Why Do I Need a Will?
A Will is a legal document that helps you put your affairs in order when you die. Every adult should have a Will to outline his or her intentions regarding home, finances and other assets and possessions upon death. Your Will should identify who will handle your estate, how your assets will be divided and who will serve as guardian for your minor children. If you die without a Will, your money and possessions will be distributed according to a formula fixed by law, which means that your spouse may have to share assets with other family members not of your choosing. It also could create lengthy delays in the final distribution of assets.
Additionally, dying without a Will could result in your minor children being placed in the care of a court-appointed guardian rather than with people you would have chosen to care for them.
What Does a Will Do?
A Will provides for the distribution of certain property owned by you at the time of your death, and generally you may dispose of such property in any manner you choose. Your right to dispose of property as you choose, however, may be subject to forced heirship laws of most states that prevent you from disinheriting a spouse and, in some cases, children. For example, many states have spousal rights of election laws that permit a spouse to claim a certain interest in your estate regardless of what your will (or other documents addressing the disposition of your property) provides.
Your Will does not govern the disposition of your property that is controlled by beneficiary designations or by titling and so passes outside your probate estate. Such assets include property titled in joint names with rights of survivorship, payable on death accounts, life insurance, retirement plans and accounts, and employee death benefits. These assets pass automatically at death to another person, and your Will is not applicable to them unless they are payable to your estate by the terms of the beneficiary designations for them.
This is why reviewing beneficiary designations, in addition to preparing a will, is a critical part of the estate planning process. It is important to note that whether property is part of your probate estate has nothing to do with whether property is part of your taxable estate for estate tax purposes.
Wills can be of various degrees of complexity and can be utilized to achieve a wide range of family and tax objectives.
If a Will provides for the outright distribution of assets, it is sometimes characterized as a Simple Will.
If the Will creates one or more Trusts upon your death, the Will is often called a Testamentary Trust Will.
Alternatively, the Will may leave probate assets to a preexisting Inter Vivos Trust (created during your lifetime), in which case the will is called a Pour Over Will.
Such preexisting Inter Vivos Trusts are often referred to as Revocable Living Trusts. The use of such Trusts, or those created by a Will generally, is to ensure, among a variety of factors, continued property management, the protection of an hair with a disability or an heir from his or her own irresponsibility, the succession of a family owned business, creditor protection for the surviving family members, provisions for charities, the succession of a family owned business, and the minimization of taxes.
Aside from providing for the intended disposition of your property upon your death, a number of other important objectives may be accomplished in your will.
You may designate a guardian for your minor child or children if you are the surviving parent and thereby minimize court involvement in the care of your child.
Also, by the judicious use of a Trust and the appointment of a Trustee to manage property funding that Trust for the support of your children, you may eliminate the need for bonds (money posted to secure a Trustee’s properly carrying out the Trustee’s responsibilities), as well as, avoid supervision by the court of the minor children’s inherited assets.
You may designate an Executor (personal representative) of your Estate and eliminate their need for a bond. In some states, the designation of an independent Executor, or the waiver of otherwise applicable state statutes, will eliminate the need for court supervision of the settlement of your Estate.
You may choose to provide for persons whom the state’s intestacy laws would not otherwise benefit, such as stepchildren, godchildren, friends or charities.
If you are acting as the custodian of assets of a child or grandchild under the Uniform Gift (or Transfers) to Minors Act (often referred to by their acronyms, UGMA or UTMA), you may designate your successor custodian and avoid the expense of a court appointment.
How Do I Execute (sign) a Will?
Wills must be signed in the presence of witnesses and certain formalities must be followed or the Will may be invalid. In many states, a Will that is formally executed in front of witnesses with all signatures notarized is deemed to be “self-proving” and may be admitted to probate without the testimony of witnesses or other additional proof.
What If I Change My Mind About the Contents of My Will?
In Pennsylvania, a Will is not filed (or probated) until after a person dies. As a result, you can change or update your Will at any time throughout your life, as circumstances require.
Amendment or Codicil:
A later amendment to a Will is called a codicil and must be signed with the same formalities. Be cautious in using a codicil because, if there are ambiguities between its provisions and the prior Will it amends, problems can ensue.
What Does a Will Not Do?
