Estate Planning in its most basic form provides for the planned distribution of your assets upon your death. There are several purposes for this distribution. First, by planning ahead, your estate can reduce the impact of federal taxes on your estate. This will obviously leave a larger pool of money for distribution to your heirs. Second, by planning ahead probate of the estate can be avoided if that is the desired outcome. Often, probate is an unwanted process because of the likelihood of a will contest or assets that are scattered among several states. Third, a properly designed estate plan could also incorporate a Medicaid planning strategy to protect your assets during your life. Fourth, and most importantly, an estate plan is your chance to acknowledge the people, pets, and organizations that are most important in your life.
At the Law Office of Stephen Ross in Pottstown, Pennsylvania, we offer an initial consultation that allows you to see the benefits of having an estate plan. Subsequently, at your control, we will create the plan, implement the plan, provide written documentation showing you the nuts and bolts of the plan, and assist you with any changes to it as you progress throughout your life. It is how we apply the power of the law for you!
Common Questions
A trust is a multifunctional instrument used for several purposes. To use a metaphor, it is like an intelligent cardboard box; you tell it what to do and it does it for everything you put inside. It is different from a will because a will provides a direction for the planned distribution of assets upon death. Upon death, those assets must get re-titled to whomever you directed them to. A trust is different because it can provide a direction for the planned distribution of assets and provides for the re-titling of those assets into the trust immediately. Thus, because the assets are already in the trust, the trust can transfer the assets upon the triggering of some event. Because the person creating the trust has already proved that was his intention (to put the assets in the trust) he does not have to prove the contents of the trust (like a will). Thus, there is no probate. In addition, a trust can be created for other uses such as a special needs trust or income only trust.
The trust can be either a revocable or irrevocable trust. A revocable trust means that the person who created the trust (grantor) holds a discretionary interest in the trust after it is created. A discretionary interest means the grantor can direct how he would like the assets in the trust be invested/gifted/spent until the triggering event (which is usually death). An irrevocable trust means the grantor is giving up control and has no discretionary interest until the triggering event occurs. You’re probably asking yourself ‘why in the world would I want an irrevocable trust?’ Well, in the world of estate planning and Medicaid Planning, there are plenty of reasons that make common sense.
Of ten there are different types of trusts created for different purposes. To boil the reason of why you would have a revocable trust versus an irrevocable trust into one sentence is almost impossible. However, most people will have an irrevocable trust created when they are trying to keep the benefits those assets give them without disqualifying themselves from receiving benefits those same assets will prevent them from having. Huh? To illustrate, there two kinds of trusts I will explain in more detail under Special Needs Trust and Income Only Trust.
Trusts can have other valuable uses as well. Often, revocable trusts are created as part of an estate plan that minimizes the impact of inheritance and/or estate taxes levied by the Federal Government. Revocable trusts can also be created to prevent the probate of property owned in various states. Probating assets is generally undesirable because it is a public process that can be result in litigation. Instead, the property will be owned within the trust and the transfer of the property can take place by proof (death certificate and certificate of authority) of the triggering event (usually death) as specified in the trust.
Special Needs Trusts
In essence, a Special Needs Trust is an instrument created to protect the assets of someone who is disabled and is/will be receiving public assistance. By placing the assets in this trust, the disabled person can still receive the benefits of those assets and still maintain eligibility for public assistance.
The special needs trust is usually created by one of two persons. In the first instance, the parents of a disabled child (usually called third party special needs trust) might incorporate a special needs trust into their estate plan that automatically places the inheritance their disabled child would receive into the special needs trust. In the second instance, the disabled person might create the special needs trust themselves upon receiving a gift, inheritance, or personal injury award that might other otherwise disqualify them from receiving public assistance.
The special needs trust is an irrevocable trust, so the creator has no control over it and the disabled person has no discretionary control. Instead, a trustee has discretionary control over the assets and must use sound fiduciary duty to utilize assets in the trust when they are necessary. Because the benefactor of the trust is disabled, they are usually on some type of public assistance that they would normally be disqualified from receiving if they had control over assets. By placing the assets in an irrevocable trust, the child or disabled person retains the benefits of the trust without disqualifying themselves from public assistance.
A special needs trust works great for Medicaid Planning purposes because the beneficiary is not considered to own the assets in the trust. Thus, it is usually not a disqualifying event for Medicaid eligibility purposes.
A power of attorney (POA) is a document that gives a person, typically called the agent, power to make decisions on behalf of the person creating the power. There are two types of powers of attorney: a regular power of attorney and a durable power of attorney.
A regular power of attorney can be implemented giving the power designated as the agent the power to make decision for the person creating the power of attorney. The decisions are usually financially related and involve either direct power to make cash decisions or the power to make a financial decision that is not cash related such as a house signing, car signing, etc. This type of power of attorney becomes ineffective if the person who grants the powers becomes unable to make decisions for themselves or the person dies (with limited exceptions). To grant this type of POA, a person must make a durable POA.
A durable power of attorney remains in effect even if the person granting the power becomes mentally incapacitated. In this case, the person who becomes mentally incapacitated will usually grant the agent the power to make financial and medical decisions. The medical decisions granted may include limited medical procedures but should not grant the power to make life sustaining procedures. Those powers are strictly reserved by the person who makes a living will for themselves. The durable power of attorney ends when the person who grants the power dies (with limited exceptions).
A “living will” is an instrument that provides for life sustaining procedures to be administered to a person. Pennsylvania was the last state to enact legislation which allowed for a living will when it enacted the Advance Directive for Health Care Act in 1992.
In Pennsylvania, specific meaning is given by the statute that triggers the operation of the living will. Those conditions include the fact that a person must be declared incompetent and is either in a terminal condition or permanent state of unconsciousness. A doctor must certify that a person is in this condition and obtain a second opinion as to those facts. A living will must specifically state clear and convincing evidence of the intention of the patient in regards to refusal of treatment.
A will is an instrument used to plan for the distribution of your assets at the time of your death. A will is an important form of estate planning that can range from simple to complicated. A properly designed will at a minimum should include arrangements for how to pay for your funeral, who should be named as your executor/executrix, what assets you have, and who should be entitled to receive those assets.
A will has some advantages and disadvantages. The main advantage to a will is the rather simple form that it takes; it is a piece of paper, that when properly executed, will give others a game plan to follow with your assets upon your death. It is also relatively inexpensive to make.
The main disadvantage to a will is the fact that it can be expensive to probate. A will must be probated to prove the intentions of the person creating the will (testator) were spelled out in the trust. In Pennsylvania, attorney’s usually charge a commission (upon approval by the Orphan’s court) to probate an estate. This fee usually ends up costing more than the price of creating a trust, which will eliminate the need for probating an estate. Another disadvantage is the likelihood of a will contest stemming from an error in executing the will. Executing the will is fancy way of simply saying “will formation.” In Pennsylvania, the person creating the will must not be under undue influence form a third party when creating the will. Often times one or more persons will claim the testator was under an undue influence by a third party and the resulting will was not the made with the true intentions of the testator. This could result in a will contest, delay distribution of assets to the heirs of the will, and cause the costs of the probate to significantly increase.
Lastly, other factors could make a will a poor choice for estate planning. This might be the case if a person holds property in several states. In Southeastern Pennsylvania, for instance, many people own shore property in New Jersey, Delaware, and Maryland. If a will is used for estate planning purposes, the will must admitted for probate in all states the property is owned in if the will is used as an instrument to distribute that property. This is obviously prohibitive because of the cost and time it takes to probate a will in another state.
