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Why You Need a Will
Why do you need Will? Perhaps more to the point -
Why do you need Estate Planning?
Estate planning is not only for the rich It is for anyone •
Who has a family or
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Cares about who inherits their property – no matter what its value – when they die
In order to fully understand why you may need an estate plan, you must first understand what estate planning really is…
A concise definition of Estate Planning is the process of addressing the following concerns: 1. Taking care of your family; 2. Insuring the proper disposition of your assets; 3. Reducing the cost of dying; and 4. Addressing “living probate”.
Taking Care of Your Family One objective of estate planning is to ensure that your family is adequately provided for in the event of the death of one or both spouses. The loss of one or more working parents will without adequate planning create a financial crisis for most families - even the death of a non-working parent can place significant additional financial burdens on the family.
Taking Care of Your Family This a concern is best answered and addressed by a financial planner and is normally beyond the scope of the attorney’s normal area of expertise But it is something you should address… Sometimes the answer is simply having adequate life insurance
The Proper Disposition of Your Assets • Fundamentally, an estate plan should fulfill your wishes as to how you want to dispose of your property at death. • This includes not only how property is distributed under the Last Will… …but also, the disposition of property not controlled by the Will, such as life insurance, IRAs, qualified retirement plans, and annuities.
The Proper Disposition of Your Assets • Just as important as to who is to inherit your property is the question of how your heirs inherit that property. • Some people are not equipped to receive money or property outright because they are minors or because of physical or mental disability or simply because of their inability to handle money… so for them, receiving the property in trust rather than outright may be appropriate.
The Cost of Dying
An estate plan should also be designed to reduce the cost of dying such as: • Death taxes (i.e., the federal estate tax and the Pennsylvania Inheritance Tax) and • Probate costs… …to the lowest possible level.
Living Probate And finally, the estate plan should deal with: “What happens if you are unable to handle your affairs during your lifetime because of a mental or physical disability?” This is referred to as "Living Probate"
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The Disposition of Your Assets
Probate v. NonProbate It should be pointed out that a Will does not always determine the disposition of all or even most of the assets of an estate. A Will only controls the disposition of what are termed “probate assets.”
Probate v. NonProbate “Probate assets” can be generally defined as the property that an individual owns solely in their own name alone… …a bank account or investment titled in your name alone, for example…
Probate v. NonProbate Assets which are disposed of through the designation of a beneficiary such as: • IRAs, 401ks, • Qualified Retirement plans • Annuities • Life Insurance …are not probate assets and are not controlled by your Will
Probate v. NonProbate These assets are termed “non-probate property.” Non-probate property also includes Joint Property … … for example, property you own with your wife or husband jointly with the right of survivorship
What’s Your Plan? If your estate planning is done properly it should address the disposition of both your probate and non-probate property in a manner consistent with your wishes
What’s Your Plan? Because estate planning is essentially about the disposition of your property upon your death, …you must first decide how you wish your property to be divided among your heirs.
What’s Your Plan? For a married couple, the plan is often: > Upon the death of the first of the married couple to die the entire estate passes to the surviving spouse, and > Upon the death of the survivor in equal shares to the children
This may be your plan, but you should also consider the following questions: • Is there any reason to treat children in a manner other than equally? • Is there anyone you wish to benefit from your estate beside your immediate family?
Question for You
• What happens if one of the designated heirs does not survive you?
• Are there any of your heirs who have special needs or have other issues which would prevent them from inheriting property outright?
Question for You
• Who should inherit your property if none of your heirs survives you?
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Taking Care of Minor Children
Taking Care of Minor Children Having children adds a new and extremely important dimension to estate planning. Your estate plan must adequately provide for minor children (those under 18) both in terms of: ◦ Who going to be responsible for their care, and ◦ How should be property be left to them.
Guardian of the Person
Choosing a Guardian to care for your minor children and the property you leave them is one of the most important estate planning decisions you will make. If both you and your spouse should die, your children will have to be placed with a new family. This can be an extremely disruptive process for the children, even if the new family are grandparents or other relatives.
Guardian of the Person
If your Will does not appoint a Guardian for your children, the Court will appoint choose a Guardian for them… …probably your closest living relative - maybe the last person you would choose... This can be avoided if you appoint the Guardian that you choose in your Will
Guardians There are actually two kinds of guardians for minors : ◦ Guardians of the Property ◦ Guardians of the Person
The Guardian of the Property manages the money or assets of a minor child.
Guardian of the Property
Guardian of the Property
Outright transfer of property to minors is prohibited by Pennsylvania law. If the amount of the transfer is under $25,000, the parent of the child must hold the property. If the amount of the property is over $25,000, a guardian of the property must be appointed.
Guardian of the Person
A Guardian of the Person, however, is the person who becomes a substitute parent for a child should that child's actual parents die or otherwise unable to take care of them. The Guardian of the Person once appointed serves as the child’s parent in your place until your children each reach age 18.