A Will does not govern the transfer of certain types of assets, called non-probate property, which by operation of law (title) or contract (such as a beneficiary designation) pass to someone other than your estate on your death. For example, real estate and other assets owned with rights of survivorship pass automatically to the surviving owner. Likewise, an IRA or insurance policy payable to a named beneficiary passes to that named beneficiary regardless of your Will.
Many of these problems also are applicable to institutional revocable Trusts and "pay on death" forms of ownership of bank, broker, and mutual fund accounts and savings bonds. Effective planning requires knowledge of the consequences of each property interest and technique.
In many instances, people prepare Wills believing that the Will governs who Will inherit their assets when in fact, the title (ownership) of various accounts or real property, for example, as joint tenants, or beneficiary designations for IRAs, life insurance, and certain other assets control the distribution of most or even all assets. This is why merely addressing your Will is rarely sufficient to accomplish your goals.
What Is Probate?
The probate or estate administration process is when someone dies owning assets in his or her name alone and an estate must be started by a personal representative to handle the decedent’s assets and settle his or her affairs. The personal representative is called an Executor if appointed in the decedent’s Will. If the decedent has not designated an Executor in a Will, the court appoints an “Administrator,” which can be an individual or corporation such as a bank or trust company. The Executor or Administrator is the only person or entity legally authorized to deal with the assets of the estate and handle matters of estate administration.
Why Is There a Probate Process?
Probate is a process required by state law. The probate process in Pennsylvania is an efficient way to protect beneficiaries and creditors and to assure proper distribution of estate assets. Assets held in a trust are governed by the terms of the trust rather than the decedent’s Will and pass outside the probate process. Even if assets are not subject to probate, however, they may still be subject to all of the same death taxes as probate assets.
What Are the Costs of Probate?
In Pennsylvania, the costs of probate include filing fees for opening the estate, advertising the estate, filing an inventory of estate assets and other papers to complete the administration process. Legal fees are paid to the attorney handling the estate work, which may include preparation of various death and income tax returns. Obtaining appropriate legal advice about the administration of the estate can help contain costs and taxes. Talk to your lawyer to find out whether services will be based on an hourly fee, a flat rate or on a percentage of the estate assets, and what would work best for you.
Is Probate a Lengthy Process?
In Pennsylvania, probate need not, and normally does not, take long in comparison with some other states. Executors or Administrators are accorded broad powers to accomplish the administration of estates in a quick manner. They are empowered to handle most details without seeking court approval for each and every transaction, such as the liquidation of assets and the paying of debts and expenses.
What Is a Trust?
A Trust is a legal entity to which your assets (bank accounts, securities, house, etc.) can be transferred for management by a Trustee. Trusts can be created while you are living to manage your assets while you are alive or to help your heirs manage their inheritance after your death. There are a number of types of Trusts, each with its own set of benefits. As such, Trusts can be complicated, so it is important that you contact a lawyer to make sure that you understand all of the issues about trusts.
Trusts can provide incredible flexibility for the ownership of certain assets, thereby enabling you and your heirs to achieve a number of significant personal goals that cannot be achieved otherwise. The term Trust describes the holding of property by a Trustee, which may be one or more persons or a corporate Trust Company or Bank, in accordance with the provisions of a contract, the written Trust instrument, for the benefit of one or more persons called Beneficiaries.
Note: The Trustee is the legal owner of the Trust property, and the beneficiaries are the equitable owners of the Trust property. A person may be both a Trustee and a Beneficiary of the same Trust.
A Trust created by a Will is called a Testamentary Trust, and the Trust provisions for such a Trust are contained in your Will.
A Trust created during your lifetime is called a Living Trust or an Inter Vivos Trust, and the Trust provisions are contained in the Trust agreement or declaration. The provisions of a Living Trust or Inter Vivos Trust (rather than your Will or state law default rules) usually determines what happens to the property in the Trust upon your death.
A Trust created during lifetime may be revocable, which means it may be revoked or changed by the Trustmaker/Settlor, or irrevocable, which means it cannot be revoked or changed by the Trustmaker/Settlor. Either type of Trust may be designed to accomplish the purposes of property management, assistance to the Trustmaker/Settlor in the event of physical or mental incapacity, and disposition of property after the death of the Trustmaker/Settlor of the Trust with the least involvement possible by the probate court.
Trusts are not only for the wealthy.
