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Philadelphia PA Estate Planning Blog
Tuesday, August 26, 2014
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: - 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.
- 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.
- 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.
Friday, August 1, 2014
Beware of Trust Mills: Trusts mills are companies that sell trusts to senior citizens, without consultation by a lawyer. The motivation behind trust mills are two-fold: First, they charge a significant amount of money for un-customized documents that do a disservice to clients. Second, the companies, while building the trusts, send an affiliated financial advisor to the client to recommend they purchase a high-commission product, such as a variable annuity. In Pennsylvania, Trust Mills would market to seniors by telling them they had to avoid probate in Pennsylvania. However, probate is not a difficult process in Pennsylvania, unlike other states. It is a serious offense in the legal community for what we call “unauthorized practice of law” — in other words, a non-lawyer purporting to be a lawyer, or a lawyer practicing illegally in a state in which he or she is not licensed. On July 28, 2014, the Pennsylvania Supreme Court upheld the disbarment of Brett B. Weinstein, a trust mill operator. (Office of Disciplinary Counsel v. Brett B. Weinstein) In it’s decision, the court stated that the trust mill in question was an “extremely egregious example of the unauthorized practice of law.” Further, the court held that “there is no other comparable case in Pennsylvania in terms of the gravity of deception, the determined persistence, and the harm to enormous numbers of vulnerable clients.” Please beware of trust mills and other companies that do not offer legal counsel while preparing estate plans. Always ask if the individual is a licensed attorney, and seek proof of that. You can always lookup an attorney to see if they have a valid license or any disciplinary action at The Disciplinary Board website. While we are on the subject, also beware of do-it-yourself estate planning. Similar to working with a non-attorney, you could be making a significant mistake when trying to save some money and doing it yourself. At our law firm, we offer unlimited consultation times when we work with our clients on their wills, trusts, powers of attorney and estate plans. We hope that when you decide to complete your estate plan, that you work with a law firm that devotes its practice to estate planning.
Tuesday, July 29, 2014
Pennsylvania's DOMA law (Defense of Marriage Act), despite was struck down in May 2014 by a federal court in Whitewood v. Wolf. For same-sex couples, Pennsylvania now has marriage equality, which makes the state more welcoming to same-sex couples.
Whitewood v. Wolf has the following implications for same sex couples in Pennsylvania:
- Same-sex couples in Pennsylvania can now get married in Pennsylvania. Pennsylvania does not recognize common law marriages.
- Pennsylvania will now recognize an out-of-state marriage between two men or two women.
- Same-sex marriages in Pennsylvania are now legal, which has significant implications for Pennsylvania Inheritance Tax purposes. In Pennsylvania, legally married couples pay 0% to transfer assets to each other upon death. Prior to Whitewood v. Wolf, same-sex couples, even if they were married, had to pay a 15% inheritance tax.
Pennsylvania is one of many states to have their DOMA law struck down in the last year. Governor Corbett has decided not to challenge this ruling, effectively making it law. The PA Legislature could always attempt to pass a new law, but the likelihood of this seems slight.
There are strategies that same-sex couples and same-sex families who reside in Pennsylvania can employ to create a better estate plan, taking advantage of all the tax savings available to you. 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, July 28, 2014
Pennsylvania imposes an inheritance tax on all assets that pass to anyone besides a spouse. That includes children, grandchildren, parents, siblings, cousins, domestic partners, and more. The rates are as follows: - Children/Grandchildren/Stepchildren: 4.5%
- Siblings: 12%
- All others (nieces, nephews, cousins, partners, friends, etc.): 15%
Pennsylvania does not offer a general exemption for inheritance tax. In other words, it starts from the first dollar. Can you avoid Pennsylvania Inheritance Tax? My clients, who are typically located in Bucks County, Montgomery County, Philadelphia, Delaware County and Chester County, ask this question a lot. Following are some options to consider reducing inheritance tax for your heirs. You should consult with the Law Offices of Jeremy A. Wechsler or another estate planning law firm before engaging in any inheritance tax reduction strategy. - Use Life Insurance: Life insurance is generally exempt from PA Inheritance Tax. Your heirs will inherit a tax-free (income tax free, inheritance tax free, estate tax free) liquid asset.
