Developing Your Estate Plan

Why Do I Need A Will?

Your Aging Preparedness Kit would not be complete without an estate plan. Your estate plan is how you spell out what will happen to your assets when you die. There are all different ways property can pass after death - by will, trust, beneficiary, transfer on death and joint ownership. Each of these techniques has pros and cons that should be carefully considered in the context of your individual situation.

The first step in any plan is to complete a written inventory of your assets, their value, and how they are currently titled. This should include an inventory of all financial and retirement assets as well as all real estate holdings and insurance policies. In other words, you first have to determine what you own now.

The next step is to determine who you want to benefit from your assets upon your death. In other words, who do you love and in what proportion do you want each of those individuals to share in your wealth? Are there any minors or disabled individuals involved? How will public benefits be impacted? Who will manage the money for them?

The third step is figuring out how best to accomplish passing your estate to the people you want to benefit. Almost always a Will is necessary. We never can be entirely sure what we own when we die. A well drafted Will can facilitate the passage of such unknown assets. The Will can also identify where the funds will come from to pay Pennsylvania inheritance taxes.

Assets that pass under the Will are called “probate” assets. The word probate comes from the Latin based word meaning “to prove.” While in some states the probate process can be slow and cumbersome, in Pennsylvania it is not that difficult to accomplish. Probate is a time honored system for making sure property passes in accordance with the wishes expressed in the Will.

In the last several years, we have heard much about using techniques, such as “living trusts,” to avoid probate. Beware - avoiding probate does not mean you avoid any taxes. All assets transferred to a revocable living trust are fully inheritance taxable upon death. Such trusts also do not serve to protect any assets from the high costs of nursing home care, and in fact, can be detrimental to qualifying for Medicaid. These trusts are often sold by “trust mills” who hold free dinners to entice customers. The Attorney General of Pennsylvania has issued a consumer advisory warning about these trust mills and has commenced a lawsuit against several of these outfits. There are other methods to avoid probate than by the means of these trusts.

So what about taxes? There basically are two kinds of taxes that can result when you die. There is Federal Estate Tax which only applies if you estate is worth over $5.34 million. That is the so-called “death tax.” Pennsylvania’s inheritance tax applies to all assets, except life insurance proceeds. There is no tax when assets pass between husband and wife. When lineal descendants inherit, such as children, grandchildren or parents the tax is 4.5%. When siblings inherit the tax is 12% and when other people inherit it is 15%. With proper planning there are ways to minimize these taxes in appropriate situations.

Your Estate Plan is an important part of your legacy. This planning should be taken seriously and undertaken with appropriate professional advice and consultation.