By Angela M. Ward, Attorney
We tend not to think about estate planning until confronted with our own mortality. In fact, despite the huge impact an estate plan can have on our own lives before death and on the lives of loved ones after, many Americans still avoid the simple act of creating a last will and testament.
If there’s one positive thing that has come out of the global COVID-19 health scare, it’s a renewed interest in estate planning to ensure that we make our end-of-life wishes clear, to put a plan in place to care for our children and other loved ones, and to designate who will receive our hard-earned assets when we are gone.
Lancaster County residents who are sheltering in place, often with extra time on their hands, may consider taking the DIY route to create a will, and estate planning documents, but that comes with pitfalls. There are a number of requirements for creating a valid will and other estate planning documents in Pennsylvania. While having a small estate with few assets may make estate planning less complicated, it doesn’t make it any less important, so it is crucial that it is done correctly.
An experienced Lancaster lawyer can ensure that an estate plan safeguards assets, protects families, and carries out all final wishes. Even with smaller estates, there are many factors to consider. Here are some important things to take into account when crafting estate documents:
Minor Children and Special Needs Dependents Require a Plan for Guardianship and Care
For many people, a will or estate plan is simply a means to distribute assets after death, leaving loved ones with some financial security or treasured family heirlooms. For those who have minor dependents or a dependent with special needs, however, an estate plan is much more. It is a way to guarantee guardianship and a continuation of care until minors are old enough to inherit and handle their own assets and for the life of a special needs dependent or until he or she no longer has special needs.
One of the most important parts of the will is choosing a guardian with whom your children would live and who would handle their assets until they are at least eighteen years of age, or older. Minors under the age of eighteen (18) cannot inherit and so it is imperative that you designate who should inherit on their behalf, basically step into the shoes of a parent and distribute to them as needed until they turn eighteen or any such older age that you can designate by creating a trust for minors in your will.
An estate plan should also consider any government assistance the special needs dependent currently receives or may receive in the future. While Social Security and Medicare are available regardless of assets and income, both Medicare and Supplemental Security Income have income and asset limits for eligibility. Inheriting a large sum of money could disqualify a special needs beneficiary from receiving government assistance, and a special needs trust should be created for his or her inheritance.
Placing the inheritance in a trust means the money will not go directly to the dependent and will not affect their eligibility for other benefits. Instead, a trusted individual chosen as the trustee can use distribute the allowed amounts to the beneficiary and spend the funds on his or her behalf while continuing his or her eligibility for assistance. A Lancaster attorney experienced in wills and trusts can help craft a plan that protects existing benefits while providing financial security for the future.
Trusts Can Play Many Roles in Estate Planning
In addition to trusts designed specifically for those with special needs and minor beneficiaries, there are other trusts that can allow someone to control how their money is distributed after death. For instance, beneficiaries who are not good with money or have issues with creditors may not be responsible enough to inherit a large sum. It may be prudent to set up a testamentary trust that designates a trustee who will distribute inheritance in certain amounts over time under whatever terms you choose to protect the inheritance from being immediately squandered.
Estates with a small amount of assets may qualify for Pennsylvania’s simplified probate process, making a trust unnecessary. An experienced estate attorney can help determine if establishing a trust is a wise decision based on the size of the estate and the client’s unique situation.
Estate Planning Offer Various Opportunities to Donate to Charity
Some people want to leave a legacy to charity after their death, and an estate plan offers numerous options, including establishing charitable trusts or annuities, naming a charity as the beneficiary of a retirement account, gifting real estate or stock, or simply bequeathing a specific amount or percentage of the estate to a charity.
Some forms of charitable giving can reduce the amount of the estate and, consequently, the amount of estate or inheritance tax owed. When including a gift to charity in an estate plan, it’s important to be specific. Use the official name of the charity, the address, and the registered charity number. For those who would like their bequest used for a particular purpose, it is always a good idea to consult with the charity before drawing up the estate plan.
Make sure the written estate plan includes specific instructions for how the money should be used and whether the charity can have some flexibility if circumstances make that use of the funds impossible.
Regularly Review all Important Accounts and Beneficiaries
Most people realize the importance of naming beneficiaries in their last will and testament. It’s a way to ensure that the loved ones of their choice inherit their assets. What people may not realize is that a will does not override any beneficiary designations on important accounts such as investments, life insurance policies, and retirement accounts.
