Lancaster Law Blog : Lancaster PA Lawyer & Attorney : Russell Krafft & Gruber Law Firm : Pennsylvania : Lancaster's Legal Link

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I often hear people say they need to do "their will" when they refer to estate planning. Of course estate planning involves making a will, and most people see the will as the most important aspect of estate planning.  Choosing to establish a power of attorney, however, may be the most important decision that a person makes when creating their estate plan. The person who is giving the power of attorney is known as the principal.  The person to whom the power of attorney is given is referred to as the agent.  Although the law has many provisions to protect individuals from unscrupulous agents, the damage an untrustworthy agent can do may be difficult or impossible to fix, and it directly affects what is left when a person passes away that can be given to beneficiaries under their will.

The duties Pennsylvania's Probate, Estates and Fiduciaries Code places on an agent is to act as a fiduciary, or a person who must act with a high standard of care for the benefit of another, to the principal.  What this specifically means is that the agent must:

            1.         Act for the benefit of the principal;

            2.         Keep the agent's money and other assets separate from the principal's;

            3.         Exercise reasonable caution and prudence when acting on behalf of the principal; and

            4.         Keep accurate records and receipts of deposits, withdrawals and deposits.

Choosing the right agent who will dutifully follow the law is critically important because powers of attorney in Pennsylvania are generally durable, meaning they continue to have effect when the principal becomes incapacitated or disabled.  Therefore, your agent must act for your benefit in handling your financial affairs when you are no longer able.  Your agent will have full access to your bank accounts, stocks and other property. 

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Joint accounts are often meant to make the financial lives of the parties involved easier, such as in the case of marriage or in a caretaker situation. But what happens when one party dies? Does the money automatically belong to the remaining party? For example, let's say that a man dies and leaves $20,000 to his grandson in his will. Prior to the man's death, he added his son to the account to help him pay his bills. All of the cash he had was in that account. Who is legally entitled to the money - the son, who was on the account, or the beneficiary who received the gift from his will?

A few years ago my colleague Jon Gruber wrote an article about risks with joint accounts and the law that was enacted in Pennsylvania called the Multiple Parties Account Act (MPAA). This act sets forth the rights of parties to a joint account and applies when an individual dies owning an account jointly with another person.

Under the MPAA, the law presumes that a joint account owner intends his co-owner to take the money in the joint account upon his death, and this presumption is only overcome by clear and convincing evidence to the contrary.

According to the MPAA definition, an account is "a contract of deposit of funds between a depositor and a financial institution, and includes a checking account, saving account, certificate of deposit, share account and other like arrangements." A joint account is "an account payable on request to one or more of two or more parties whether or not mention is made of any right of survivorship." Therefore, unless the grandson initiates a lawsuit and comes up with clear and convincing evidence his grandfather did not intend his father to receive the money in the account upon his death, dad gets the money.

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Some say it takes a village to raise a child. Others say it takes a family. I recently became convinced that it takes a law firm to advise a pastor who is administering a church. While preparing to participate in a class on church administration as part of the ministerial formation requirement for students at the Lancaster Theological Seminary, I became convinced that any pastor in a parish setting needs a law firm on call. Anecdotes related by the adjunct professor, the Reverend Dr. Barbara Kershner Daniel, about her years in the parish ministry further illustrated the need.

Pastors face many decisions in the course of their work, from choosing a form of organization for their church to managing property matters. Depending upon denominational polity and local requirements, pastors face concerns in the buying, selling and mortgaging of real estate in addition to those which an individual or commercial enterprise would encounter. Real estate law and church law such as the United Methodist "trust clause" intersect.

Changes in worship style and advances in technology now necessitate that each pastor become familiar with licensing and permissions. The new intellectual property issues go far beyond the standard church performance exception to copyright law that for many years made such concerns unnecessary. Printing hymns in bulletins, using screen projections, not to mention sharing podcasts and streaming videos, now demand that each pastor become his or her own intellectual property lawyer.

