Philadelphia PA Estate Planning Blog

With every emailed alert about a credit card you probably don't have, with every phone call pleading for money (and for bank account information), it is apparent that we live in a dangerous world.  It is also very apparent that the technology that makes our lives easier also makes us more vulnerable to fraudsters and attackers.  So we put together a few tips here that you should keep in mind whenever you're online, on the phone or on a mobile device.

1. Free WiFi Isn't Always Free

While it's easy to balk at the cost of hotel or airport WiFi, it's easy for a scammer to set up a "free" WiFi network and then watch every packet of information you send across it.

There’s a bit of news in the estate planning world that I thought I’d share with you this week:

1. Pennsylvania Inheritance Tax Changes

There is currently a potential law (HB 971) working its way through the PA House and PA Senate to eliminate inheritance tax for property passing from a parent to children under the age of 21. We’ll continue to watch this and potentially other inheritance tax changes in the future. If this passes and is signed by the Governor, it could be a turning point for PA inheritance tax law. The inheritance tax is unpopular and many legislators want it on the chopping block.

As we move from the pension era of retirement planning to the self-directed era, IRA’s and other retirement accounts are becoming a larger part of many estates.  It's not uncommon anymore to have a client with more than half of their estate parked in IRA’s.  If that’s the case for you (or will be as time goes on), then the concept of a Stretch IRA is important to understand.

When a non-spousal beneficiary - that's anyone besides your current wife or husband at the time of your death - inherits your IRA, they have two options.  They can either take a lump sum distributions (all of it, at once, in a big check, paying all of the income taxes up front) or continue the IRA.

Are you concerned  about affording long-term care in the future should you or your spouse need it?  Or worse, the possibility that your estate may be depleted as a result of the costs?  Nursing homes today in Pennsylvania cost over $12,000 per month.  If you stayed in a nursing home for five years, that’s $720,000!!  It’s impossible to say when, if and how long you’ll need long-term care.  But the fact is, for everyone, it’s a risk worth insuring against.

If you’re not keen on long-term care insurance or life insurance with a long-term care rider, or you can’t get underwritten, another idea to consider is the Medicaid Asset Protection Trust (MAPT).

The MAPT is a sophisticated way to shelter assets in advance of needing a nursing home.
Read more . . .

Last week, we tackled some pretty major questions about protecting your retirement accounts as part of your estate, given the limited protections offered by traditional wills.  You can read that article here.  This week, we’re picking up where we left off and answering four more questions. 

4. Why does a “stretch” make more sense than a lump sum distribution?

A lump sum distribution of an IRA will trigger all of the income taxes to be paid immediately.

If you are like most folks these days, you have a significant portion of your estate saved in retirement accounts (IRA, 401(k), 403(b), TSP, etc).  Retirement accounts are a great legacy planning tool because they offer the ability for your beneficiaries to continue the tax-deferred treatment (e.g. “Stretch IRA”).  Unfortunately, many beneficiaries make mistakes and instead take a lump sum distribution.

Recent surveys have shown approximately 50% or more of adults in our country do not have an estate plan. A Last Will & Testament is typically part of a well-rounded estate plan, and provides the foundation to ensure you leave a positive legacy. Without a Last Will & Testament, there could be an array of problems and missed opportunities. Here are a few:

1. Executor: You need an Executor of your estate or else leaving it up to the state and your family to determine who will run the show. For example, If you have three children, they're all eligible to serve, so if they disagree on who should lead, that dispute could end up in court. Make your wishes clear by naming an Executor (and backups!).
   
   
2. Intestate Laws: Every state has "Intestate" laws that govern what happens to your estate if you die without a Will. In Pennsylvania, if you're married with children and do not have a Will, your spouse and children will both receive an inheritance from you. If your intent is to leave everything to your spouse if you die first, you cannot control that unless you have a Will.
   
   
3. Underage & Special Needs Beneficiaries: Underage and special needs beneficiaries require particular attention, where the use of a trust under a Will is necessary. If there is any possibility of leaving assets to grandchildren (even indirectly), you should have a conditional trust in your Will.
   
   
4. Adult Beneficiaries: Even adult beneficiaries sometimes require trusts to protect them from themselves and others. Some adult beneficiaries are spendthrifts, addicts or have problems and receiving an outright inheritance would be dangerous. Other beneficiaries are responsible, but you may want to ensure the inheritance is kept in the bloodlines, and does not go to your favorite son-in-law or daughter-in-law. The only way to achieve this is to use a trust, which can be drafted within a Will.
   
   
5. Personal Property & More: Disputes could occur no matter the size or value of an object. Sometimes the smallest items cause the biggest conflicts. Families are complex, and if you want to ensure a conflict-free legacy, a Will is the only way to guarantee that your wishes are adhered to and disputes avoided.