- Lifetime Gifting: Making a gift during your lifetime reduces the inheritance tax on your estate. But you must be careful about gifting, as it can have several serious unintended consequences. Talk to a professional before gifting.
- Purchase Out of State Assets: Your vacation home in Florida is not subject to PA Inheritance Tax. In other words, property not situated in the state does not count for inheritance tax purposes.
For other ideas, contact our firm today at (215) 706-0200 to set up your complimentary consultation. We are happy to assist you with your inheritance tax and estate planning questions.
Wednesday, July 23, 2014
Ten Estate Planning IdeasBy Jeremy A. Wechsler, Esq. Your Estate Planning Attorney Estate planning is a lifelong process and you must revisit your plan every so often to ensure it is updated and reflects your wishes. If you do not yet have a plan, now is the time to take action. Here are several ideas that may be helpful: - Executors: Consider choosing one Executor over Co-Executors. Co-Executors can often be troublesome because two or more parties acting together (or against each other) can cause the estate administration to come to a grinding halt.
- Testamentary Trusts: Provide your children or loved ones with some asset protection by using testamentary trusts in your will. This is an alternative to outright distributions, which run the risk of being ravaged by divorce proceedings, creditors, bankruptcy, lawsuits and more.
- Review Every 3 Years: Make it a point to review your plan at least every three years, to ensure the plan reflects your wishes.
- Funeral and Burial Arrangements: Plan for your funeral and burial arrangements in advance so your loved ones do not have to make those decisions at a sensitive time.
- Inheritance Taxes: Pennsylvania does not have many exemptions for inheritance taxes. Passing property onto your kids or grandkids is taxed at 4.5%. However, life insurance passes inheritance tax free and income tax free to your heirs. Consider using life insurance to provide instant liquidity while lowering the inheritance tax burden.
- Don't Forget IRA's: Your IRA's do not pass through your will. If you have significant IRA's, you should consider an asset protection trust for these assets. An IRA trust is separate from your will or any other trust, because IRA rules are a lot different.
- Organize Organize Organize: Make sure your Executor has access to all of the information he/she needs to settle your estate, including a list of important contacts, financial accounts, deeds, etc.
- Consider a Living Trust: Particularly for families that have problems/conflicts, a living trust can provide more privacy than a will because it is not automatically public record. Also, a living trust is great for families that have property in multiple states.
- Use Caution Before Gifting: Gifting can be a great way to help your loved ones while you're living, and also minimize taxes. But gifting can have negative consequences too. Before gifting any asset, seek professional assistance.
- Get Professional Assistance: Only an estate planning attorney can help you craft an appropriate estate plan for you and your family. By spending the proper amount of time with you, an estate planning attorney can learn about your family and ensure the perfect, customized plan is put together for you.
Need estate planning assistance? Please call my office to get on my calendar at (215) 706-0200.
Tuesday, July 22, 2014
Many seniors and retirees consider gifting assets for estate and long-term care planning purposes, or just to help out children and grandchildren. Gifts and transfers to a trust can initially make a lot of sense because they can save money in taxes and long-term care expenditures, and they can help out family members in need. But some gifts can cause problems, for both the donor and the recipient of the gift. Before making a gift, you should absolutely see a professional (lawyer, financial advisor and CPA). Below are a few questions you should ask yourself about making a gift: - Why are you making the gift? Is it simply an expression of love on a birthday or big event, such as a graduation or wedding? Or is it for tax planning or long-term care planning purposes? If the latter, make sure that there's really a benefit to the transfer. If the value of your assets totals less than the estate tax threshold in your state, your estate will pay no tax in any case. For federal purposes the threshold is $5.34 million (in 2014). Gifts can also cause up to five years of ineligibility for Medicaid, which you may need to help pay long-term care costs.
- Are you keeping enough money? If you're making small gifts, you might not need to worry about this question. But before making any large gifts, it makes sense to do some budgeting to make sure that you will not run short of funds for your basic needs, activities you enjoy -- whether that's traveling, taking courses or going out to eat -- and emergencies such as the need for care for yourself or to assist someone in financial trouble.