Choosing a Guardian
Here are some things you should consider in choosing the guardian for your children: Matching Attributes Multiple Guardians Shared Values Financial Stability Longevity
Multiple Guardians
When selecting a guardian, be aware of the two types of Guardianship, and choose people with the skills or attributes that best suit those roles. In other words, your accountant brother-in-law may be a terrific choice as guardian of the children's estate, … …but his workaholic nature may make him a poor choice for guardian of the person.
Shared Values
Choose someone you know well who shares your goals, values, and parenting style, whether you are selecting a guardian of the person or estate.
Financial Stability
Make sure that your estate passes to the children in a way which ensures those assets are protected and used in a way which will maintain your children until they are self-sufficient. It is our recommendation that your estate plan include a minor’s trust.
Longevity
Choose someone young enough to see their responsibilities through to your child's adulthood, and in good enough health to withstand the challenges of childrearing.
Choose Who You Want
Don't be influenced by others' wishes as to whom you should select to be your child's guardian. Unless the person you've selected opposes your choice, this decision belongs to the parents alone.
Question for You
• Who is your first choice to serve as you’re the Guardian of Your Children? • If that person is unable to serve- who is your second choice? • If you have selected a married couple – who would you choose if they became divorced or separated?
The Way the Minor Inherits
Another important question is the way a minor inherits property – whether probate or non-probate property
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The Way Minor Children Inherit
The Way a Minor Inherits In Pennsylvania, a child under 18 cannot inherit property valued in excess of $25,000, without a formal guardian of the property being appointed by the court.
The Way a Minor Inherits Note: The guardian of the property may or may not be the same person who is appointed guardian of the person … They are two separate jobs with two separate different sets of responsibility … One is appointed to take care of the minor’s person and one to take care of the minor’s property.
Alternatives There are several alternatives to having the court appoint a guardian of the property. Guardian of the Property - First, you may appoint a guardian of the minor’s property – that is you may also appoint a guardian of the property left to a Minor under your Will. Custodianship - Alternatively, you may appoint a Custodian of the property left to a Minor as provided under the Uniform Gifts to Minors Act, and Trust - Finally you may could place the property in trust.
Guardianship of the Property There are a number of reasons why a guardianship is not recommended: First, a sole surviving parent cannot be the person with sole responsibility for management of property left to a minor. Second, expenditure of the funds by the Guardian requires court approval, and Finally, a guardianship ends at age 18.
Custodianship
One alternative is a Custodianship under the Uniform Transfers to Minors Act. Generally, a custodian under the UTMA will enjoy greater freedom of action than someone who is appointed to a Guardianship. And the Custodianship terminates at age 21, giving additional time during which, the property may be controlled.
A Trust is the recommended alternative to both the Guardianship and the Custodianship for several reasons. First a Trust maybe designed specifically to meet the needs of the individuals involved both in terms of how the funds are expended and how they are invested during the trust term. Secondly, a Trust can continue until whatever age that you feel appropriate even far into adulthood.
Trust
What is a Trust? A Trust is simply a way of holding property for the benefit of someone The Trustee is the person who holds and manages the trust property for the benefit of the Trust Beneficiary
The Duty of the Trustee The Trustee is required always to act in a way which protects the Trust Beneficiary’s interest in the Trust This is sometimes termed the “fiduciary duty”
Why Set Up a Trust? Why would anyone want to set up and fund a trust? The primary reason is that you're free to set the terms of who gets what and when and under what circumstances. Moreover, the trustee can manage the assets held by the trust for your beneficiaries under the terms you provide in the trust.
The Minor’s Trust A typical Minor’s Trust is established under the terms of your Will The Trust might provide that the trust property be held for the benefit of the minor until specific age, such as 25 With the Trust property available for to provide for their “health, education, support and maintenance” before that age.
Taking Care of Children with Special Needs If you have a child who has special needs and may be eligible to receive public benefits such as SSI or public assistance special care should be taken to ensure they do not lose these benefits, and… …the adoption of a so-called “special needs trust” may be appropriate
Who Should be the Trustee? The best choice for the Trustee of a Minor’s Trust is generally a family member The person you select doesn’t have to be a lawyer or financial adviser They should just be someone who is responsible and would make the same financial decisions you would make for your children
• If you have Minor Children, do you wish the create a Minor’s Trust in your Will?
Question for You
• Would you prefer to Appoint a Guardian or Custodian Under the Uniform Transfers to Minor’s Act?
• If you wish to create a Minor’s Trust who is your first choice to serve as the Trustee of your Minor’s Trust? • If that person is unable to serve- who is your second choice?
Question for You
• Do you have a child with special needs?
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Reducing the Cost of Dying
There are three principle costs which may impact your estate when you die: – The Federal Estate Tax – The Pennsylvania Inheritance Tax – Probate Expenses
The Cost of Dying
Death Taxes – The Federal Estate Tax The Federal Estate Tax is a tax based on the value of your entire estate – probate and non-probate – at the time of death The tax rate is 40% but only the excess of the estate over $11,700,000 - $23,400,000 if you’re married As a result, the federal estate tax only impacts a small percentage of estates, however for those that are subject to the federal estate tax - good estate planning can often significantly reduce the impact of the Federal Estate Tax
The Pennsylvania Inheritance Tax is a tax upon the privilege of inheriting property. Generally, all property owned by a decedent at death, which passes by will, intestacy or by operation of law, is subject to the inheritance tax.
