Philadelphia PA Estate Planning Blog

 The saying goes, "there's an app for that" and sure enough, there are plenty of applications, websites and software packages today that allow you to "create an estate plan" by yourself. I put the previous phrase in quotes because I believe it is akin to false advertising.  An estate plan is much more than just a document—an effective plan requires knowledge, application of proven strategies, and an attorney with experience. Experience matters, because an estate plan that initially appears to be simple may have dangers lurking in the background, and only an experienced estate planning attorney can preemptively address and correct those issues.

Before you consider do-it-yourself planning, consider these five true stories of DIY planning gone wrong:

1. The Suze Orman Trust: Suze Orman has a great reputation for no-nonsense talk on financial matters. A couple of years ago, a couple visited me and showed me the trust they wrote with Suze Orman’s Living Trust kit. The couple lived in Pennsylvania, but they had a California trust. California and Pennsylvania laws are significantly different, including property ownership laws, probate laws and more. Therefore, the trust they had was not appropriate for Pennsylvania and would have done more harm than good. Suze Orman talks a lot about avoiding probate, which is a valid concern in California, but generally not in Pennsylvania. Here, we had a case of over-planning and improper planning. Not everyone needs a living trust, including this couple.
   
   
2. Honey, I Deleted You From My Trust: A gentleman made an appointment with me last year, and he wrote his living trust online. He was married with three children. He wrote the trust so that if he passed away, everything went directly to his three children. When I showed him and his wife the error, she was not happy… at all. Thankfully, we fixed this plan—and as it happened, this couple did not need a living trust either, so we were able to simplify their plan and get it right.
   
   
3. Powerless Power of Attorney: I met with a couple who drafted their powers of attorney online. They were very proud that they had powers of attorney for virtually no cost. The problem? They left out key provisions, such as the ability to make gifts strategically if long-term care was needed. They had no backup power of attorney. Finally, they failed to execute the documents properly, meaning the plan would have been useless in a time of need. By the way, they also had no will, which they claimed wasn’t important because all of their assets were jointly held. A will is still vital in this case, because you still need to appoint an Executor.
   
   
4. Special Problem: Recently, a couple retained me after they drafted their wills online. They have one child, and figured their plan must be simple. The problem is that their child is special needs, and their will left everything outright to their child. If this plan were executed, the child would be disqualified from receiving any public benefits. We drafted a special needs trust for this family so that their child's inheritance would be protected and he would still qualify for public benefits.
   
   
5. Where There’s a Will, It Won’t Help Your IRA: A widowed woman’s computer-savvy nephew drafted her estate plan online after her husband passed. She has two children, rents an apartment, and has most of her money in IRA’s and annuities. When I sat down with her about estate plan, we uncovered the fact that only about 10% of her assets would pass through her will. Also, after reviewing her beneficiary designation forms for her IRA’s and annuities, we realized her only beneficiary was her deceased husband. There were no contingent beneficiaries listed! Her will was a good start, but not what she needed. We setup a Retirement Asset Protection Trust for her IRA’s, so that they would stay in the bloodlines and her children would get the stretch-out benefits of the inherited IRA.

These stories and situations are common, and illustrate the dangers of do-it-yourself estate planning. Consider hiring an estate planning attorney as you make your own estate plan. A qualified attorney understands the right questions to ask, all of the strategies available, and the dangers lurking beneath the surface.

We are excited to announce that in January 2015, we will be moving our offices to a newer, larger space in the same complex (Executive Mews). Our new office will be more accommodating to our clients and offer more amenities and comfort, including a larger reception area and larger conference rooms that incorporate more technology.

Our new office will also have an event room that will allow us to hold workshops, events and other functions. We are really excited to utilize the space and can’t wait to invite you to our events once we are all set up!