- Is it really a gift (part one)? Are you expecting the money to be paid back or for the recipient to perform some task for you? In either case, make sure that the beneficiary of your generosity is on the same page as you. The best way to do this is in writing, with a promissory note in the case of a loan or an agreement if you have an expectation that certain tasks will be performed.
- Is it really a gift (part two)? Another way a gift may not really be a gift is if you expect the recipient to hold the funds for you (or for someone else, such as a disabled child) or to let you live in or use a house that you have transferred. These are gifts with strings attached, at least in theory. But if you don't use a trust or, in the case of real estate, a life estate, legally there are no strings attached. Your expectations may not pan out if the recipient doesn't do what you want or runs into circumstances -- bankruptcy, a lawsuit, divorce, illness -- that no one anticipated. If the idea is to make the gifts with strings attached, it's best to attach those strings legally through a trust or life estate.
- Is the gift good for the recipient? If the recipient has special needs, the funds could make her ineligible for various public benefits, such as Medicaid, Supplemental Security Income or subsidized housing. If you make many gifts to the same person, you may help create a dependency that interferes with the recipient learning to stand on his own two feet. If the recipient has issues with drugs or alcohol, he may use the gifted funds to further the habit. You may need to permit the individual to hit bottom in order to learn to live on his own (i.e., don't be an "enabler").
If after you've answered all of these questions, you still want to make a gift, discuss it with a professional before you proceed. Your advisor can ensure you are made aware of Medicaid rules, tax issues and other possible implications of your generosity. Need elder law assistance now? Please call our office at (215) 706-0200 to schedule your consultation today.
Monday, July 7, 2014
Pennsylvania just made major changes to their Power of Attorney law. Are you prepared for the new changes? Read more . . .
Tuesday, June 17, 2014
The United States Supreme Court handed down a ruling this week (Clark v. Rameker Trustee) that has major implications for Inherited IRA's (also called Stretch IRA's or Beneficiary IRA's). In essence, the unanimous decision is that Inherited IRA's are NOT protected from bankruptcy proceedings or creditor claims, unlike regular IRA's. The court reasoned that the funds are not considered "retirement funds" and therefore are not afforded the same protections. Important note: A spouse that inherits an IRA is afforded bankruptcy protection.
This case really illustrates a key planning technique, which is the use of a Retirement Asset Protection Trust to protect Inherited IRA's. With the use of a Retirement Asset Protection Trust for your IRA, you can ensure your children or loved ones inherit your IRA and receive the following benefits:
- Ensuring that the IRA becomes a stretch IRA, rather than distributed as a lump sum (with ALL of the income taxes immediately due)
- Provide a level of asset protection from creditors, bankruptcy, divorce, lawsuits, etc.
- Keep the IRA in the bloodlines, perhaps creating a multi-generational IRA for your children, grandchildren and beyond.
In summary, the US Supreme Court ruled that Inherited IRA's received outright by beneficiaries are NOT protected from bankruptcy proceedings. However, by using a well-drafted and sophisticated trust, you can protect your heirs from themselves and others.
You can read the entire Supreme Court opinion here.
Monday, June 16, 2014
Retiring to another country can be a very attractive option. Lower cost of living and health care expenses along with exotic locales and temperate climates persuade many seniors to retire outside of the United States. If you want to ensure a smooth transition, however, there are many issues to consider and steps to take before packing up and moving.
- Bank Accounts: One of your first considerations should be where to keep your money. When you move abroad, you will most likely need to open a bank account in the new country in order to pay local bills. Opening a bank account in a foreign country can be difficult because of the Foreign Account Tax Compliance Act (FATCA), passed in 2010. The law requires banks to disclose data on American clients to the IRS, and many banks are refusing to accept clients from the United States because they don't want to deal with the requirements. Your best bet may be to look for a big bank that has lots of dealings with the United States. Once you have a bank, you will need to consider how much money you want to put into the local account as well as the best way to transfer money into the local currency. If your money remains in a U.S. bank and the exchange rate changes suddenly, the value of your money can change drastically. Another option is a foreign exchange specialty firm that may be able to provide you a fixed rate for transferring money. Before moving, you should consult with a financial planner to determine the best way to protect your money.
