Commonly asked estate planning questions
1. Question: Do I need a will?
Answer: Almost everyone over 18 years of age should have a will. Intestate laws control if you do not have a will, meaning the state will make decisions for you after death. In many cases, this would provide an inheritance to someone that you did not wish to benefit from your estate.2. Question: Is estate planning just preparing a will?
Comprehensive and effective estate planning depends on your assets and your needs. Many assets, the disposition of which must be coordinated with your will and overall estate plan, are disposed of by either beneficiary designation or by operation of law and not your will. Examples of beneficiary designation disposition are pension and profit sharing plans, IRA’s, annuities, and life insurance. Assets held jointly, either by entireties (between married people), or joint tenant with rights of survivorship become the property of the surviving co-owner. Assets held as tenants in common are controlled by the will or, if no will, by intestate laws. Today, many individuals have significant assets which are controlled by beneficiary designation or by operation of law and are not “probate assets” which are disposed of pursuant to the will. If all of the assets are not coordinated with your estate plan, undesired results may occur.
3. Question: Why do I need a power of attorney?
Answer: Wills only control when you die. In today’s society, and with modern medical technology, it is possible to be disabled and live for a long time. Without a power of attorney, it is likely that a guardian would need to be appointed. This involves legal proceedings including a court appearance and the need for expert medical testimony. A properly drafted power of attorney eliminates the need, time and expense of a court proceeding which would come at a time which is very stressful for the family. Powers of attorney can be combined regular and healthcare powers of attorney or separate documents either with the same or different agents.
4. Question: I am one of three children and the only one to live locally. I take care of my mother’s financial affairs and need to sign her checks to pay bills. Should I set up a joint account with my mother to take care of these matters?
Answer: Usually, “no”. If a true joint account with rights of survivorship is established, you automatically become the owner at your mother’s death to the exclusion of your other siblings. What you probably intended to do was to be an agent under a power of attorney, which would allow you to handle her affairs and sign her checks without complicating her disposition provisions in her will. Furthermore, if you would unfortunately predecease your mother, she would have to pay inheritance taxes on a portion of what, in actuality, was her own money.
5. Question: Should I have a living trust?
Answer: It depends. First of all, regular living trusts do not save either income, inheritance or estate taxes. The need to probate will be avoided only if all assets are placed in the trust if such assets are of such a nature which would require probate to transfer under state law. Typically, you still need a will to cover those assets which are not placed in the trust. Avoidance of probate in a state like Pennsylvania is not as important as it might be in other states with higher probate costs. Living trusts, however, do have a proper place. If a person is disabled or unable to make a provision for a probable disability or because of advanced age, a trust can be a good vehicle to assemble all of the financial assets and have the trustee take care of the financial affairs of the individual. Also, it is possible that the use of such a trust would allow the assets to be transferred without public disclosure in the probate process.
Careful review of individual circumstances is necessary to determine whether a living trust would be appropriate and cost effective.
For high-net-worth individuals, irrevocable trusts, often funded by life insurance, can, if handled properly, remove the trust assets from the grantor’s estate for federal estate tax purposes