Having some working knowledge of real estate and intellectual property law is hardly enough. In what can be a highly competitive fundraising environment, pastors must also understand the administration of estates and trusts. The more estate planning knowledge pastors have, the more effective they will be in raising funds for their churches.

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A few months ago I participated in a presentation in conjunction with Edward Jones called Key Life Decisions: Are You Prepared? I spoke about estate planning documents, such as wills, financial powers of attorney and living wills. One of the topics covered by another presenter was long-term care insurance. After the presentation it became clear to me that individuals might not be aware how long-term care can affect their estate planning wishes, and more importantly, cause their estate planning to not be carried out because assets are not left over after the cost of long-term care is paid.

Long-term care insurance policies were designed to deal with the significant costs associated with personal-care services, ranging from home care to skilled nursing facility care. Without long-term care insurance to pay for these services, most individuals spend all of their assets until they qualify for Medicaid. After Medicaid begins to cover the cost of long-term care, it generates a lien against the person's estate. Therefore, when someone passes away who was receiving long-term care paid for by Medicaid, the person's estate will receive a claim from the Department of Public Welfare equal to what was spent for the care. This means if there are any assets remaining in the estate, they will go to administering the estate and paying back the state for the care paid for by Medicaid. This is called Medicaid Estate Recovery.

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Estate planning is something most people know is important but it's often something that they put off for a later date, likely because it brings with it unpleasant thoughts about disability and death, but also because of misconceptions about what happens if you die without a will. Some people think that if they die without a will their property will automatically pass to their spouse, which is what many people want, and for that reason they don't think a will is necessary. Others think that if they don't have a will the state will take all of their property. Both of these scenarios are usually not true.

The reason a will is so important is that it allows you to do two very important things: (1) decide what happens to your property, and (2) decide who is in charge of managing your estate. 

What Happens to Your Property Without a Will?

If you don't have a will your property which is subject to probate will pass "intestate." Probate property does not include insurance policies, pensions or property owned as "joint tenants." If you die without a will, the law decides who gets your real and personal property rather than you.

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Christmas came a little early for many taxpayers in the enactment last week of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010(the "Act"), which extended the Bush tax cuts for two years. The Act also erased much of the uncertainty regarding the fate of the federal estate and gift taxes that we have written about.

Estates created in 2010 have not been subject to a federal estate tax. A gift tax with a rate of 35% applies to gifts made in 2010, but donors have a credit of one million dollars against the gift tax. Before the Act, in 2011 the estate tax was to be reenacted with a $1 million credit (which is shared with the credit against the gift tax and is commonly referred to as the "unified credit") and a maximum rate of 55%. The gift tax would have had the same maximum rate.   

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The writer of Ecclesiastes did not have tax law in mind when he said that there is a time to live and a time to die. However, because Congress did not act to extend the current federal estate tax law, the tax expires on December 31. The federal estate tax is scheduled to resurface in 2011 at a rate of 55% on estates valued at $1 million or higher.

During the time that the tax is not in effect, it will be replaced by a 15% capital gains tax on inherited property that is sold (subject to the taxpayer's right to use current values to save at least $1.3 million of assets from capital gains).

In short, there is great uncertainty regarding estate taxes which probably will not be resolved until some time next year. At that time, Congress could reauthorize the estate tax, possibly retroactive to January 1. Such a law, even though retroactive, could be constitutional.

On the other hand, perhaps this is the ideal time persons with a substantial estate should do the right thing for their families by reviewing their estate planning documents.

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Many of you may remember that back in 2001, Congress enacted legislation that was supposed to have repealed the Federal Estate Tax (the "FET"). However, anyone familiar with the Tax Reconciliation Act of 2001 (the "Act") knows differently.

In general, estates are only subject to FET if they exceed the Applicable Exclusion Amount (the "Exclusion"). Instead of permanently repealing the FET, the Act gradually increased the Exclusion from $1 million in 2002 to $3.5 million in 2009. In addition, the maximum FET rate was lowered from 50% to 45% over the same period. The Act is then scheduled to repeal the FET, but only for 2010. Starting in 2011, the FET reverts to pre-2001 levels with a $1 million Exclusion and a maximum rate of 55%.

