January marks the beginning of a new year. It’s an excellent time for people in Lancaster County to start tackling that list of essential tasks that they have been putting off. And some of the most critical things listed should be writing a Will, assigning Power of Attorney, and creating or updating your estate plan.
While many online programs help people write a Will, creating an estate plan can be more complicated. It’s easy to get overwhelmed, so it might help break down this job into ten smaller parts.
Create a Last Will and Testament, or Update an Existing Will
Wills are documents that help make your passing easier for the ones you love. Without a Will, the state reassigns your assets to your closest relatives. The Pennsylvania laws of intestate secession vary depending on your marital status, but your spouse, child, parents, siblings, aunts or uncles, cousins, or even distant relatives could inherit your assets. Families who find they must divide estates in this way often experience conflict, confusion, and even anger.
To make things more complicated, the way a Last Will and Testament and is structured may affect Pennsylvania state and federal taxes. Without proper planning, an heir may discover that he or she has to sell assets they inherited to cover taxes.
While some people believe that estate plans only apply when lots of money or land is involved, “estate” is just a legal term. It does not factor in size. Instead, the term refers to all of an individuals’ assets, including investments, bank accounts, property, retirement accounts, and personal possessions such as vehicles, furniture, pets, jewelry, artwork, and collectibles.
Estate planning also includes dependents and associated responsibilities. For people with dependent children or adults, Wills are a way to assign future guardianship. Without established guardianship arrangements in a Will, a Pennsylvania court may appoint guardians. If guardianship is contested, children may be placed in foster care until issues are resolved.
If friends or relatives are dependent upon the deceased for money or shelter, the Will should include instructions for others to continue that care after the caregiver has passed. The Will is an instrument for transferring the responsibilities of the decedent to others of the decedent’s own choosing.
Once a Will is created, it is a good idea to revisit it once a year. Estate documents should be updated when major life events happen, including the addition of a child, divorce, marriage, death of a spouse, starting a business, selling a business, acquiring significant assets (such as a home, boat, or jewelry), or disposing of major assets.
Discuss Guardianship and Pets With Your Heirs
Children, dependent adults, and pets need guardians. Start the process by making a list of relatives or friends to name as the guardian for dependents and speak with them before including them in a Will. It’s important that these potential guardians feel emotionally, physically, and financially up to the task.
Remember that situations change over the years. A designated guardian may move, divorce, experience a dramatic decline in income, or be battling a terminal illness at the time of your passing. That’s why it may be prudent to name at least one secondary guardian to step in if the primary guardian cannot fulfill their duties.
People with pets should also name a guardian to care for them after their owner passes. Naming a pet’s guardian in a Will makes it easier for the executor to quickly relocate pets. Contact an estate planning lawyer at Going and Plank to help you get started.
Provide Care for Special Needs Dependents
Dependents with special needs may require additional consideration. Caregivers will want to seek out a guardian who will care for them as well as they have. Consider a person’s ability to accommodate adult dependent(s) in their home.
It’s wise to choose a guardian close to the appropriate facilities, schools, or resources needed to provide care for the dependent. If selecting a nearby guardian isn’t an option, choose one in an area with similar resources and facilities.
While many want to bequeath money and assets to a dependent with special needs, in some cases, that inheritance may disqualify them from receiving aid. In those instances, setting up a Special Needs Trust allows the deceased to provide financial support while the special needs dependent continues to receive the assistance they require.
Review Ownership Structures
Some people use co-ownership, or joint ownership with the right of survival on assets as a way to side avoid estate timing and taxation issues. In a co-ownership with the right of survival, the survivor becomes full owner of the asset upon the death of the co-owner. A jointly owned asset with the right of survivorship passes immediately to the surviving owner and is not tied up in the probate of the estate.
However, while this approach solves some issues, it also presents some risks. For example, if a mother makes her married son a co-owner, his wife would have a right to half of the son’s share, or one-quarter of the home’s value, even if his mother did not intend for her to have it. Another consideration before putting an asset in a joint ownership with right of survivorship is whether the person you would put on that asset has credit issues. Creditors of a co-owner could attach or make a claim to the asset.
Fluctuating value is another challenge. For instance, if a parent co-owns a primary home with one son and co-owns a vacation cottage with the other, over time one residence may decrease in value while the other skyrockets. At the time of death, one property may be worth twice as much as the other, meaning one son inherits much greater value than the other, even though this is not what the parent intended.
Lastly, co-ownership may present tax issues in Pennsylvania – an owner may be subject to transfer, income and/or gift tax upon becoming sole owner of a jointly held asset.
Jointly owned assets do not necessarily resolve the transfer of asset issues. Each situation must be reviewed carefully before changing the ownership of any asset. Schedule a time to talk to our estate planning attorney to discuss your situation.
Review Retirement Accounts and Beneficiaries
Years, even decades, can pass between the writing of the Will and its administration after death. Personal and financial situations may change dramatically in that timeframe. A person may divorce, remarry, gain beloved new family and friends, or lose friends and family along the way.
That’s why it is important to periodically update a Will and review all the beneficiaries named in retirement accounts, life insurance, investment accounts, and other pensions or financial accounts. When a person experiences any significant life changes, such as marriage, divorce, the birth of a child, or a spouse’s death, they must review beneficiary designations.
Contact our estate planning attorney to set up your Will and review beneficiary designations.
Assign Secondary Beneficiaries
Years, even decades, can pass between the writing of the Will and its administration after your death. In that interim, your beneficiaries, young or old, may pass on. To ensure that your desires for beneficiary inheritance are implemented, be sure to cover contingency scenarios and identify secondary beneficiaries.
A secondary or contingent beneficiary will inherit only if certain conditions are met, such as the primary beneficiary’s death, if the primary beneficiary chooses to disown the assets, or refuses the inheritance.
Most tax-deferred accounts such as an employer-sponsored 401(k), insurance policy, 529 college savings plan, health savings account (HSA), or IRA give the account-owner the option of naming primary and secondary beneficiaries. Check with a qualified estate planning lawyer to ensure your will takes a beneficiary’s death into account.
Consider Creating a Trust
Trusts are useful tools in estate planning. Depending on the type of trust created, a trust can reduce estate taxes, create trustees to manage the distribution of inheritance, provide care for minors, or provide for special needs dependents without jeopardizing eligibility for assistance programs.
Some trusts are created to avoid taxes. They can be very advantageous if assets qualify the estate to incur federal estate tax and contain assets over the federal estate tax exemption which is $11.18 million per individual decedent in 2020. Estates with lower values may want to consider the expense of creating trusts carefully. Most Pennsylvania estates do not qualify for these kinds of trusts, and it is not necessary to incur the expenses of creating them.
Testamentary trusts designate a person or firm, known as a trustee, to distribute the inheritance under the terms specified in the Will. For example, when minors are named beneficiaries, a trustee is responsible for managing the inheritance until the minor reaches 18 or any later designated age. Typically, the trustee is responsible for investing the inheritance and using the money for the minor’s needs.
Lump-sum inheritances sometimes disqualify special needs individuals from receiving the assistance they require. A Special Needs Trust allows the decedant to provide for other essential needs without jeopardizing the ability for the beneficiary to receive needed care and assistance.
Talk to an Experienced Estate Planning Attorney
Planning a Will, Trust, Power of Attorney, or end-of-life considerations shouldn’t be a solitary activity. For more than 60 years, the Law Offices of Going and Plank have helped Lancaster County families and individuals develop estate plans. Contact Going and Plank for caring, compassionate guidance for individuals and families. We provide a low-stress environment and experienced legal experts to help you develop an estate plan to address inheritances, financial and health care issues
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