Many young parents with limited assets choose to create Trusts either during life or in their Wills for the benefit of their children in case both parents die before all their children have reached an age deemed by the parents to indicate sufficient maturity to handle property (which often is older than the age of majority under state law).
Trusts permits the Trust assets to be held as a single undivided fund to be used for the support and education of minor children according to their respective needs, with eventual division of the Trust among the children when the youngest has reached a specified age. This type of arrangement has an obvious advantage over an inflexible division of property among children of different ages without regard to their level of maturity or individual needs at the time of such distribution.
Setting Up a Revocable Living Trust.
A Revocable Living Trust is established by writing a Trust Agreement, which normally and involves three primary people: the Trustmaker, also called the Grantor, Settlor or Trustor, the Trustee, and the Beneficiary. In the typical situation, when the Revocable Living Trust Agreement is created the three people named in the Trust, i.e., the Trustmaker, Trustee and Beneficiary, can actually be the same person.
Once the Revocable Living Trust Agreement has been signed or executed, the Trustmaker will proceed with funding the Trust with all of his or her assets and designating the Trust as the Beneficiary of retirement accounts, life insurance and annuities.
The Trustee (who, as mentioned above, can also the Trustmaker) will then manage, invest, and spend the trust property for the benefit of the Beneficiary (who, as mentioned above, is also the Trustmaker) until the Trustmaker's death or incapacitation.
In the event of the Trustmaker's death or incapaciataion, the Trustmaker must also name a person to become the "Succesor Trustee," and will name the new people, or charities, whichever the case may be, as the new Beneficiaries, normally the spouse, children and gransdchildren of the Trustmaker.
Phase One of a Revocable Living Trust: The Trustmaker is Alive and Well
The Trust's formation documents should include specific provisions allowing the Trustmaker to invest and spend the Trust assets for his own benefit during his lifetime. The Trustmaker can then manage all the assets that have been transferred or funded into the Trust's ownership, assuming he has not appointed someone else to act as Trustee. If another person has been named as Trustee, then the Trustmaker would typically take direction from Trustee.
The Trustmaker reserves the right to undo a Revocable Trust, which is why the term "revocable" is used. The Trustmaker can reclaim assets placed in the Trust, divert the income from the Trust to himself or herself or to another beneficiary, sell the assets or place more assets into it, as the case may be. The Trustmaker maintains final control.
A Revocable Living Trust is not a separate legal entity, and does not have its own taxpayer identification number, unlike an irrevocable Trust where the Trustmaker gives up all control. A Revocable Trust and its Trustmaker share the same Social Security number. Trust taxes are filed on the Trustmaker's Form 1040, just as though the Trustmaker continued to hold ownership of the assets personally.
Phase Two of a Revocable Living Trust: The Trustmaker Becomes Mentally Incapacitated
The Trust Agreement should specify what happens if the Trustmaker becomes mentally incapacitated and can no longer manage his or her own affairs and those of the Trust. The Trust documents should name a "Successor Trustee," someone to step in and take over management of the Trust if the Trustmaker is determined to be mentally incompetent. The Successor Trustee can then manage the Trustmaker's finances and the assets that have been placed into the Trust and follow the wishes of the Trustmaker as outlined in the Trust document.
Phase Three of a Revocable Living Trust: The Trustmaker's Death
A Revocable Trust automatically becomes Irrevocable when the Trustmaker dies simply because the Trustmaker can no longer make changes to it. The named Successor Trustee then steps in and begins the process of mamaging the assets, paying the Trustmaker's final bills, debts and taxes, just as he would if the Trustmaker became incompetent. In the case of death, however, he would then distribute the remaining assets to the Trust's beneficiaries according to instructions included in the Trust's formation documents.
How a Revocable Living Trust Avoids Guardianship or Conservatorship.
Because the Trustmaker will not own any property in his or her individual name after the assets have been funded into the name of the Revocable Living Trust - they will instead be owned by the Trustee for the benefit of the Beneficiary - if the Trustmaker becomes mentally incapacitated, then the trust assets won't need to be subjected to a court supervised guardianship or conservatorship. Why? Because the Disability Trustee named in the trust agreement will have the legal authority to step into the Trustmaker's shoes and take over control of bank and investment accounts and business interests without the need for a court supervised guardianship or conservatorship.
