Understanding the Changes for Powers of Attorney in Pennsylvania

You may have heard about the new power of attorney legislation that became the law in Pennsylvania in July.  If you have executed a power of attorney or are thinking about executing a power of attorney, you may be wondering how that legislation affects you.

Some of the changes made by the law, such as protecting banks from liability, were effective immediately.  Other changes, such as changes to the Notice and Acknowledgement parts of the power of attorney will become effective January 1, 2015.  Almost every day, new articles appear and professional meetings are held as the various communities such as banks, lawyers and others concerned with estate planning and elder affairs consider the interpretation and implementation of the changes.

If you have a properly executed power of attorney, your power of attorney is valid and will remain valid even after all of the new changes take effect.

Under any circumstances, you should always look at your estate planning documents every few years, or when you have major changes within your family, to ensure that they still reflect your wishes. 

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The Three Estate Planning Documents You Need

In previous posts, we have discussed various estate planning documents and how they differ, but many times there is confusion as to what takes effect and when. Or, you may wonder why you can’t just appoint an agent (power of attorney) in your Will.  I have provided a simple review of each document, its purpose, and when it takes effect in hope that I can quickly dispel the confusion.

Generally, when clients meet with me for estate planning, three documents are prepared and executed: the Financial Power of Attorney, the Durable Health Care Power of Attorney/Advanced Health Care Directive, and the Will. 

The Financial Power of Attorney allows your agent to access your financial accounts, pay bills and make transfers on your behalf immediately upon signing.  It is important to select someone you trust as they have access to all of your financial accounts.  There are ways to protect yourself and ensure that the agent you have appointed is acting in your best interests.  One way is to appoint co-agents so they act as a check on each other.  However, this can lead to disagreements between the agents and defeat the purpose of the document itself.  Another way is to request an accounting of your agent’s activity if you suspect something is amiss.  The agent is bound to follow certain fiduciary duties while acting as your agent.  If your agent fails to act in your best interest, they can be brought before the court and made to remedy their actions.  However, the best way to be proactive is to appoint someone that you trust implicitly from the beginning. 

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Follow up to Death in the Digital Age

As a follow up to Death in the Digital Age, a story about the online afterlife of a woman in Pontiac Michigan caught my attention.   Her body was discovered in her vehicle parked in her garage by an individual entering the property on behalf of the mortgage company which had foreclosed upon the property for non-payment.  The unusual thing?  It was five years after her death in 2009.

She had arranged for automatic online payment of her utilities and mortgage, and the balance in her account was large enough to last for four years.  As her body decomposed in the garage, the funds went out regularly.  It wasn’t until the account was depleted that her death was discovered.  The neighbors assumed she was traveling for business, she had quit her job so was not missed at work, or apparently anywhere else.

My favorite comment to this online story was:  “What ‘lived on’ was the money.  When that ran out, the culture pronounced her dead.”

Christina Hausner is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, PA. She received her law degree from Duquesne University School of Law.

 

Accessing Email After Death

Recently we posted an article about Death in the Digital Age.  But, what happens if a loved one fails to make these arrangements and you must have access to their digital accounts? 

Google has recently developed a method that allows people to gain access to a deceased person’s accounts.  Google has taken steps to ensure its users' privacies are protected while understanding that the need for someone to access a decedent’s account post mortem may occasionally arise. 

In order to gain access, you must first be an authorized representative of the deceased user and complete the two-stage process.  Part I includes providing Google with personal information about yourself, information about the account, and the decedent’s death certificate.  The second part occurs only after you have passed the minimal threshold of the first stage.  Google will then communicate directly with the authorized representative to give them further instructions.  For complete information on this, you can view Google’s instructions here. It is likely that more and more websites and social media sites will take Google's lead and develop similar policies to address the importance of our digital assets.

Lindsay Schoeneberger is an attorney at Russell, Krafft and Gruber, LLP in Lancaster, Pennsylvania. She received her law degree from Widener University School of Law and practices in a variety of areas, including Estate Planning.

Death in the Digital Age

As you update your Facebook page, have you ever wondered how your beneficiaries could obtain access to your “digital assets” upon your death?  Indeed, could they access your digital assets if you were incapacitated during your lifetime?  Prudent people plan through financial powers of attorney for incapacity during lifetime, or for the disposition of their financial assets and real estate upon their deaths under their wills.  Not enough attention has been paid to digital assets.  “So attention must be paid,” as Willy Loman said.