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The financial tsunami that has passed over us since last September is bringing with it changes in tax laws. Existing law regarding the federal estate tax is surely one of those areas of the law that is bound to reflect the new conditions. Under the so-called Bush tax cuts, the federal estate tax was due to be phased out in 2010. Given the political and economic changes, that is not likely to happen. Accordingly, stay sensitive to the amount of the so-called equivalent exemption, or the amount of the credit that each of us is given against the federal estate tax. That equivalent exemption is currently $3.5 million and may be kept at that level or changed when Congress acts some time before December 31.

Another area to watch is that relating to health care powers of attorney and living wills. Currently, these documents are optional. People's reaction to the documents can vary depending upon their moral and ethical beliefs. Given the high cost of medical care, particularly in the last days of life, there is increasing discussion about some way of making Medicare coverage contingent upon a person having a Living Will or Advance Directive, or at least about giving a credit toward Medicare Part B premiums to people who have such documents.  Since the content of these advanced directives can vary somewhat from state to state, and involve a person's moral, ethical and religious beliefs about the difficult subject of end-of-life decision-making, such change is certain to be controversial.

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Joint bank accounts created after a decedent makes a will can leave executors to face problems when it comes time to administer the estate. Often these accounts beg the question, "What was the decedent's intention?" More specifically, did the decedent want to give the surviving party to the account ownership in the balance in the account or merely use of the account during life for convenience purposes? Under the Pennsylvania Multiple Parties Account Act, generally the surviving party or parties to the account own the balance after the decedent's death. If there is clear and convincing evidence, however, the executor could show that the account was only a convenience account and that the balance should be turned over to the executor for deposit in the estate rather than be paid to the surviving party to the account. 

Now, even that predictability has ended. In a case known as In Re Estate of Amelia J. Piet, the Pennsylvania Superior Court ruled that if a joint account is created after a Will has been executed, the surviving owner does not receive the account if registration of the account is contrary to the disposition of assets under the Will. Suddenly, there is less predictability as to the disposition of multiple party accounts.   At the moment, the only solution is to document one's intentions very carefully if a joint account is created after the execution of a Will. It's generally advisable to review your Will or Estate Plan every few years to make sure your assets are properly distributed. 

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Previously under Pennsylvania law, it was possible for a person to be a beneficiary of a trust and be unaware of the existence of the trust. This lack of information was particularly disturbing because protections for the beneficiaries generally depended upon the vigilance of the beneficiary to enforce his or her rights. 

Under the relatively new Pennsylvania Uniform Trust Act, trustees of Pennsylvania trusts have until November 6, 2008 to comply with the new notice requirements to send information about certain trusts, their investments and provisions.

The Act applies only to trusts that are funded and those where the terms are not going to change. Accordingly, the revocable trusts that are frequently used in estate planning would not be affected as long as the Settlor, the creator of the trust, is alive and competent. 

The events that trigger the sending of notices are as follows:

1. The death of the Settlor.
2. New current beneficiaries, for example, a beneficiary taking a deceased beneficiaries' share. The term "current beneficiary" is a person who is 18 years of age or older to or for whom income or principal of a trust must be distributed currently, or a person 25 years of age or older, to or for whom income or principal may, in the trustee's discretion, be distributed currently.
3. The change of trustee for an irrevocable trust.
4. The incapacity of the Settlor.
5.  Beneficiaries who "opt-in" which includes persons who sent the trustee a written request for notice.

 The notice must include the following:

1. The trust's existence.
2. The identity of the Settlor.
3. The trustee's name, address and telephone number.
4. The beneficiary's right to receive upon request a copy of the trust. 
5. The beneficiary's right to receive upon request a written report of the trust's assets and their market values (if that is possible).
6. The trust's liabilities and the trust's receipts and disbursements since the date of the last report.