What is “funding” my Trust?
Funding a Trust is the process of transferring your assets from you to your Trust. To do this, you physically change the titles of your assets from your individual name (or joint names, if married) to the name of your Trust. You will also change most beneficiary designations to your Trust.
Who is responsible for funding my Trust?
You are ultimately responsible for making sure all of your appropriate assets are transferred to your Trust.
Who controls the assets in my Trust?
The Trustee you name will control the assets in your trust. You can name yourself as Trustee giving you complete control. One of the key benefits of a "revocable" Living Trust is that you can continue to buy and sell assets just as you do now. You can also remove assets from your Lving Trust should you ever decide to do so.
Why is funding my Trust so important?
If you have signed your Living Trust document but haven’t changed titles and beneficiary designations, you will not avoid probate. Your living trust can only control the assets you put into it. You may have a great trust, but until you fund it (transfer your assets to it by changing titles), it doe not control anything. If your goal in having a Living Trust is to avoid probate at death and court intervention at incapacity, then you must fund it now, while you are able to do so.
What happens if I forget to transfer an asset?
You should also prepare a “Pour Over Will” that will act as a safety net. When you die, the Will “catches” any forgotten asset and sends it to your Trust. The asset will go through probate first, but then it can be distributed according to the instructions in your Trust.
Which assets should I put in my Trust?
Generally, assets you want in your Trust include real estate, bank/saving accounts, investments, business interests and notes payable to you. You will also need to change most beneficiary designations to your Trust so those assets will flow into your Trust and be part of your overall plan.
Should I put my Real Estate in the Trust?
Putting your Real Estate in a Trust has very little effect on the property or how it is managed. You can transfer real estate you own to your Living Trust and purchase new real estate in the name of your Trust.
As long as the Living Trust is "revocable," transferring real estate to your Trust should not disturb your current mortgage in any way. Even if the mortgage contains a “due on sale or transfer” clause, retitling the property in the name of your trust should not activate the clause.Refinancing may be more difficult. Lending institutions may require you to conduct the business in your personal name and then transfer the property to your Trust.
There should be no effect on your property taxes because the transfer does not cause your property to be reappraised. There will have no effect on your being able to use the capital gains tax exemption when the property is sold. Your homeowner, liability and title insurance will not be effected.
What about Real Estate in another state?
If you own Real Estate in more than one state, you can deed the out of state property into the Trust. Otherwise, your family may be faced with two separate probate estates, one in the state where you live, and a second in the state where your real estate is located, which is referred to as "ancillary probate."
Should I put my life insurance in my Trust?
The answer to that question depends on the size of your Estate. Federal estate taxes must be paid if the net value of your estate when you die is more than the amount exempt at that time. In Pennsylvania, the death benefit from a life insurance policy is always free of inheritance tax. The federal government does include life insurance in your taxable Estate; however, under current IRS Rules, if your Estate is under $5,430,000, then no tax is due. Also, if a surviving spouse claims the marital deduction for such assets, then no tax is due. Other states may have their own estate/inheritance tax, and it is possible your estate could be exempt from federal tax but have to pay state tax.
There are some restrictions on transferring existing policies to an "irrevocable" Life Insurance Trust. If you die within three (3) years of the transfer date, the IRS will consider the transfer invalid and the insurance will be back in your Estate. These restrictions, however, do not apply to new policies purchased by the Trustee of a Trust.
Should I put my IRA or other tax-deferred plans in my Trust?
You should not change the ownership of these plans to your Living Trust. You can name your Trust as the beneficiary, but be sure to consider all your options, which could include your spouse; children, grandchildren or other individuals; a Trust; a charity; or a combination of these.
Whom you name as beneficiary will determine the amount of tax-deferred growth that can continue on this money after you die.
Most married couples name their spouse as beneficiary because 1) the money will be available to provide for the surviving spouse and 2) the spousal rollover option can provide for many more years of tax-deferred growth. It is important to remember that after your death, your spouse can “roll over” your tax-deferred account into his/her own IRA and name a new beneficiary, preferably someone much younger, including children and/or grandchildren would be. A non-spouse beneficiary can also inherit a tax-deferred plan and roll it into an IRA to continue the tax-deferred growth, but only a spouse can name additional beneficiaries.