Here are some common questions and answers about our move and new location:

• Where exactly is your new location? We will be staying in the Executive Mews complex, but our new suite will be J-54. The full address will be: The Law Offices of Jeremy A. Wechsler, 2300 Computer Avenue, Suite J-54, Willow Grove, PA 19090.
• When are you opening your new office? We will be opening January 5, 2015. Our current office will be opened through December 17, 2014. If you need to see Jeremy before then, please book your appointment soon. If you need assistance after December 17, please call or email at anytime and we will get back to you within 1 business day.
• Will your phone number be the same? Yes, our phone number will continue to be (215) 706-0200 and email is info@jawatlaw.com.
• Is Franklin Retirement Solutions also moving? Yes, Franklin Retirement Solutions will be moving to the same location and will also be keeping their same phone number and email addresses.

We look forward to helping you with your estate planning needs now and next year in our new offices!

Is a simple will really so simple? Jeremy Wechsler shares with you his thoughts about what a simple will really means, and why it is a disservice for you and your family. Read more in this blog post.

What Does The 2014 Election Mean For Your Estate Plan?

The saying goes, “elections have consequences” but poll after poll show Americans dissatisfied with the fact that government, no matter what party, can’t get anything done. Others argue that the beauty of our system is that the wheels are slow to turn. Whether government passes laws or not, there are still consequences of those actions and inactions. 

Turning to estate planning, the law is a fundamental component when sitting down to properly design a plan. Other key components are legacy planning, asset protection, family morals, values and goals. 

Now that the 2014 election has passed and voters have spoken, my prediction is that in the next two years, estate planning from a tax perspective will not fundamentally change. 

• Federal Estate Taxes: The federal estate tax exemption is already $5 million (indexed for inflation) per person, so it only affects high net worth families. Republicans, now controlling Congress, have an established goal of eliminating the estate tax. However, the ‘death tax’ issue has been minimized because for most individuals, the tax is a non-issue. I predict no action happening on the federal estate tax or federal gift tax anytime soon. 
  
  
• Stretch IRAs: There have been rumbles of discussion in Congress to eliminate the “Stretch IRA” and force beneficiaries to withdraw a Beneficiary IRA within 5 years. It’s a policy idea to generate short term tax revenue, but has never gotten out of a Congressional committee. My analysis: Congress and the President will be lucky if they can keep government open. I do not see broad tax reform on the table at this time.
  
  
• Obamacare: Part of Obamacare includes a Net Investment Income Tax (NIIT). This is a 3.8% tax that effectively raises capital gains taxes for individuals and couples with more than a threshold amount of income. I cannot envision President Obama repealing Obamacare or any part of it during his final two years in office. This tax appears to be here to stay. For more information about the NIIT, see the IRS website NIIT page.
   
• Pennsylvania Inheritance Tax: While I was following the Pennsylvania Gubernatorial election, there was no discussion of the PA Inheritance Tax that I recall. The majority of states have eliminated their inheritance tax, but Pennsylvania seems set on keeping the tax. Don’t expect our new Democratic Governor Tom Wolf to sign a repeal of the inheritance tax—-he’s been talking tax increases. Remember, life insurance remains inheritance tax-free.
   

The status quo, for the most part, is good news (save for the inheritance tax not being repealed). It gives you more opportunity to do non-tax planning like family legacy planning. Remember that tax planning is only one slice of the larger pie when it comes to estate planning.

It's time to get YOUR estate plan in order before the end of 2014. Call my office today at (215) 706-0200 to schedule your initial consultation. Together, we will design a plan that is customized to meet your needs.

An estate plan can always use improvement. Your plan should grow and evolve just as you do in life. Besides regular reviews of your plan, here are three points to consider with your plan that can help improve it immediately.

1. EXECUTOR: Who is your Executor, and do you have backups? The importance of choosing competent Executors cannot be overstated. You should have one primary Executor and two backups. These individuals will be charged with settling your estate, maximizing the estate value and minimizing taxes. The Executor is a fiduciary, someone who is charged with making sure that your beneficiaries are treated fairly and that they get everything they are owed.
   