Immediate annuities are advanced planning tools used by elder law and asset protection attorneys to assist married nursing home residents qualify for Medicaid (called Medical Assistance or MA in Pennsylvania) coverage while making sure the healthy spouse has sufficient income, and also to help preserve a portion of the estate for the families of unmarried or widowed nursing home residents.

Immediate annuities can help Medicaid applicants in two ways: 

First, many spouses of nursing home residents face a dramatic reduction in income when the “community spouse” (spouse going into the nursing home) qualifies for Medicaid.  Purchasing an immediate annuity can convert assets needing to be spent down into an income stream for the healthy spouse while avoiding a penalty for transferring assets.  

Next, a community spouse can purchase an annuity that will provide income to pay the nursing home while waiting out the Medicaid five-year look-back period caused by gifting.  Often, these latter annuities are of short duration – only as long as the penalty period.

But some states, including Pennsylvania, have maintained that short-term annuities – usually two years or less – are still subject to a transfer penalty.  This will change now that the Third Circuit Court of Appeals has ruled that Medicaid officials must accept applicants' short-term annuities, and that these types of annuities cannot be counted as resources and be made subject to penalty. Zahner v. Secretary Pennsylvania Dept. of Human Services (3rd Cir., Nos. 14-1328, 14-1406, Sept. 2, 2015).  

While the decision provides more certainty, immediate annuities must still meet a number of stringent requirements, including being actuarily sound, to be accepted as legitimate by County Assistance Offices in Pennsylvania.  Families considering them should get help from a qualified elder law attorney in the state where you are a resident. You should never attempt to purchase an immediate annuity for Medicaid planning yourself without a comprehensive Medicaid Plan by a qualified attorney.

If you are healthy and have the ability to plan in advance of long-term care needs, the use of a Medicaid Asset Protection Trust or long-term care insurance products (or hybrid life insurance products) may be options to help preserve assets without resorting to the use of immediate annuities.

1. Perfection: Many of us believe that we can’t create a plan until we have every element lined up perfectly and plan for all future contingencies. Without a crystal ball (that works), that’ll never happen. Estate planning requires reviewing your plan on a regular basis and modifying it as needed to keep up with life changes. Focus on making the best plan for today's circumstances, and revisit it as often as needed.
   
   
2. Paralysis-By-Analysis: Over-analyzing every aspect of your plan can cause you to lose sight of the bigger picture, which is that you need a well-crafted legacy plan. Don't get hung up on small or technical issues. Instead, prioritize communicating with your family and make sure everyone understands their role and the expectations that you have of them and how your plan will generally work. This goes a long way in perfecting your legacy.
   
   
3. Procrastination: The longer you put off planning, the less urgent it becomes. Don’t wait until it’s too late. Make sure you put your plan in place now while it’s on your mind. You cannot execute an estate plan if you’re not competent, so get to it while you’re healthy. A common excuse is waiting until every child is on board with your plan. That sounds good in theory, but in reality, it's often a way to delay making decisions. Remember, you need to make the decisions, not your children.
   
   
4. “Simple” Syndrome: You think you only need a “simple” will and don’t have any issues that cause people to get a “real” estate plan done. The problem with a “simple will” is that it may not be written properly, and most likely doesn’t cover all of your wishes. Consider that a will doesn’t even cover your IRA’s, life insurance policies or annuities. A well-crafted estate plan will take your entire picture into account and make sure you have a legacy in which to be proud.
   
   
5. Family Disagreements: If you’re married, you and your spouse need to come together to plan as one couple, not two separate people. You must hash out your differences of opinion and agree to one plan. Seeing an attorney can help clarify misunderstandings and help bring people together to agree on fundamental issues.

If you are the parents of or caring for young children or dependents, you need to ensure that you have a plan in place if something happens to you.

Most younger families don’t give ‘estate planning’ a lot of thought because they don’t think they have enough of an estate to worry. But estate planning is more than just about money. It’s about ensuring a smooth transition of all of your affairs if something happens to you at anytime.

A key concern we have for younger families is making sure Guardians are appointed, both in a Power of Attorney and Last Will & Testament. If you do not appoint guardians yourself, and something happens to you, the Pennsylvania Orphans’ Court will get involved and guardians will be appointed by a judge. 

Do you really want somebody you don’t know appointing a person to care for your children? Wouldn’t you feel better off if you decided that in advance?

Every family will have different goals when it comes to estate planning. This is just one of many examples where it’s more than just money as a concern.

If you haven’t yet planned for your family, please call my office today at (215) 706-0200 for your complimentary appointment.