The one caveat here is that when you name an individual as beneficiary, you lose control of how the money is used. After you die, the beneficiary can do whatever he or she wants with this money, including cashing out the account and destroying your carefully made plans for long-term, tax-deferred growth. The money could also be available to creditors, spouses and ex-spouses, and there is the risk of court interference at incapacity.
Naming a Trust as beneficiary will give you maximum control because the distributions will be paid not to an individual, but into a Trust that contains your written instructions stating who will receive this money and when. After you die, distributions will be based on the life expectancy of the oldest beneficiary of the Trust. You can also set up separate Trusts for each beneficiary so that each one’s life expectancy can be used.
What about property that does not have a "title"?
Personal property (artwork, clothing, jewelry, cameras, sporting equipment, books and other household goods) typically does not have a formal title. Your attorney will prepare an assignment to transfer these items to your Trust.
What if I buy new assets after I fund my Trust?
Find out if you can take the title initially as Trustee of your Trust. If not, transfer the title right away. If you’re not sure how to transfer it, contact your attorney for instructions.
Funding Your Living Trust: Assets You Probably Want in Your Living Trust:
Real property (home, land, other real estate)
Bank/credit union accounts, safe deposit boxes
Investments (CDs, stocks, mutual funds, etc.)
Notes payable (money owed to you)
Life insurance (or use irrevocable Trust)
Business interests, intellectual property
Oil and gas interests, foreign assets
Personal untitled property
Assets You May Not Want in Your Living Trust
IRAs and other tax-deferred retirement accounts
Incentive stock options and Section 1244 stock
Interests in professional corporations
Note: Funding Real Estate into a Living Trust is state specific and may not apply in all states
How does a Revocable Living Trust Avoid Probate?
Since you, the Trustmaker or Settlor, will not own any property in his or her individual name after the assets have been funded (transferred) into the name of the Trust. The assets will then be owned by the Trustee for the benefit of the Beneficiary named in the Trust document. When you, the Trustmaker or Settlor, dies, assets in the Trust are not part of your Estate for purposes of probate.
Unlike a Will, which ends once the distribution of the assets are made, the Trust itself will continue to live on and the Administrative or Successor Trustee will have the legal authority to step into the Trustmaker's shoes and manage the assets according to the terms of the Trust document.
What Are the Common Myths About “Living Trusts?”
“If I have a ‘Living Trust’” ...
I do not need a Will. False — Even if a “Living Trust” is right for you, you still should have a Will. If some of your property is left out of the Trust, or if any portion of the Trust is invalid, a Will can ensure your assets are transferred consistent with your wishes.
My estate will not pay attorney’s fees. False — Because transferring assets under a “Living Trust” will require accumulating assets and distributing them (and since taxes may be due), it is usually necessary to hire a lawyer to help administer the “Living Trust” after death. In addition, there are legal fees associated with preparing the Trust document.
The assets will not be considered mine if I need to go to a nursing home. False — Because “Living Trusts” usually are revocable (meaning you can alter them during your lifetime), they will be considered your assets if you apply for nursing home benefits. Thus, the dtermination of whether or not to make the Trust "revocable" or not does determine the actual "ownership of the assets in the Trust.
My Estate will not pay inheritance or estate taxes since my estate will not “go through probate.” False — Generally speaking, any transfer of assets as a result of death will result in inheritance and possibly estate taxes being due. Thus, in most cases, property passing by a “Living Trust” will be subject to tax. Certain Trusts, referred to as irrevocable trusts, may have tax advantages that other Trusts cannot provide.
My assets automatically will be part of the Trust and my Will will not have to be probated. False — Only property that you specifically list as part of the Trust will be part of it. If you own property individually and do not include it in the Trust, your Will still must be probated.
What is a Power of Attorney?
A Power of Attorney gives one or more persons the power to act on your behalf as your agent. The power may be limited to a particular activity, such as closing the sale of your home, or be general in its application. The power may give temporary or permanent authority to act on your behalf. The power may take effect immediately, or only upon the occurrence of a future event, usually a determination that you are unable to act for yourself due to mental or physical disability. The latter is called a "springing" power of attorney.
Can a Power of Attorney be revoked?
A Power of Attorney may be revoked, but most states require written notice of revocation to the person named to act for you.
How does the Agent act on my behalf?