   
2. BENEFICIARY FORMS: For insurance policies, annuities, and retirement plans, a Beneficiary Designation Form (BDF) is used to determine how that account passes, NOT your Last Will & Testament. Every custodian has a different BDF and different rules. Also, each account must be coordinated with your overall estate plan. It is not as easy as filling out a form. You should review your beneficiary designations with your estate planning attorney.
   
   
3. GET ON THE TRUST WAVE: Trusts are for everyone, and they have different purposes. You can use a trust to achieve asset protection for your loved ones and heirs. A trust may be used for special needs or to protect your IRA and ensure your heirs get the “stretch IRA.” A trust may also be used to protect against nursing home spend down. Trusts are no longer for the ultra-wealthy nor are they only designed to save tax dollars. Trusts are commonly used today to preserve your estate in the long run for you and your loved ones and keep the estate in your bloodlines.

Need assistance with your estate plan? Contact our firm today by calling (215) 706-0200 to schedule your initial consultation.

Last week, Laura Saunders wrote an article in the Wall Street Journal entitled The New Rules of Estate Planning. It’s a great article, and Ms. Saunders gets down to business quickly discussing some key changes to the modern estate plan.

In the article, Saunders wrote about the fact that the federal estate tax, for most people, is now history. But that wasn’t always the case, as many middle class families nearly a decade ago rushed to their attorney to create credit shelter or A-B trusts because they were worried about the estate tax. Now, those types of trusts may actually do more harm than good. If you have an old trust like this, you must come in to our office to review it and probably update it. 

Today, I emphasize with many clients that trusts may be useful for other goals, such as asset protection for your loved ones. I also emphasize planning for long-term care costs (which, by the way, rise much faster than inflation!).

Saunders wrote about minimizing capital gains taxes, which was more difficult to do when the focus was on estate tax planning. Today, you have a choice about which assets you hold and which you gift or sell in order to take advantage of capital gains tax savings (Currently with Obamacare, capital gains taxes can be as high as 23.8%). By the way, your Traditional IRA’s do not get a step-up-in-basis, so it makes sense to withdraw from them (besides, you have to take your RMD starting at age 70 1/2). 

Gifting can still be made, but the only reasons to gift today are to preserve your estate if you think long-term care costs are in the cards for you. Otherwise, gifting doesn’t serve as much use today.

If you read an estate planning article 10 or more years ago, the contents of the article would be a LOT different, with a heavy focus on estate tax avoidance. In just 10 years, estate planning has changed significantly. That means that your plan must change with it. If you already have a plan, that’s great. However, a plan that’s more than three years old should be reviewed.

For a link to the article, click here. You must be a subscriber to the Wall Street Journal to access the article.

The nation's elderly and disabled Social Security recipients will receive a 1.7% increase in payments in 2015. This is expected to raise the average monthly payment for the typical retired worker by $22.  The increase is slightly higher than last year’s 1.5% cost-of-living adjustment (COLA). The same COLA will apply to pensions for federal government retirees and to most veterans.

As was the case last year, the small rise in benefits will not be whittled down by a Medicare premium increase because the standard Medicare Part B monthly premium will remain $104.90 in 2015, the same as it was in 2014.  Most Medicare recipients have their premiums deducted from their Social Security payments.  (In a recent column, Reuters columnist Mark Miller argues that the COLA doesn't measure retiree inflation accurately and that it's time to "adjust the adjustment.")

The COLA by the Numbers

Starting in January 2015, the average monthly Social Security retirement payment will rise from $1,306 to $1,328 a month for individuals and from $2,140 to $2,176 for couples. The 1.7 percent increase will apply to both elderly and disabled Social Security recipients, and individuals who receive both disability and retirement Social Security will see increases in both types of benefits.  The maximum Social Security benefit for a worker retiring at full retirement age, which is age 66 for those born between 1943 and 1954, will be $2,663 a month.

The Social Security COLA also raises the maximum amount of earnings subject to Social Security taxation to $118,500 from $117,000.  This means that those earning incomes above $118,500 will pay no tax on any income above that threshold.

