper it even more.

In general, you should review your choices for these roles at least every five years, if not sooner. You don’t want to have outdated documents with people filling roles you no longer want them to fill, or roles they can no longer fill.

We offer complementary 90 minute consultations for estate planning issues. Call our office today (215) 706-0200 or email us at info@jawatlaw.com to set up your appointment today. Our team would be pleased to assist you in all of your estate planning needs.

Only 35% of Americans have their estate plan completed, either with a will or trust. Therefore, over 6 out of every 10 people reading this have not done any planning! Instead, they have decided to let the government do their planning. Not a good idea.

For those putting off planning, you've likely been talking about planning for a while now and keep pushing it off. Being in this profession, I see way too many unfortunate circumstances where planning was not done before time was up. It is vital to put at least a basic plan in place today. Here is what you need to at least get started:

1. Last Will & Testament: The will is the document that lists your wishes after you pass. You will names your executor, the person who handles your estate, lists who the beneficiaries are (a beneficiary is the person who receives property from you), and lists any immediate family members that you have disinherited. It can also name a guardian for minor children, and list your wishes on whether you want cremation or not. Wills can be more advanced, and can include provisions such as setting up testamentary trusts so that all assets are not immediately distributed. You must have a will. If you don't, the government has what's called an intestate/intestacy statute that lists in detail who in your family will take property. You will have no control, and neither will your heirs!
    
2. Financial Power of Attorney: This document controls all of your non-medical affairs when you become disabled or incapacitated. Sometimes it is more important than having a will. These must be updated every few years or so because some institutions, such as banks, investment houses, etc, will say they are "stale" if more than 5-10 years old. This is a powerful document, giving your agent (the person who acts on behalf of you) the power to manage your assets, property, businesses, accounts, etc. It also may give your agent the ability to handle your retirement accounts (be careful with this) and to make gifts (also another one to be careful about). You can also use this document to appoint a guardian for yourself or for your children during your incapacity.
    
3. Medical Power of Attorney / Living Will: In Pennsylvania, the medical/health care power of attorney and living will can be combined into one document. The power of attorney controls while you are alive but disabled. The living will controls at the end of life phase when there is no realistic hope of recovery. This document gives the person acting on behalf of you to speak with your doctors, hire and fire your doctors, tell the doctors what to do based on your wishes, etc.

These documents are only a start to a solid estate plan. Estate planning requires a lot of thought and analysis, and takes into consideration you, your family, the legacy you want to leave and the assets that you currently own. More advanced estate planning can often be necessary to save taxes, probate fees and provide asset protection.

Finally, if you already have a basic estate plan, make sure to update it at least every five years, if not sooner.

Please contact our firm today if we may be of assistance. We can provide an economical basic estate plan that will be the foundation of a sound estate plan. Inquire about our outstanding services today.