June 13th, 2016

Basic Considerations Before Meeting with Your Estate Planning Lawyer

You’ve made the important decision to deal with planning your estate by a Will or Living Trust, Power of Attorney, Health Care Power of Attorney and Living Will. It’s sometimes hard to face your own mortality, but congratulations on being ready to plan what happens to your property after your death. However, there are a couple of additional things to keep in mind and to discuss with your lawyer.

First, if like many people you have life insurance and an IRA or retirement plan, your Will or Trust generally doesn’t control who gets those items: instead, the beneficiary designation on the policy or retirement account does. Review your beneficiary designations to be sure that they reflect what you want and they coordinate with your Will or Trust.

Second, be careful about joint accounts or accounts with “TOD” (Transfer on Death) or similar designations on the account. At your death the joint account belongs 100%, and automatically, to the joint account owners or TOD beneficiaries, regardless of what your Will or Trust says. That can be different than your wishes and could cause friction among your survivors if the joint owners or TOD beneficiaries are different from the shares you want in your Will or Trust, or if there are multiple accounts with different values and different joint owners or TOD beneficiaries.

Third, pay attention to taxes. Most people don’t have to worry about federal estate tax because of the high exemption ($5.45 million per person; $10.9 million per married couple). However, Pennsylvania has a separate state inheritance tax against the net taxable amount without any floor or exemption. Talk to your lawyer about what is subject to inheritance tax, because it’s probably more than you think (like inheritance tax applying to retirement accounts if you’re 59½ or older, and to some part (or in some cases, all) of your joint or TOD accounts). Talk to your lawyer about whether you want a “tax clause” in your will because that might mean that your estate pays all the inheritance tax, including, for example, the tax on retirement or TOD accounts that might go to someone different than your Will or Trust beneficiaries or in different shares than the shares in your Will or Trust. Also, keep in mind that using the Living Trust form of planning does not avoid inheritance tax.

Fourth, be careful in your planning if you have beneficiaries who are minors or who have special needs. If the beneficiaries are minors you need special provisions for someone to manage and distribute money on their behalf for support, health and education. If you have special needs beneficiaries you usually shouldn’t leave them outright bequests, or name them as joint owners or TOD beneficiaries, because what they receive at your death as joint owners or estate or TOD beneficiaries could disqualify them for government benefits for their special needs. Instead, talk to your lawyer about a “Special Needs Trust”.

Your Gross McGinley Estate Planning Group attorney will be happy to discuss with you these and other topics. Call us at 610.820.5450, today!