Does the persons (or institution) that would act as your agent during life, or as your executor upon death, know the location of your passwords and usernames?  Do they know whether you have an Amazon account or are active with social media sites?  As part of your estate planning, you should prepare an inventory of such information.  You may even consider expressly providing for access by your agent during life or by your executor upon death.

Google, for example, has available an “inactive account” option that allows notices to be sent to specified persons if there is no activity on your account for a predetermined period of time.  For example, if your Gmail/Google account were to be dormant for several months, 30 days prior to your predetermined deadline, you would receive a warning email or text alert.  After the deadline has passed, the action you set for your account will occur. This action could include deletion of the account.

You may consider giving some attention to the disposition of these “assets”.  After all, your digital assets may be every bit as valuable as the china, silver or fishing rods used to be, and may provide access to financial assets.

Jon Gruber is an attorney at Russell, Krafft and Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from the University of Virginia and practices in a variety of areas, including Estate Planning and Estate and Trust Administration.  

The Effect of Fiscal Cliff Legislation on Estate Planning

In a previous post, Disclaimer Trusts – a Flexible Option in an Uncertain Estate Planning World, I discussed the uncertainty that the then looming “fiscal cliff” crisis created in the estate planning world.  Now that the “fiscal cliff” has been averted through the American Taxpayer Relief Act of 2012 (the “Act”), which was approved by Congress on January 1, 2013, such uncertainty has been eliminated.

Prior to the Act, in 2012 estates valued below $5,120,000 were shielded from the federal estate tax by the estate tax credit. If the Act had not been approved by Congress, beginning in 2013, the credit against the estate tax was scheduled to fall to only $1,000,000.  This created some confusion with clients who did not know if the estate tax would apply to them because their estate values fall somewhere between $1,000,000 and $5,120,000.

The Act did several things to clear up such uncertainty.  First, the Act has permanently set the credit against the federal estate tax at $5,000,000, indexed for inflation.  Thus, my clients whose estates are between the $1,000,000 and $5,000,000 values now know that the federal estate tax will not apply to them.

The Act also made the “portability” of the credit permanent.  The portability provisions essentially allow the estate of a decedent to make an election permitting his or her surviving spouse to transfer the unused portion of the decedent's credit against the estate tax to the surviving spouse.  The surviving spouse can then use that additional credit against lifetime gifts and against the estate tax at his or her death. 

For example, if Bob passes and his estate uses only $2,000,000 of his credit, his estate can transfer his $3,000,000 unused credit to Betty, his surviving spouse.  Adding that amount to the $5,000,000 credit she already had, Betty now has an $8,000,000 credit that she can use against lifetime gifts or against the estate tax at her death.

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Have You Thought About Your Estate Plan?

As we approach the end of National Estate Planning Awareness Week we hope you will reflect on the status of your estate plan. Proper estate planning can help secure your future by ensuring that your assets are distributed in the way you desire,  providing direction in the event of incapacitation, determining care for your children, and granting you peace of mind.

If you have yet to begin the process, make it a priority to contact an estate planning professional. If you already have begun planning, it is a good time to review your plan to make any needed changes. It is estimated that over 120 million Americans do not have up-to-date estate plans. Whether your estate planning documents are incomplete due to changes in your life or nonexistent, the lack of a current estate plan can cost your friends and family financial hardship and emotional distress. These problems can be easily minimized with the proper advanced planning,  so don't let another day go by without making the proper preparations.  
 

 

I'm Young and Have Nothing, Why Do I Need a Will?

I often hear people saying I’m young, I have no assets, why would I need a Will or other estate planning documents? It is a general misconception that only people who are wealthy and have accumulated significant assets need estate planning documents. When I am talking with a client who is unmarried and just starting out, I will ask them if they have a Will or other estate planning documents. Inevitably their response is why would I need a Will, I have nothing, I’m not married, what do I need to worry about?  Even young individuals starting out often have a bank account, personal property, perhaps a vehicle and/or a small retirement account. They may have debt and they may even have a child. In this situation, if they would pass away, their loved ones would be responsible for initiating court action on their behalf in order to deal with those assets and custody issues. Additionally, a Power of Attorney and Living Will, documents which are utilized when an individual becomes incapacitated or finds themselves with an end stage illness, may be even more important than a Will.

