Wills & Estate Planning

What is estate planning?

Estate planning consists of the planning and execution of those steps necessary to make sure that an individual's person and property are properly cared for during his or her lifetime and that such property passes to their intended beneficiaries at the time of the individual's death with the payment of a minimum amount of tax. The principal documents most commonly used in estate planning are a Will, Durable Power of Attorney, Living Will and, in certain cases, trusts.

Do I need a will?
Every individual of at least eighteen years of age should have a Will since a Will enables a person to give their assets to whomever they desire. If an individual dies without a Will (intestate), the Commonwealth of Pennsylvania has enacted provisions in the law which govern the distribution of the decedent's assets. In effect, the state has written a Will for those individuals who have failed to make one for themselves. In addition, a Will permits a person to appoint an executor to handle his or her estate at the time of death.

Furthermore, a Will is important for persons having minor children since the Will provides an opportunity for parents to name guardians for their children. In addition, the Will can control how and when the assets are to be distributed to the minors.

Another reason to make a Will is to save taxes. Depending on the size and composition of a person's estate, a Will can accomplish valuable tax planning.

Should I consult a lawyer to prepare my will?
Yes, the services of a lawyer experienced in estate planning and estate administration are essential. The preparation of a Will requires a thorough knowledge of the applicable federal and state laws as well as state and federal taxes. Legal fees for the preparation of Wills are generally low.

How does the Pennsylvania Inheritance Tax work?
The Pennsylvania Inheritance Tax is imposed on an estate at rates which vary according to the relationship between the decedent and the person receiving the assets. For example, if the decedent died on or after January 1, 1995, there is no tax on bequests to spouses. For decedents dying on or after July 1, 2000, assets passing to lineal relatives (for example, parents, grandparents, children and grandchildren) are taxed at a rate of four and one-half percent (4 1/2 %). Assets passing to siblings are taxed at a rate of twelve percent (12%). The tax rate for all others, including aunts, uncles, nieces, nephews, cousins, friends, etc. is fifteen percent (15%). Basically, all of an individual's estate is subject to inheritance tax, after the reduction of certain expenses and deductions. In addition, certain property, such as life insurance, is not taxable.

Should I give my home to my children during my lifetime?
As a general rule, it is not prudent for a parent to give their personal residence to children during the parent's lifetime. The principal reason for this is loss of control of the home. Moreover, the home becomes subject to the liabilities of the child. For example, if the child is sued, files for bankruptcy or becomes divorced, the home could possibly be lost during court proceedings. If, instead, the parent gives the child the home through their Will, the parent can simply change the Will in the future if they change their mind or if they need to sell the home in order to support themselves.

In addition, generally, the gift will result in the children paying significantly higher tax than if the home is willed to them.

Should I have a durable power of attorney?
As with a Will, every individual of at least eighteen years of age should have a general durable Power of Attorney. The person who is appointed with the power is known as an attorney-in-fact; the person who appoints the attorney-in-fact is known as the principal. By means of the Power of Attorney, the principal gives the attorney-in-fact power to make various decisions on behalf of the principal, including, for example, decisions as to medical treatment and sale of the principal's property. The attorney-in-fact is obligated under the laws of Pennsylvania to act solely on behalf of the principal, and may not spend the principal's money for the benefit of the attorney-in-fact. The durable Power of Attorney also eliminates the need for expensive guardianship proceedings if the principal later becomes legally incapacitated.

What is a living will?
A living will, or "declaration" is a document in which a person provides direction to their health care providers regarding the withholding or withdrawal of life-sustaining treatment under certain circumstances. The living will is used to determine the person's intentions if they should later become incompetent, and is either in a terminal condition or in a state of permanent unconsciousness.


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