Estate Planning and Administration

Picture of a Sunset over the ocean symbolizing planning for your sunset years

Estate planning, or the lack of it, affects everyone. That’s certainly fertile ground for misinformation and myths about death and the law. Here are the most common misunderstandings I encounter when meeting with new clients.

ESTATE PLANNING IS ONLY FOR THE RICH – Nothing can be further from the truth! While it is true that there are certain tools and techniques that applicable to large estates, everyone should have some basic estate documents. A will and power of attorney are a must! A Power of Attorney is a document in which you select someone, called an Agent, to manage your affairs in the event you are incapacitated. In today’s world of privacy concerns, this is especially important. This document enables your agent to pay bills, access records and make decisions on your behalf in the event you cannot do so yourself. The power of attorney expires upon your death. A Will is your final instructions following your death. In your will, you appoint someone, called an Executor, to wind up your affairs, pay your outstanding debts and make a distribution to your heirs according to your instructions.

PROBATE COSTS A LOT AND TAKES A LOT OF TIME – In Pennsylvania, probate is fairly simple, is generally not costly and is under normal circumstances not unusually lengthy. Probate involves your Executor being appointed, the directions in your Will being implemented, filing and paying taxes and making distribution to your heirs. Avoiding probate does not mean that you avoid taxes and costs. An attorney experienced in this area can guide you through this process.

A REVOCABLE OR LIVING TRUST AVOIDS TAXES AND PROBATE – In most cases, these types of trusts provide little, if any, advantage. Not only that, they can lead to unnecessary planning and administrative expenses. Perhaps the biggest myth with these documents is that they eliminate taxes. That is just simply not the case.

 

A REVOCABLE OR LIVING TRUST AVOIDS TAXES AND PROBATE – In most cases, these types of trusts provide little, if any, advantage. Not only that, they can lead to unnecessary planning and administrative expenses. Perhaps the biggest myth with these documents is that they eliminate taxes. That is just simply not the case.

WITHOUT A WILL, EVERYTHING GOES TO THE STATE – While it is true that without a will, your estate may be distributed in a way that you don’t want, it does not go entirely to the state. Dying without a will creates what is called an intestacy. The deceased’s affairs still need to be handled and distributed. Pennsylvania law dictates that the estate is distributed to varying combinations of the surviving spouse, children, parents, grandparents, aunts, uncles, nieces, nephews and grandchildren. If none of these exist, then the estate will pass to Pennsylvania.

I DON’T HAVE A WILL BECAUSE INHERITANCE TAXES WILL CLEAN OUT THE ESTATE – First of all, you don’t avoid inheritance taxes by not having a will. Taxes can result even if there is no will. Second, there is no inheritance tax rate at 100%. The tax is based on the relationship of your beneficiaries to you. For example, a spouse has a 0% tax and children have a 4.5% tax.

Navigating these waters can be overwhelming. Please give me a call if you need advice and counsel on wills, powers of attorney, living wills, trusts, estates or the probate process. I’d be glad to help!