The person named in a power of attorney to act on your behalf is commonly referred to as your "agent" or "attorney-in-fact." With a valid power of attorney, your agent can take any action permitted in the document. Often your agent must present the actual document to invoke the power. For example, an agent who signs documents to buy or sell real property or a motor vehicle on your behalf must present the power of attorney to the title company or any governmental agency involved in the transaction. Similarly, the agent has to present the power of attorney to a broker or banker to effect the sale of securities or opening and closing bank accounts. However, your agent generally should not need to present the power of attorney when signing checks for you.
How The Agent Should Sign?
Assume John Jones appoints his wife, Mary Jones, as his agent in a written power of attorney. Mary, as agent, must sign as follows: John Jones, by Mary Jones under POA or Mary Jones, attorney-in-fact for John Jone.
Who Should Be Your Agent?
There are no special qualifications necessary for someone to act as an attorney-in-fact except that the person must not be a minor or otherwise incapacitated. The best choice is someone you trust. Integrity, not financial acumen, is often the most important trait of a potential agent.
The designation of co-agents should indicate whether you wish to have the majority act in the absence of full availability and agreement. Regardless of whether you name co-agents, you should always name one or more successor agents to address the possibility that the person you name as agent may be unavailable or unable to act when the time comes.
Will my Power of Attorney expire?
Most states permit a "durable" Power of Attorney that remains valid once signed until you die or revoke the document. Some Powers of Attorney expressly include termination dates to minimize the risk of former friends or spouses continuing to serve as agents. It is vital that you review the continued effectiveness of your documents periodically.
What is a Living Will?
A Living Will is your written expression of how you want to be treated in certain medical circumstances. Depending on state law, this document may permit you to express whether you wish to be given life-sustaining treatments in the event you are terminally ill or injured, to decide in advance whether you wish to be provided food and water via intravenous devices ("tube feeding"), and to give other medical directions that impact your care, including the end of life.
"Life-sustaining treatment" means the use of available medical machinery and techniques, such as heart-lung machines, ventilators, and other medical equipment and techniques that may sustain and possibly extend your life, but which may not by themselves cure your condition.
Living Wills do not determine your medical treatment in situations that do not affect your continued life, such as routine medical treatment and non life-threatening medical conditions. Thus, having a Living Will does not mean that medical professionals would deny you pain medications and other treatments that would relieve pain or otherwise make you more comfortable.
In all states the determination as to whether you are in such a medical condition is determined by medical professionals, usually your attending physician and at least one other medical doctor who has examined you or reviewed your medical situation.
What is a Durable Health Care Power of Attorney?
A Durable Health Care Power of Attorney is broader than a Living Will or advance directive. It empowers an "agent," appointed by the individual signing the document, to make healthcare decisions on the person's behalf in case he or she becomes incompetent. This agent can make decisions about admissions to and discharges from healthcare facilities, gain access to medical records, determine whether to authorize an organ donation, authorize whether to move the patient, make arrangements for home health care and accept or refuse treatment that affects the physical and mental health of the patient. These medical decisions come into play at all levels of health care, not just when death is imminent.
You don't have to be a lawyer to be designated as durable health care power of attorney. The word attorney simply means "designated agent."
This Durable Power of Attorney takes effect only when an individual is determined to be legally incompetent. For example, your dad might not be able to communicate following a stroke or might be too confused following surgery to make decisions. In that case, you'll be the one to decide whether it's safe for him to go home or what home health agency to hire to help him with his recovery. However, as soon as he has recovered and is competent, your father resumes the power to make his own healthcare decisions. Your parent must sign the Durable Health Care Power of Attorney when he or she is competent and in front of a witness.
What is the Cost of Estate Planning
Please review our Concierge Estate Planning Service under Legal Plans.
When is the best time to plan your Estate?
None of us really likes to think about our own mortality or the possibility of being unable to make decisions for ourselves. This is exactly why so many families are caught off-guard and unprepared when incapacity or death does strike. Don’t wait. You can put something in place now and change it later…which is exactly the way estate planning should be done.
What benefit can I derive from Estate Planning?
Knowing you have a properly prepared plan in place - one that contains your instructions and will protect your family - will give you and your family peace of mind. This is one of the most thoughtful and considerate things you can do for yourself and for those you love.