By Anthony S. Rachuba IV, Esq., Fitzpatrick Lentz & Bubba, P.C.
Estate planning is necessary for all persons regardless of age or the size of the estate. In too many cases, persons procrastinate and death occurs before proper planning is done. In addition to not knowing exactly how your estate will be handled, this can put stress on your family and friends and can cause unnecessary expenses and delay in the estate administration process.
The typical estate plan will consist of at least three documents: a Will, Power of Attorney and a Health Care Power of Attorney/Living Will. You should at least have these three documents to ensure that your wishes will be carried out and that the right persons will be representing you or your estate. If you do not have these documents, the state in which you reside will provide to whom your assets will be distributed and will select those persons to represent you or your estate.
The most important step in estate planning is for you to think about the persons (and/or charities) that should benefit under your Will at the time of your death. While death taxes will always be a consideration, the ultimate goal of estate planning is to pass your property in accordance with your wishes. Sometimes clients can lose sight of this if they focus solely on saving taxes at death. Typically, clients leave all of their assets to a spouse, if married, and then to children. However, in larger estates, trusts can be established for the benefit of the surviving spouse that can substantially reduce or eliminate taxes.
You should also think about alternate beneficiaries in the event that your primary beneficiaries predecease you. If minors (or even young adults) are the potential recipients of a portion of your estate, you should consider whether they should receive the property at majority (age 18 in Pennsylvania) or whether a trust should be established for their benefit so that the property can be retained until a later age. For example, a trust could be established for a child or another young beneficiary that would allow the child or beneficiary to receive income from the trust and distributions of principal at the discretion of the trustee, and would eventually allow the child or beneficiary to withdrawal principal when he or she attains certain ages, such as 25, 30 and 35. You also have to think about your executor (the person who is responsible for administering your estate, which includes, but is not limited to, collecting all of your assets, paying off your debts, filing any tax returns and ultimately distributing your assets to the proper beneficiaries), the trustee of any trust, and the guardian or guardians for any minor children. Keep in mind that if you do not name a guardian for your minor children, the Court will appoint a guardian, and it may or may not be the person you would choose for your children.
At your death, your executor will be responsible for taking your Will to the local courthouse to probate the Will, which is the act of proving to the Court that this it is truly your last Will. The Court then monitors the estate administration process and certain notices and filings will need to be made with the Court.
Another document which is frequently executed in connection with a Will is a Power of Attorney (often called a “Durable” Power of Attorney) in which you give a family member or friend the right to act on your behalf during your lifetime. It is a powerful document in that the person you designate as agent can do almost anything on your behalf. This would obviously become important if you became incapacitated since in the absence of a properly drafted Power of Attorney, it might be necessary to have a Guardian appointed through a formal and expensive court procedure. A Power of Attorney will solve this problem and will give a loved one the right to act on your behalf in terms of both financial and personal matters.
A Living Will and Health Care Power of Attorney may also be signed in which you give a family member or friend the right to make health care decisions on your behalf during your lifetime, and you specify treatments you would or would not want in the event you were in an end stage medical condition or a state of permanent unconsciousness. This document gives certainty to you and your family that your wishes will be honored.
You may also wish to consider creating a funded Revocable Trust: 1) in order to have a Trustee involved in investment decisions and in the use of your funds for your benefit in the event of incapacity; and 2) in order to reduce probate expenses and other administrative costs at your death. Such a Trust (frequently called a “Living Trust”) must obviously be coordinated with the rest of your estate plan.
There are other more advanced estate planning techniques that you can use to reduce or eliminate taxes during your life and at your death, and you should ask your estate planning attorney or other professional if you wish to explore such techniques.