The COLA increases the amount early retirees can earn without seeing a cut in their Social Security checks.  Although there is no limit on outside earnings beginning the month an individual attains full retirement age, those who choose to begin receiving Social Security benefits before their full retirement age may have their benefits reduced, depending on how much other income they earn.

Early beneficiaries who will reach their full retirement age after 2015 may now earn $15,720 a year before Social Security payments are reduced by $1 for every $2 earned above the limit. Those early beneficiaries who will attain their full retirement age in 2015 will have their benefits reduced $1 for every $3 earned if their income exceeds $41,880 in the months prior to the month they reach their full retirement age.

For 2015, the monthly federal Supplemental Security Income (SSI) payment standard will be $733 for an individual and $1,100 for a couple.

For a complete list of the 2015 Social Security changes, go to:https://www.ssa.gov/news/press/factsheets/colafacts2015.html

Although their names are similar, Medicaid and Medicare are vastly different government programs. Both provide health coverage, but Medicare is an “entitlement” program, meaning that everyone who reaches age 65 and is entitled to receive Social Security benefits also receives Medicare (Medicare also covers people of any age who are permanently disabled or who have end-stage renal disease).

Medicaid is a public assistance program that helps pay medical costs for individuals with limited income and assets. To be eligible for Medicaid coverage, you must meet the program’s strict income and asset tests. Also, unlike Medicare, which is a federal program, Medicaid is a joint state-federal program. Every state operates its own Medicaid system, but each state must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state’s Medicaid costs.

Medicare and Medicaid Coverage of Long-Term Care

The most significant difference between Medicare and Medicaid in the realm of long-term care planning is that Medicaid covers nursing home care, while Medicare generally does not.  Medicare Part A covers only up to 100 days of care in a “skilled nursing” facility per spell of illness. The care in the skilled nursing facility must follow a stay of at least three days in a hospital. And for days 21 through 100, you must pay a copayment of $152 a day (in 2014). (This is generally covered by Medigap insurance.)

In addition, the definition of “skilled nursing” and the other conditions for obtaining this coverage are quite stringent, meaning that few nursing home residents receive the full 100 days of coverage. As a result, Medicare pays for less than a quarter of long-term care costs in the U.S.

In the absence of any other public program covering long-term care, Medicaid has become the default nursing home insurance of the middle class. Lacking access to alternatives such as paying privately or being covered by a long-term care insurance policy, most people pay out of their own pockets for long-term care until they become eligible for Medicaid.

The fact that Medicaid is a joint state-federal program complicates matters, because the Medicaid eligibility rules are somewhat different from state to state, and they keep changing. (Pennsylvania’s Medicaid program name is “Medical Assistance” or “MA”.) Both the federal government and most state governments seem to be continually tinkering with the eligibility requirements and restrictions. This is why consulting with an elder law attorney is so important.

As for home care, Medicaid has traditionally offered very little. Recognizing that home care costs far less than nursing home care, more and more states are providing Medicaid-covered services to those who remain in their homes.
It’s possible to qualify for both Medicare and Medicaid.  Such recipients are called “dual eligibles.”  Medicare beneficiaries who have limited income and resources can get help paying their out-of-pocket medical expenses from their state Medicaid program.

Middle class families with an individual entering a nursing home can do “Medicaid” planning, and preserve some assets in spite of the rigid spend-down requirements. In addition, healthy individuals can purchase long-term care insurance products to defray the cost of long-term care. Finally, there are multiple estate planning techniques, that when used properly, can preserve assets against Medicaid spend-down. Again, it is important to consult an elder law planning attorney for professional assistance with any of these strategies.

1. Use Trusts Instead of Outright Distributions: An outright distribution offers no protection to your loved ones and you have no control to ensure the inheritance stays in your bloodlines. Asset protection is crucial if you want your estate plan to work through the years and perhaps generations to come. Asset protection is important to prevent risks including divorce, lawsuits and creditors from eating up an inheritance. Also, asset protection can protect beneficiaries from themselves, if they have issues that would prevent them from managing an inheritance properly.
   
