Wills, Trusts & Estate Planning

Estate Planning

Many people think the term “estate planning” applies only to very wealthy people. Nothing is further from the truth. An “estate” is simply what you own. If you own property, you need to plan ahead in order to make sure the desired people or charities inherit your property after your death.

If you die without planning your estate, your home, money and other property will be distributed to various relatives, sometimes distant relatives, according to a rigid formula fixed by law known as “intestacy law.” This law applies to every person who dies without a will and does not consider special needs of any individual or family.

Without a will, your property may be inherited by people you do not want to share in your estate. Without a will, individuals in control of your estate may not be the people you prefer and they may not even cooperate with each other. If you have no will, the Commonwealth of Pennsylvania essentially makes a will for you, according to the terms of the intestate law, which controls the distribution of the shares of your estate.

The existence of a well-considered estate plan, most importantly a will, can help avoid disputes among your heirs and will give you the peace of mind that comes with knowing that your final wishes will be carried out.

The Will

A will is an important legal document and the cornerstone of most estate plans. In a will, you direct how your property is to be distributed and you also name a personal representative to administer your estate. The personal representative named in a will is commonly referred to as the “executor.” An executor collects the estate assets, pays the estate debts and makes distributions to the beneficiaries you have designated in your will.

Some estate planning attorneys believe it is generally advisable to nominate one executor and an alternate in your will rather than naming two individuals to serve together as co-executors. Co-executors sometimes have difficulty arriving at mutually agreeable decisions or getting paperwork signed in a timely manner. These problems can sometimes delay the estate administration. On the other hand, some parents feel strongly that their children should work together and name them to act jointly.

If you already have a will, take it out and re-read it. Do you understand what it says? Do you agree now with the arrangements you made earlier? Update your will if circumstances have changed. Marriage, death, divorce, birth, asset growth, moving to a different state or a change in estate tax laws are events that may trigger the need for you to revise your will. A good rule-of-thumb is to review your will at least once every five years.

Keep your original will in a secure place such as a fire-proof box, a safe deposit box at your bank or with your attorney. If your lawyer is holding your will, ask whether it is being held in a fire-proof filing cabinet or other protected location.

If you are afraid that somebody might tamper with or destroy your will if they were to read it, leave it with your lawyer or place it in a safe deposit box where its contents will be kept private. In Pennsylvania, access to a safe deposit box is frozen upon the owner’s death. However, access to the box is allowed for the limited purposes of retrieving the decedent’s will and cemetery deed. Under Pennsylvania law, the safe deposit box is not frozen, i.e. sealed, if the co-owner of the box is the surviving spouse.

You have the right to request your original estate planning documents from your attorney at any time. The documents belong to you, not your lawyer. You also have the right to revoke your will and write a new one at any time you choose, providing you have the mental capacity to do so.

Trusts

Your attorney might recommend a “trust” in larger estates, estates with young beneficiaries and in situations with special circumstances. What is a trust? Many estate planners explain that a trust is like a box where you can place your property. A person places money in the box, the trust, and designates a manager, known as the “trustee,” to safeguard the contents of the box. The trustee then distributes trust assets to the beneficiaries you select, in such amounts and at such times as you direct. Of course the money is not really put in a box. The “box” is usually a brokerage account or a bank account where the funds are invested by your trustee.

For example, a grandparent may wish to set aside money for a disabled grandchild, but may be afraid to do so for fear of disqualifying that grandchild from certain government benefits. A grandparent could place the money in a carefully drafted trust, designate a trustee to invest and safeguard the funds and enable the disabled child to benefit from the trust while maintaining eligibility for government benefits such as Medicaid or Supplemental Security Income (SSI) payments. This trust is sometimes called a special needs trust, or supplemental needs trust.

There are many other types of trusts. Credit shelter trusts, also called “by-pass trusts,” are commonly used to help protect large estates from federal estate taxes. Trusts can also be used to set aside money for designated purposes, such as for education. Discretionary trusts and “income only” trusts can be written to protect spendthrift beneficiaries from squandering their inheritance through wasteful spending habits.

Trusts usually cost more money to create because they are more complicated and should be customized for each particular situation. In addition to the costs of drafting a trust, there are often continuing attorneys’ fees and trustees’ commissions over the years as a trust is administered. Many trusts require the filing of fiduciary income tax returns. Accordingly, an accountant’s services are often needed to help prepare and file these tax returns. You need to consider the ongoing administrative costs as you decide whether it makes sense to create a trust.