An effective Estate Plan: (1) protects your assets (and you) in the event that you are alive but unable to handle your financial affairs for yourself, or make or communicate medical decisions; and (2) provides for the disposition of your assets upon your death. A typical estate plan consists of a Will, Durable General Power of Attorney and Living Will/Healthcare Power of Attorney. Trusts that you establish during your lifetime (inter vivos trusts), plus beneficiary designations for property that has its own beneficiary form, like life insurance policies, IRA’s, 401(K)’s, and annuities often also contribute to an effective Estate Plan.
Your Will governs what happens to your individually owned assets when you die. In your Will, you can also create certain trusts, established when you die, to protect assets when you are gone. Wills with trusts established at death are typically used to avoid unnecessary Federal Estate taxation, to prevent large amounts of assets from being inherited by young children in a lump sum, or to provide for individuals with special needs who may require additional protections. You may also name a Guardian to care for your minor children through a Will.
Durable General Power of Attorney (Durable Genera POA)
A Durable General POA names one or more Agents to act on your behalf with respect to financial matters while you are still living but no longer able to handle your own financial matters.
Living Will/Healthcare Power of Attorney (Living Will/Healthcare POA)
A Healthcare POA names one or more Agents to act on your behalf with respect to medical issues while you are still alive but no longer able to make or communicate such decisions for yourself. The Living Will portion of this document expresses your wishes as to life sustaining treatment in the event that doctors determine that a condition is terminal.
Why do I need an Estate Plan?
1. To provide for your Heirs.
For young and old, this is probably the major reason why estate planning is necessary. If you have young children, although it is unpleasant and difficult to imagine that you might not be around to provide for them while they are still young, having a plan in place to deal with such a situation is important. A Will which creates a trust at your death can help ensure that your children’s inheritance will be preserved. In addition, you can name a Guardian for your children in your Will. Your named Guardian(s) will care for both your children’s personal and financial well-being.
Even if your children are adults, they may have special needs that require extra care and planning. A Will which creates a trust at your death can help meet those needs.
Even if you do not have children, it is important to remember that if you have not written a Will, the state of Pennsylvania has written one for you. Without a Will, Pennsylvania’s intestacy statute will distribute your assets to family members, some of whom may be very remote. A Will is necessary to make sure those whom you wish to benefit from your assets actually do receive them.
2. To control or avoid taxation.
Estate planning becomes absolutely essential when your taxable estate becomes subject to Federal Estate Tax. Under the current law, in 2009, only Estates in excess of $3,500,000.00 will be subject to the Federal Estate Tax. In 2010, no Estates will be subject to the Tax. However, in 2011 all taxable Estates in excess of $1,000,000.00 will be taxed. It is likely that this law will be changed in 2009. What the Federal Estate Tax exemption amount is going to be in the future is extremely uncertain. Keep in mind, too, that assets such as life insurance death policy proceeds must be included in determining whether your Estate will be subject to Federal Estate Tax. Therefore, many people who do not think they need Estate Planning for taxes actually do, especially given the uncertainty in the law.
Even if your Estate is not potentially subject to the Federal Estate Tax, if you die domiciled in Pennsylvania, your assets will be subject to Pennsylvania Inheritance Tax and the rate of Tax differs based on who receives an interest in your assets, both those which pass by Will and those that do not such as retirement assets, (with the exception of life insurance proceeds). The current rate for the Pennsylvania Inheritance Tax is 0% for assets passing to spouses; 4.5% for direct descendants (children and grandchildren), 12% for siblings and 15% for any other heirs. i.e., nieces and nephews, friends, etc. (except charities or certain other tax exempt organizations).
Finally, in your Will you may control who actually pays any tax that may be due upon your death. You may direct that your Estate should pay the tax, and then distribute the balance of the Estate residue to your beneficiaries, or, you may want the beneficiaries themselves to be responsible for the tax so that certain individuals are not harmed by a reduction in the Estate assets.
3. A Durable General POA and a Living Will/ Healthcare POA help you when you are still alive.
The benefit of the Healthcare POA is that you are able to specify who makes medical decisions on your behalf. The Living Will statement included in this document helps remove any doubt regarding the amount and type of medical treatment you want at the end of your life. If your family and doctor know that you have a Living Will, your wishes should be respected and being able to rely on the wishes you specified in your Living Will helps your family in a very stressful time.
The benefit if the Durable General POA is that you are able to specify who makes financial decisions on your behalf. If, during your lifetime, you become unable to manage your own financial affairs (pay bills, sell or purchase assets, handle investments, etc.), the Durable General POA allows your named Agent to handle such matters. This can be very important, particularly if the incapacity is long term, because an effective Durable General POA will frequently make it unnecessary to have a guardian of the estate appointed through the court, which tends to be an expensive and uneasy process.
Is it expensive to have an Estate Plan prepared?
Compared to the benefits you will receive if you have a proper Plan in place, no. This is especially the case for people who may be subject to Federal Estate Tax, because without proper planning, a large part of your assets could end up being paid to the state and Federal governments, leaving your surviving spouse and family with far less than they may need when you are gone.
For individuals or families who do not need complicated Estate Plans, a Will (with or without trusts), a Durable General POA and a Healthcare POA/Living Will may be obtained relatively quickly and inexpensively. Even if you have a complicated situation, it is often possible to estimate a fee range before the engagement begins.
Why do I need a lawyer to draft my documents if there are plenty of forms available from other sources?
The forms you will find on-line or in a book may not be Pennsylvania specific and there is no guarantee that they will satisfy all of the Pennsylvania requirements for execution of a valid document. More importantly, only by sitting down with and talking to an attorney experienced in estate planning can ensure that your specific, and sometimes specialized, needs will be addressed. In addition, you may have questions related to your Estate Planning that cannot be adequately answered by any book, such as the effect of jointly held property on the terms of a will or how to correctly designate beneficiaries on life insurance or retirement accounts. You may also need specialized planning beyond what can be offered through a form document and only an attorney can help you determine those needs. There are many special situations that can be addressed in a manner that may be beneficial to you but which are not addressed by just filling in forms.