By Angela M. Ward, Attorney
Creating a comprehensive Will isn’t always simple or straightforward. While online Wills have become more popular in recent years, they rarely provide counsel on the best ways to assign guardians, how to help heirs avoid estate taxes, or protect current ownership.
When Going and Plank helps create or revise a Last Will and Testament, we review many aspects of our client’s life, property, family structure, and charitable intentions. We also advise on the tax implications of Estate Planning decisions to ensure heirs benefit as intended.
Pennsylvanians who are creating a new Will or revising an existing document should consider the following.
Guardianship and Pets
Talking about death can be challenging, but it’s important to let young dependents know they are protected even if their parents pass on. As a caregiver, it’s a parent’s responsibility to find a suitable guardian and protect that decision with a sound legal document.
When working with clients, Going and Plank recommend making a list of relatives or friends that may be named as guardians. We also advise our client to have a discussion with proposed guardians before naming them in a Will. These conversations should lay out the commitment involved and be honest about the financial support that may be available. Parents should make sure candidates feel emotionally, physically, and financially up to the task.
We recommend our clients also name at least one secondary guardian in case the first choice is unable to fulfill their duties. After all, lives change over time. For example, a designated guardian may have moved, divorced, experienced a dramatic decline in income, or succumbed to a challenging long-term illness. Naming a secondary guardian ensures that dependents end up in a safe and secure home even if the first choice does not work out.
While most people consider children in a Will, fewer people make accommodations for pets. Shelters regularly take animals that were surrendered after their owners passed. By naming a guardian for pets, the deceased ensures they also will find a safe and loving home.
Care for Special Needs Dependents
Deciding on a guardian for a special needs child or adult requires careful consideration. It’s essential to consider a potential guardian’s ability to accommodate dependent(s) in their home. Will they have the emotional bandwidth and financial resources to care for a person with special needs? If the special needs dependent relies on specific facilities, schools, or resources, geography may also be a consideration. And don’t forget to consider the age of potential candidates. For example, naming grandparents as a guardian may seem like a good idea for young children, but as those grandparents age, it may be wise to replace them with younger guardians.
Some of our clients want to bequeath money and assets to a dependent with special needs, but if those dependents receive public assistance, an inheritance could disqualify them from receiving aid. In these cases, a special needs trust can be set up to allow a caregiver to pass on financial support while also ensuring that they continue to receive the assistance they require.
Ownership and Co-Ownership
Co-ownership is a strategy used to transfer assets outside of probate and be used to establish partial ownership of homes, properties, bank accounts, investments, art, jewelry, and vehicles. This can reduce probate fees in the estate and allow immediate transferal of ownership upon death. In some cases, this strategy can also minimize estate and inheritance taxes.
However, this strategy also presents risks. If a parent makes a son the co-owner of their home, that property becomes an immediate asset of the offspring and can be considered such in unrelated legal proceedings. For example, that partial ownership is considered community property in a divorce. If that child declared bankruptcy, their half of the home would be included as assets to potentially sell or liquidate. If the co-owner defaulted on a loan, their half of the house might be considered an asset to be seized.
In Pennsylvania, co-ownership also comes with its own set of tax issues. A shift in ownership results in gift or income taxes. While this strategy may be a wise choice in some circumstances, every situation is different, and each state has its own inheritance tax laws.
Retirement Accounts and Beneficiaries
Years, even decades, can pass between the creation of a Last Will and Testament and the administration of it after death. Personal and financial situations may change dramatically in the interim years. Divorces and remarriages may happen. New family members may arrive as others leave or pass on.
As life changes, we recommend our clients periodically update their Wills and review the beneficiaries named in retirement accounts, life insurance, investment accounts, and other pensions or financial accounts. Keep in mind that any significant life changes, such as marriage, divorce, the birth of a child, or the death of a spouse are reasons to review a beneficiary list on a Will and any retirement or investment accounts.
Notably, the beneficiary named on any retirement or tax-deferred accounts, such as an employer-sponsored 401(k), insurance policy, 529 college savings plan, health savings account (HSA), or IRA, will supersede designations in an Estate Plan. For example, if a Will states the current spouse inherits all assets, but the retirement account still names the previous spouse as the sole beneficiary, the previous spouse will inherit the retirement account assets.
Remember to also assign secondary beneficiaries in the Will and on retirement and other tax-deferred accounts. A secondary or contingent beneficiary inherits only if certain conditions are met, such as the death of the primary beneficiary, if the primary beneficiary chooses to disown the assets or refuses the inheritance, or if the primary beneficiary can’t be located.
Trusts can be valuable tools in Estate Planning. There are three basic types of trusts to consider.
(1) Trusts Established to Reduce Estate Taxes. Some trusts are created to avoid taxes. They can be very advantageous if the assets qualify the estate to incur federal estate tax (as of January 2022, any assets over $12.06 million). Estates with lower values may want to consider the expense of creating trusts carefully. Most Pennsylvania estates do not qualify for these trusts, and estates without trusts are usually easier and less expensive to administer.
(2) Testamentary Trusts. These types of trust allow the designation of a person or firm, known as a trustee, to be responsible for distributing the inheritance under the terms specified in the Last Will and Testament. For example, if minors (under the age of 18 for the purpose of inheritance) are named as beneficiaries in a Will, a trustee can be responsible for managing the legacy until the minor reaches the age of 18 or later as designated. It’s also possible to specify which powers the trustee has while the inheritance is in their or its custody. Typically, the trustee is responsible for investing the legacy and using the money for the minor’s needs. In effect, the trustee acts as a parent until any remaining principal can be given to the beneficiary once they reach 18 or any other age that is designated in the trust.
(3) A Special Needs Trust. This type of trust can be set up for persons with special needs so that they are not disqualified from receiving the assistance they may require by inheriting a lump sum.
There are many ways to make charitable donations, including establishing trusts, bequeathing property or assets, or even naming a charity as the beneficiary of a life insurance policy or retirement account. When our clients choose to leave a gift to a good cause, we include the official name of the charity, the address, and the registered charity number. It’s wise to talk to an experienced Estate Planning attorney about the options.
Name an Executor
When creating a Will, it’s wise to choose an executor. An executor manages the transfer of assets. They’ll make sure bills and taxes are paid and ensure the Will is appropriately executed. An executor also takes care of administrative tasks such as notifying banks, terminating credit cards and notifying the Social Security Administration and other organizations. If an asset needs to be sold, that person will manage the process and distribute assets to heirs.
Often the executor is a trusted individual. For a large or complicated estate, it’s common to assign executor duties to a law firm. Naming a trusted and responsible executor ensures that the estate is executed efficiently without incurring additional costs or delays.
The Role of an Experienced Estate Planning Attorney
With so much at stake, it’s wise to employ professional counsel when developing a Will. We help clients consider the implications of their decisions, share recent legal updates, minimize taxation, and create a more straightforward and less expensive plan to administrate. Contact us today so we can create a well-crafted, legally-binding Estate Plan that protects assets and carries out wishes before and after death.
Want to learn more about Wills, Power of Attorney, and Estate Planning? Check out these articles from Going and Plank.
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