Death Taxes – The Pennsylvania Inheritance Tax
Valuation is based on the fair market value as of the decedent’s date of death.
Death Taxes – The Pennsylvania Inheritance Tax The rate of tax depends on the relationship of the decedent to the person receiving a taxable transfer from the estate: –
Property passing to a surviving spouse, and charities is not subject to the Inheritance Tax
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Property passing to children and grandchildren is taxed at a rate of 4.5%, to siblings 12%, and all others 15%
Probate fees and the cost of administering your estate include – Funeral expenses –
Attorneys and Executors fees
–
Debts of the decedent
Often these expenses can be significantly reduced by having a well-organized estate plan
Probate Fees
Question for You
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Is your estate at a level that federal estate tax is a concern?
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If so - we can recommend tax planning strategies to reduce or eliminate the impact of that tax
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Is your estate properly organized? •
Do you have current estate planning documents?
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Have they been reviewed in the last five years?
•
Does your executor know where to locate your
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Living Probate
Living Probate Finally, the estate plan should address what happens if you are unable to handle your own financial affairs due to mental or physical disability. The estate plan should also address what happens if you are not able to participate in decisions regarding your physical well-being.
Living Probate This process is sometimes called “Living Probate”. The law provides that in either of the above circumstances, absent planning by the client, a legal guardian must be appointed.
Living Probate The guardian is chosen not by you but by an Orphan’s Court judge The guardianship proceeding can be expensive and potentially embarrassing to those involved
It is easy to avoid Living Probate.
How to Avoid Living Probate
All you have to do is adopt : A Durable Power of Attorney and A Medical Power of Attorney.
How to Avoid Living Probate A Durable Power of Attorney is a document appointing individuals you select to handle your financial affairs if you cannot handle them for yourself because of mental or physical disability. A Medical Power of Attorney appoints the individuals that the you choose to handle your medical decisions if are unable to make for yourself.
How to Avoid Living Probate If you execute a properly drafted Durable Power of Attorney and Medical Power of Attorney, Living Probate is avoided and … …the people that you select will be in charge of your affairs
Question for You
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Do you have a current Financial Power of Attorney?
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Do you have a current Medical Power of Attorney?
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Who is your first choice to serve as your Agent under your Financial Power of Attorney?
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If that person is unable to servewho is your second choice?
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Who is your first choice to serve as your Agent under your Medical Power of Attorney?
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If that person is unable to servewho is your second choice?
Living Will A Living Will is an invaluable part of an Estate Plan. The Living Will directs that a person be allowed to die a natural death if they are incompetent and either in a terminable condition or state of permanent unconsciousness. Those who have lived through this situation with a relative or friend often appreciate the value of having a legally enforceable Living Will.
• Do you have a current Living Will?
Question for You
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Some Other Issues
Who Should be Your Executor? The Executor is the individual or individuals who will be responsible for settling the estate. This involves initially taking control of the estate assets, satisfying the decedent’s liabilities (including death taxes), and finally distributing the assets of the estate according to the terms of the will. The Executor also has a fiduciary responsibility to the heirs of the estate to properly maintain the estate assets during the period of administration. This may involve making sure real estate is properly maintained and insured and the assets of the estate are properly invested.
Who Should be Your Executor? A few thoughts on Executors… If children are appointed as successors in an order different from their age, you should provide an explanation to the older children why this decision was made. Remember the Will may be the last document that speaks from the parent to the children. Even adult children are sensitive to this type of deviation from what might be perceived by them as the proper order of things. Often a letter or a provision in the Will itself with will go far to soften the blow for a child who feels slighted.
Who Should be Your Executor?
Generally, it is a good idea to appoint individuals rather than banks and trust companies. This is not because institutional executors charge fees. As a rule, they provide a valuable service in administrating the estate, have the expertise and earn the fees that they are paid. The reason is that if the institution is not doing its job, it is difficult to remove them without court intervention unless they are negligent. On the other hand, an individual executor can hire the institution to perform the same administrative services it would perform as executor and easily fire the institution should it not perform its duties. There is no real problem with appointing a child who lives out of state as Executor. In this day and age of instantaneous communication, few problems created by distance cannot be addressed.
• Who is your first choice to serve as your Executor? • If that person is unable to serve- who is your second choice?
Question for You
You are now ready to begin your estate planning
Next Step
If you wish Gibson&Perkins to assist you in this process schedule an in-office visit in our Media Office located at 6th and Olive Streets by calling Theresa Citrenbaum, our estate planning coordinator at 610 565 1708 Ext 104, or email her at theresa@gibperk.com. The is no fee or obligation for this conference. If you decide to proceed all fees will be billed according to our fixed fee schedule. As an alternative, we can either schedule an online Zoom conference or a telephone conference without Zoom.