Many such accounts are established decades before death without any thought of updating beneficiaries as life changes. Unfortunately, that could mean that those assets end up going to an unintended beneficiary, like an ex-spouse, even if another loved one is named in the will. In cases where a designated beneficiary is no longer living, the asset may return to the estate, where it could be subject to the probate process.
It’s important to review all beneficiary designations annually or any time there is a significant life change, such as divorce, marriage, retirement, the birth of a child, or the death of a spouse. Also, include all accounts and beneficiary designations as part of the will.
Secondary Beneficiaries are an Important Contingency
Any good plan has a backup plan, and an estate plan is no different. Even with the most careful choice and review of beneficiaries, unexpected circumstances can throw a wrench into inheritance plans. What happens if the primary beneficiary dies at the same time as the person who made the will or before he can claim his inheritance? What if the primary beneficiary refuses the inheritance or simply can’t be located?
Naming secondary beneficiaries, or a succession of heirs, maps out a plan for distributing the assets of an estate under a variety of unforeseen circumstances. For the same reason, it is important to take advantage of any option to name secondary beneficiaries on retirement accounts and saving plans, 529 college savings plans, health savings accounts, IRAs, and other important accounts. Without a contingency plan, the estate could end up in probate court, which could take years to resolve, resulting in added expense, family squabbling, and difficult litigation.
Choose an Administrator for Your Will
Also known as an executor or personal representative, an administrator is a person who carries out the terms of the will according to the wishes of the deceased and who works with the estate counsel to ensure that the estate is appropriately administered. Part of an administrator’s responsibility includes representing the estate and signing any necessary documentation on behalf of the estate, opening an estate checking account, monitoring mail, and forwarding documentation of the decedent’s assets and debts to the attorney for appropriate handling.
Although people often choose a trusted friend or family member to serve as the executor of their will, someone with a more complicated estate may prefer to choose an experienced Lancaster lawyer for that role.
Review Assets and Ownership Structures
Titling assets with another person or persons may be a way to avoid inheritance taxes and the probate process, but it can have drawbacks. By making another person the co-owner of an asset, such as a home or vehicle, ownership of that asset will transfer directly to that other person at the time of death. While co-ownership may seem like a smart strategy to simplify the transfer of assets after death, it comes with risks and downfalls while the owner is still living. For example, if a parent decides to make their child the co-owner of their home, it may be a taxable gift and it will affect the child’s tax base in the property or asset.
A co-owned asset makes the asset vulnerable to each owners’ creditors. Should a co-owning child default on a loan or declare bankruptcy, the asset could be attached. Should the child divorce, the asset could be tied up in the settlement. Co-titling of assets should be carefully considered before changing any deed, title or legal document
Consider a Power of Attorney and Living Will
While a last will and testament carries out someone’s wishes after their death, a power of attorney and living will play an equally important role in carrying out one’s wishes while still alive and at end-of-life at a time when they may be unable to express those wishes themselves.
Also known as a health care directive, a living will is a legal document that specifies the medical treatments that someone is willing or not willing to accept as life-saving measures. It can also spell out preferences for other medical decisions, including pain management, banned medication, and organ donation.
A power of attorney identifies a person to act as your agent in the event that you are incapacitated and unable to take care of things for yourself. The document is called a durable, general power of attorney and is meant to cover anything one person could possibly do for another, be it medical, financial, care of minors or dependents, sale of assets or real estate, or anything. The agency can be exercised if you are in a coma and unable to do anything or simply arthritic and unable to sign checks. The agent should be someone that you trust implicitly. It is a good idea to name more than one person if you can, in case the agent is unable to perform when you have need.
A Lancaster attorney experienced in estate planning can explain the implications of each of these documents and help craft effective living will and power of attorney documents.
Ready to Get Started?
Even during this COVID-19 pandemic, the Law Offices of Going and Plank in downtown Lancaster are here to help. Although our physical offices are closed, we continue to work remotely during regular business hours to offer guidance on legal matters, including estate planning. Contact us today so we can create a well-crafted, legally-binding estate plan that protects your assets and carries out your wishes before and after death.
Want to learn more about wills, powers of attorney, living wills, and estate planning? Check out these blogs from Going and Plank.