Will

If you are unmarried with few assets but have a child, the need for a Will is imperative regardless of the financial circumstances. A Will allows you to choose the person who will care for your child in the event of your death. Many clients say, "Well, that would be the other parent."  In situations where the other parent is an appropriate individual and the individual who the client wishes to raise their child, then this assumption may be just fine. However, consider the circumstances in which the other parent is uninvolved in the child’s life or is not an appropriate individual to care for the child. In those circumstances, a Will is a way in which the deceased parent can communicate to the court what their wishes are with regard to their child after they have died. While that specification in a Will is not binding upon the court, it is persuasive and helpful to the court when evaluating a custody or guardianship award after a parent has passed. 

You should also consider the fact that, upon your death, your friends and family members are mourning your loss. It is a difficult and emotional time and having to determine which friends or family members will be responsible for taking care of the decedent’s financial affairs and perhaps even custody issues can be stressful, emotional and financially taxing on the friends and family who are left behind. If a Will has established specific individuals to take care of these responsibilities upon death, friends and family members have been saved some additional emotional and financial strain that would not have been avoided had a Will not been prepared.  

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Planning to Exclude a Family Member From Inheriting From You?

Much of the estate planning advice you see focuses on the proper ways to provide for your spouse, children and other loved ones and friends in your estate plan. Many times this involves making a Will or setting up a trust to provide for their needs after your death. But what about those circumstances where you wish to specifically exclude a family member from inheriting from you? All too often, and for a number of different reasons, it may be appropriate to leave out a spouse or a child in your estate plan. Even when you decide to leave out a spouse or child, it is important to avoid some common pitfalls in order to give the proper effect to your estate plan.           

Spouses and Ex-Spouse

In dealing with an ex-spouse, the law in Pennsylvania is very clear that upon a divorce, an ex-spouse is treated as predeceasing the other spouse (or dying first). In this situation, even if after a divorce, a person forgets or fails to change their Will to eliminate their ex-spouse, their ex-spouse would be treated as dying first and would not inherit from their ex. 

There are certain situations however, where a spouse may want to specifically exclude their husband or wife from their estate plan. This can arise for many reasons. In some situations, where large estates have been accrued over the life of a couple, they may separately provide for one another by making certain gifts or transfers of property and accounts during their life so that, upon their death, the other spouse does not need to inherit from them. While this situation may sound unusual, it does occur. Also, it is important to understand that without the spouses consent, you can never really truly disinherit a spouse. The reason is that the Pennsylvania Law provides for the spouse to be eligible for an "elective share", wherein a spouse who has been disinherited can elect to take one-third of certain property from the other spouses estate. This situation frequently occurs where spouses become estranged but do not divorce prior to the death of one spouse. The spouses may have changed their Will to try to exclude one another but because they still enjoy the status as husband and wife upon one of their deaths, and because grounds for divorce have not yet been established, the surviving spouse may choose to "elect" against the other's estate and receive one-third of certain types of property. 

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Disclaimer Trusts - A Flexible Option in an Uncertain Estate Planning World

At the end of 2012, there is a deadline looming regarding the credit against the federal estate tax that is creating a lot of uncertainty in the area of estate planning. Fortunately, adding a disclaimer trust to your Will can help you handle such uncertainty.

Currently, estates valued below $5.12 million are shielded from federal estate tax by the estate tax credit.  Thus, only estates valued above $5.12 million are subject to the estate tax. However, beginning in 2013, the credit against the estate tax is scheduled to fall to $1 million. It had been anticipated that Congress would have acted by now either to extend the $5.12 million credit or to set the credit at some new amount, but it has not yet done so.

I have counseled clients who are concerned because they don't know if the estate tax would apply to their estates if they pass away in 2013. These are clients whose estates would be greater than $1 million and less than $5.12 million. If Congress extends the $5.12 million credit, then those clients will be shielded from the tax. On the other hand, if Congress allows the credit to fall to $1 million, then their estates will be subject to the tax. To add to the uncertainty, Congress could change the credit amount to some other number on a future date.

Knowing whether your estate will be subject to the estate tax is very important to your estate plan because, if the tax will apply, there are certain tax provisions that should be in your Will.  Those provisions are designed to help minimize the federal estate tax burden on your estate.  However, the uncertainty regarding the credit makes it difficult to determine which of those tax provisions should be in your Will, or if they should even be in your Will at all.