   
2. Create a Long-Term Care Plan: Previously, tax planning was what motivated clients to plan their estates. Because estate taxes are no longer an issue for most people, the new estate planning is long-term care planning. The question to ask yourself is, what will happen if I need to go into a nursing home or need long-term care? Long-term care costs can significantly diminish an estate leaving nothing for your spouse and loved ones. Insurance is an option but not the only option. The use of Medicaid Asset Protection Trusts are also a possibility. Build a long-term care plan today to ensure you preserve at least part of your estate for your heirs.
   
   
3. Regularly Update Your Estate Plan: Updating your estate plan on a regular basis will bring you peace of mind and ensure that the plan will work the way it should work. Normally, it’s best to update your plan at least every 3-5 years, or sooner if a major family event occurs, or circumstances change. As your life changes, your plan must change with it.
   
   
4. Ensure Your IRA Becomes a Stretch IRA: Your will does not control your IRA. If you create asset protection trusts in your will for your heirs, those trusts will not protect the IRA. IRA’s pass by beneficiary form, and you run the risk of your heirs cashing out the IRA’s as lump sum distributions, taking the “Stretch IRA” off the table. It’s called a Stretch IRA because a younger beneficiary can keep the account as an IRA and stretch it out over his or her lifetime. You can use a special retirement account trust to ensure the beneficiary takes the Stretch IRA, the IRA has asset protection, and the money stays in the bloodlines.
   
   
5. Consider Life Insurance: Life insurance is tax free cash for your loved ones, that can help pay for final expenses, debts, taxes and administration costs. In other words, life insurance can be a great way to leverage your estate. Life insurance may also have benefits for you while you’re living—it can be used as an investment tool, or you can choose a policy that has a long-term care rider, allowing you to use the death benefit towards your long-term care costs.

These are just a few ideas to improve your estate plan now. Always consult with a professional when planning your estate.

For a complimentary estate planning consultation, contact our office today at (215) 706-0200.

Are you planning on leaving part of all of your estate to a person with special needs? Particularly, the concern is that an individual with special needs that is receiving Medicaid or SSI benefits may become ineligible for those benefits upon receiving an inheritance. How can you avoid that from happening while still providing for him or her?

A Special Needs Trust is required to keep your loved one on his or her public benefits while still providing supplemental needs for them.

In Pennsylvania, it is a detriment to any person that receives public benefits (SSI, Medicaid, Medical Assistance / MA). Even if the person is not currently receiving benefits but you’re concerned they may receive public benefits in the future, you want to consider a special needs trust.

By carefully establishing a Special Needs Trust, you can select a Trustee who cares for your loved one, and provides for any supplemental needs through the trust funds. The Trustee makes sure that your loved one never actually touches the funds. This ensures that eligibility for public benefits will never be in jeopardy. The trust can 

There are several different types of Special Needs Trusts:

• Third Party Special Needs Trust: If you establish a Special Needs Trust for the benefit of another person, this is called a Third Party Special Needs Trust. With these types of trusts, the Commonwealth of Pennsylvania nor the Federal Government are not entitled to recover any assets (“estate recovery”) when the individual with special needs passes.
  
  
• First Party Special Needs Trust: Also referred to as a self-settled trust, an individual with special needs may put their own assets into this type of trust, protect their estate while living, and still qualify for public benefits. Often used for personal injury settlements, this trust must name the government as the primary beneficiary. This trust must be reviewed by the government before it may be activated. Individuals doing estate planning for their own estate on behalf of a loved one with special needs should utilize a Third Party Special Needs Trust.

 A Special Needs Trust is a specialized tool and provides many benefits. If you have a loved one on public benefits that you wish to provide for, we can assist you. The Law Offices of Jeremy A. Wechsler offers a complimentary estate plan review and consultation. Please call us today at (215) 706-0200 or email us.

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:

1. 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.
   
   
2. 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.
   
   
3. 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.