- Reporting: The United States wants to prevent citizens from hiding money in overseas bank accounts, so there are special reporting requirements. If you have $10,000 or more in a foreign bank account you will have to fill out an annual Report of Foreign Bank and Financial Accounts (FBAR) with the Department of Treasury. FATCA (see above) also has its own reporting requirements. If you are married and have a foreign account with more than $400,000 at the end of the year (or more than $600,000 at any time during the year), you will need to file a special form with your income taxes. If you don't comply with the requirements, you could face stiff penalties.
- Taxes: Moving to another country doesn't mean you don't have to pay taxes in the United States anymore. All U.S. citizens have to pay taxes, regardless of where they live, and if you still have a residence in a U.S. state, you may also have to pay state taxes. In addition, you will likely have to file a tax return in the country you are living in. If you pay taxes to a foreign country on a source of income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for the foreign taxes paid. For more information, click here. It is important to consult with a tax professional who is familiar with taxes in the country you are moving to.
- Investments: You may want to invest some money in the local currency so that your assets keep pace with cost-of-living increases. Having investments in the currency of the country you are living in also protects the value of your investments from drops in the value of the dollar.
- Real Estate: Purchasing real estate is not always straightforward in another country. Before deciding to buy, it is important to understand the rules of the country you are moving to. For example, in Mexico foreigners are prohibited from owning property within 31 miles of the coast, so property is often held inside corporations or trusts, which can create tax issues for U.S. citizens. In addition, there may also be different inheritance laws that could affect property. For example, in France children have priority over a surviving spouse.
- Health Care: Traditional Medicare does not provide coverage for hospital or medical costs outside the United States, so if you are retiring in another country, you will need to purchase health insurance from another source. If you return to the United States, you will still be covered by Medicare Part A, which covers hospital stays, but unless you paid the premiums for Medicare Part B while you were away, you may have to pay a penalty to enroll in Medicare Part B. For more information about Medicare while traveling or living overseas, click here.
Monday, June 16, 2014
How can you make sure your funeral and burial wishes will be carried out after you die? It is important to let your family know your desires and to put them in writing. Just don’t do it in your will.
To help your loved ones follow your wishes after you are gone, you can write out detailed funeral preferences as well as the requested disposition of your remains. In addition to explaining where you want your funeral to be held, the document can include information about who should be invited, what you want to wear, who should speak, what music should be played, and who should be pallbearers, among other information. Making these decisions ahead of time can not only let everyone know what your wishes are, it can also help your family members during their time of grief.
It may be tempting to include this information in your will, but a will may not be opened until long after the funeral is over. A will is best used for explaining how to distribute your property, not for funeral instructions. You can write your funeral and burial directions in a separate document or you may put your wishes in your health care directive. Whatever you do, make sure your family knows where to find the information.
If you don't make your wishes known, the responsibility for determining your funeral and burial rests with your loved ones. If you are married, your spouse is usually in charge of making the decisions. If you are not married, the responsibility will likely go to your children, parents, or next of kin. Disputes could arise between family members over what you would have wanted.
It is possible to make funeral arrangements in advance with a funeral home. But be wary of pre-paid funeral plans. You can lose money when pre-need funeral funds are misspent or misappropriated. A funeral provider could mishandle, mismanage or embezzle the funds. Some go out of business before the need for the pre-paid funeral arises. Others sell policies that are virtually worthless. For more on the dangers of pre-paid plans, click here.
For help with making your funeral wishes known, you can contact our law firm at (215) 706-0200 for a consultation. The book Death for Beginners might be helpful and includes worksheets that provide a clear road map for loved ones to follow.
Wednesday, June 11, 2014
Read the recent article in The Legal Intelligencer about do-it-yourself planning. Law firms are increasingly facing competition from online services that offer do-it-yourself wills and estate plans. However, as Jeremy and other attorneys point out, you are doing yourself and family a disservice by using these services. What really matters is the consultation to ensure that your estate plan is accurate and reflects your true wishes and goals.
Read the article here.
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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