Fortunately, there is one such provision that can provide for some flexibility: the Disclaimer Trust. While the mechanics of how Disclaimer Trusts work are fairly complicated, they are not reliant on the credit against the estate tax being any specific amount. 

Disclaimer Trusts are extremely helpful in carrying out the estate plan of my clients who don’t know if their estates will be subject to the estate tax. If Congress extends the $5.12 million credit, then the Disclaimer Trusts will be ignored. If Congress allows the credit to drop to $1 million, or if the credit is changed to some other amount, then the trust will allow for the flexible use of the credit to reduce the estate's exposure to the estate tax.  In other words, it is there if needed.

Depending on the size and make up of your estate, estate planning can be a fairly complex matter. There are other opportunities, such as lifetime gift planning and other credit shelter trusts, that taxpayers can utilize to minimize their estates' exposure to the estate tax. Consulting with your family, your attorney, and your other professional advisors about estate planning and administration can help you to better understand whether a Disclaimer Trust makes sense for you.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including Estate Planning 


Family Farms Freed From Burden of Inheritance Tax

The silos, cattle and cornfields along Pennsylvania's winding roads are a reminder that farming is an integral part of the Commonwealth's economy. Many of these farms are family businesses that politicians in both parties say they want to help.  Pennsylvania's legislators came to the aid of farm families a few months ago.  To help ease the burden on Pennsylvania's 63,000 farm families, there is new legislation that offers relief in the form of an inheritance tax exemption.

The relief is effective for decedents leaving behind family farms whose dates of death fall after June 30, 2012. Section 2111 adds a new exemption to transfers not subject to the Pennsylvania Inheritance Tax:

(s) A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve, as those terms are defined in Section 2122(a), to lineal decedents or siblings is exempt from inheritance tax. 

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National Estate Planning Awareness Week October 15-21, 2012

On September 27, 2008, Congress declared the third week of October as National Estate Planning Awareness Week. Russell, Krafft & Gruber, LLP is encouraging you to use this week as a reminder and opportunity to start or continue the discussion regarding estate planning with your family, your attorney, and your other professional advisors.  

A basic estate plan begins with a will, power of attorney and living will.  The following are links to earlier articles on these subjects.

For additional information on other estate planning issues see all of our past articles relating to estate planning. To help get you started on thinking about your own estate planning needs we will continue to blog throughout the week about the important issues that surround estate planning.

If you have questions about estate planning, or would like to meet with an attorney about creating, changing, or just updating your estate plan please contact our office.  For more information about National Estate Planning Awareness Week visit www.estateplanninganswers.org

 

Pennsylvania Filial Responsibility Law

The goal of most parents is to leave some sort of inheritance, be it large or small, to their children. However, several clients have recently been asking me about a Pennsylvania law that could cause the opposite result and leave their children with significant debt. The law they are asking about is commonly referred to as the filial responsibility law, and it requires spouses, children and parents of indigent persons to care for and financially assist them.

The law tends to rear its ugly head in situations like the following. A parent goes into a nursing home and generates various nursing home expenses, including medical bills. Typically, if the parent is unable to pay those amounts, they can apply for Medicaid to pay the bills. However, in the cases where Medicaid is denied, incomplete or delayed, the nursing home turns to the filial responsibility law, which gives them standing to sue the children of the parent.

The children then have the legal responsibility to pay the nursing home bills, which could be somewhat significant. Moreover, if the children fail to comply with the law, they can be held in contempt of court and, if the court finds that the failure to comply was intentional, the court may sentence an individual to up to six months in prison. While that result is a worst case scenario and extreme, it is nonetheless possible.

There are some exceptions to the filial responsibility law. First, it does not apply to children who do not have the financial ability to support their parents. Second, if the indigent parent had abandoned a child for ten continuous years while the child was a minor, the child will not be required to foot his or her parent's bill.

As a result, if you have a low-income parent who is or will be in a nursing home in the near future, it behooves you to educate yourself on the Medicaid process. I would also strongly suggest meeting with an elder law attorney who can help you with that process. For more information, please also see the Medicaid website.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including Estate Planning and elder law issues.

Pennsylvania Power of Attorney: One of the Most Important Decisions in Your Estate Plan

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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What Happens to the Money in a Joint Account After One Party Dies?

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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Restart Retirement: The ABCs of Retirement Communities

For those who are nearing the retirement stage of life, a great resource is Restart Retirement, a blog that offers a wealth of information to retirees or those on the verge of retirement.

Recently, Attorney Jon Gruber, partner at Russell, Krafft and Gruber, guest-authored an article for Restart Retirement. With over thirty years of experience in estate planning and administration, he has helped countless clients achieve peace of mind by being prepared for their retirement years and beyond. His article, The ABCs of Retirement Communities, aims to help retirees better understand the different types of contracts under which retirement communities operate, which in turn can help them find the community that best serves their needs. The article discusses the following contracts that can be found in Continuing Care Retirement Communities (CCRCs):

  • Type A – Lifecare Contract
  • Type B – Modified Contract
  • Type C – Fee-for Service Contract
  • Type D – Rental Contract

Whether you are facing retirement or already there, you know that choosing a retirement community is a major life decision. It is imperative that you understand what different communities offer in terms of amenities, care and financial security. Having a basic knowledge of these contract types can aid you greatly in making your decision.

Please read The ABCs of Retirement Communities, and stay tuned for future guest posts by Attorney Gruber.

Restart Retirement is lifestyle-oriented and covers everything from financial matters to finding creative outlets during retirement years. It features leading authorities and retirees discussing mature living topics. If you are considering retirement or already retired, you’ll find information to help you make informed decisions about subjects that matter to you physically, emotionally, socially and financially. You will be able to read how others pursue their passions and find new zeal in your own life.

It Takes a Village: Pastors and the Law

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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An Overview of Special Needs Trusts

I have come across many clients who have a child that qualifies for certain government benefits because the child has special needs. Unfortunately, a well-intentioned gift to a child can, in some cases, inadvertently disqualify the child from the government benefits. In other instances, a child might have become entitled to sizeable funds, such as through a settlement or award in a personal injury lawsuit, which could also disqualify the child from benefits. This is where special needs trusts come into play.

The role of special needs trusts is to provide economic security for a person with special needs without disqualifying them from government benefits. There are three types of special needs trusts, depending on the circumstances: common law discretionary trusts, OBRA-93 payback trusts and pooled trusts. 

Common Law Discretionary Trusts:

This type of trust is referred to as “common law” because it arises from a series of court decisions and not from a particular statute. Typically, common law trusts should be used when the source of the funds is coming from a third party, such as money in the form of a gift to the person with the special needs. 

There are four primary requirements for establishing a common law discretionary trust. 

  1. The trust must explicitly state that proceeds of the trust are meant to supplement and not supplant public benefits. 
  2. The trust must also require that public benefits be considered by the trustee prior to distribution of any income or principal. 
  3. The trust must be irrevocable, which generally means that once funds from third parties are in the trust, they cannot be removed later by the third party. 
  4. The trustee must have total, absolute and unfettered discretion to pay, or refuse to pay, the income or principal from the trust to the disabled beneficiary. As a result, required periodic payments are not permissible. It is also helpful if there are other beneficiaries of the trust, such as other children of the parents creating the trust. 
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How a Will Can Help Determine Who Will Care For Your Child if you Die?

Making a will is something that occasionally crosses your mind, it's one of those things you think maybe you need but don't have the time or desire to make it a top priority. In addition, there are many things that can deter you from making a will such as lack of money or property, the unlikelihood that something catastrophic will happen to you or just simply procrastination. However, if you are a parent, one of the most important reasons you should have a will is to appoint a person to care for your child upon your death and the death of the other parent. The care of your child upon an unfortunate event such as death can happen to anyone regardless of the size of your estate. As a parent myself, I believe that one of the most important parts of a will is the section that appoints a guardian for anyone with minor children.

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Long-term Care Insurance Could Protect your Estate Plans

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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What Happens if you Die without a Will?

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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Estate and Gift Tax Update

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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Tis The Season to Think About Advanced Healthcare Directives

The Hospice of Lancaster County, along with other national, state and community organizations, is leading a new effort to publicize the importance of advance healthcare directives resulting in the formal designation of April 16, 2010 as National Healthcare Decisions Day.

How can you celebrate that day? As a participating organization, Hospice of Lancaster County will be working to educate the Lancaster County community about the importance of advance directives. They will use their Five Wishes, a document that helps people making a living will to express their preferences about end-of-life decision making in a variety of areas. The Five Wishes document will be available in various public libraries throughout the county, as well as at health fairs and expositions.

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Who Makes Your Health Care Decisions if You Do Not Have a Living Will?

Who makes your medical decisions for you if you are unable? The answer to this question is even more difficult if the decision involves the removal of ventilators, feeding and water tubes. In these situations, friends and family of the patient have become engaged in bitter disputes over (1) who gets to make those decisions and (2) what your wishes regarding treatment would have been? 

A valid Living Will answers both of those questions. Living Wills are governed by Act 169 of 2006 (the "Act"), where they generally become effective when the subject of the living will is deemed to be in an "End-Stage Medical Condition". The Act goes on to describe such a condition as an ". . . incurable and irreversible medical condition . . . that will . . . in the opinion of the attending physician to a reasonable degree of medical certainty result in death, despite the introduction or continuation of medical treatment." Examples include brain-death, irreversible comas or other vegetative states where there are no curative treatments to make you better, but only palliative treatments (such as ventilators and feeding tubes) that prolong the process of dying but have no curative properties. With a valid Living Will, you have already declared what your wishes are regarding treatment and named who should carry out your wishes.

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Will the Federal Estate Tax Go Away in 2010?

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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Tax Time Audit for Estate Planning Documents

At tax time, many people consider their financial status. Many of us are looking at broker statements for the first time because we have been unwilling to face the bad news. Regardless of how difficult the year has been financially, however, this is an appropriate time to consider looking at your estate planning documents to see whether those documents are up-to-date. For example, are the persons that you have appointed as your executors or trustees still the best choices for those jobs?

The fact that your estate may be less than it was last year at this time does not make the proper choice of persons any less important. Indeed, shrinkage in estates makes it all the more important to select the right people for these important positions of trust and responsibility, so called fiduciary positions, who will be careful and able to adapt to changing market conditions.

Do you have a current power of attorney? Stockbrokers, banks and transfer agents are becoming more insistent that these documents be current. Are the persons you have appointed as your agents or powers of attorney still the ones who are best suited for those positions to manage your assets if you became incapacitated? 

Are the persons that you have appointed as agents on your living wills or health care powers of attorneys able to cope with what can be difficult medical decisions, especially in light of insurance carriers that can be unwilling to pay for unnecessary tests and procedures. Are these the people who would act as your advocates in the face of an insurance carrier that would want to save money at the expense of your health care.

If you have a family business, you may want to provide for the succession of management because any disruption in a smooth transition of the operation of the business could be disastrous in an era of tight margins and challenging business conditions.

Perhaps most important, if somewhat elementary, can you locate your documents in the event of an emergency? The best drafted documents are of little use if they cannot be located.  Our office provides clients an Estate Planning Document Checklist which can be invaluable to an agent or executor who may need to locate documents and contact brokers, bankers, insurance agents, etc.   

Signing Your Life Away: The Benefits and Risks of Powers of Attorney

A Power of Attorney is a document in which a principal appoints an agent to transact a variety of duties. The "principal" makes the appointment. The "agent" is the person appointed (also called an "attorney-in-fact" or "power of attorney").

The agent has a fiduciary duty to the principal which means that he or she owes the principal a high standard of loyalty and care. That fiduciary relationship includes the following duties: 

  • Exercising the powers for the benefit of the principal.
  • Keeping separate the assets of the principal from those of the agent.
  • Exercising reasonable caution and prudence.
  • Keeping a full and accurate record of all actions, receipts and disbursements on behalf of the principal.

The most useful powers of attorney give the agent broad authority so that the agent can do virtually any kind of business transaction on behalf of the principal. For that reason, the person whom you select as your agent is of utmost importance.

In years past, persons who did not know of another person whom they wanted to entrust such authority would appoint a bank. For many people, that is no longer possible. Many of the larger, regional banks will not serve as attorneys-in-fact. They will serve as agents under agency agreements but generally the authority under those agency agreements is not as broad as under a general power of attorney.

Your selection of a capable agent should be someone who is scrupulously honest, maintains good records, understands his or her responsibilities, is wise enough to know his or her limits and is able to rely on competent persons for advice (e.g. investment advice).

Without the power of attorney (or revocable living trust), in the event of incapacity, you will be at the mercy of whomever the court appoints as guardian of your estate after an incapacity proceeding in court that can be long, expensive and emotionally draining for those involved. 

 

New Risks with Joint Accounts

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.