Testamentary Trusts/ Retention Trusts
One difficulty you may experience the during estate planning process is concern about how heirs might use the money and resources you left to them. People spend their entire lives investing in and growing their estate, and many folks want to make sure their heirs pay the same respect to these funds. Although we can’t oversee these assets after death, we do have an estate planning tool that can help guide our heirs beyond our time: Testamentary Trusts (also called Retention Trusts). A Testamentary Trust is a trust activated by the terms of your Will. To make a Testamentary Trust, your Will must include such a trust in its language and designate it as the beneficiary of some or all of your estate’s property. Your Will’s executor will distribute your estate to the trust during probate. You must select a trustee to manage your Testamentary Trust. Then, the terms of your Testamentary Trust will distribute your assets according to the terms you set. The terms of your Testamentary Trust reflect your wishes for controlling your gifts to heirs. For example, if you’re worried that a beneficiary might go on a blowout shopping spree upon receiving a lump sum of cash, you might set the terms of your Testamentary Trust to distribute to beneficiaries in small increments over multiple years. Or, if you want to provide lump sums for certain beneficial activities, but not Las Vegas getaways, you can provide discretion to your trustee to distribute resources to fund, for example, college education or missions trips. These terms help ensure – to the extent possible – that your heirs use their gifts according to your wishes. Testamentary Trusts help extend your wishes for your heirs long beyond your lifetime.
Special Considerations: Real Estate in the Will
A common question for those beginning the estate planning process is, “What happens to my real estate when I pass away?” The answer to this question is largely your choice. You can distribute your real estate however you wish in your Will or Trust. Holding a property until death can also provide tax benefits for your heirs. It is also important to note that in Pennsylvania, if you own real estate as a joint tenant with right of survivorship, the other joint tenants will automatically assume your interest. If you are leaving your real estate as a specific gift in your Will, this may sound something like, “I leave my house at 555 Lancaster Ave, Anyplace, PA, 17600 to my daughter, Beverly.” This scenario is simple and gives you full control over who takes your real estate, however it may require strategic planning to create equal inheritance opportunity for other beneficiaries. Or, you might transfer real estate to beneficiaries through your residuary estate. Your residuary estate is everything left in your estate after specific bequests are filled. If you have one residuary beneficiary, it’s easy – this beneficiary gets your real estate. If you have multiple residuary beneficiaries, your real estate could either be sold and the sale proceeds would be distributed to your beneficiaries, or beneficiaries could negotiate amongst each other to decide who takes the house. To illustrate, if your Will distributes your real estate by residue to your children, Fred and Ginger, in equal shares, then Fred and Ginger might each receive 50% of the sales price. Or, Fred and Ginger could agree that Ginger gets your real estate, while Fred gets other things of agreed upon equal value, like your monetary assets. But who takes your real estate after your death isn’t the only important consideration. […]
Special Considerations: Charitable Beneficiaries
Every estate and legacy plan is unique, and, quite frequently, there are special considerations that must be addressed and accounted for in one’s legal documents. Perhaps the most commonly mismanaged consideration in a legacy plan is how to bless charities at death. It warms the heart to see so many faithful stewards including church, charity and ministry as beneficiaries of a percentage of their residuary estate. But what too many fail to examine is that carefully selecting the right assets for the right beneficiaries substantially boosts a legacy’s overall impact on family and charities. When the rubber meets the road, there are three groups that await your assets at death: Family, Charity, and Uncle Sam. For those that want to leave a lasting, meaningful legacy to family, it is important to realize that, in most states and in most situations, you must choose at least two of the three groups to bless. Leaving your overall estate to family, alone, is a near impossibility. This conundrum centers on taxation at death. Even in states that do not impose an inheritance or estate tax, residents lose sizable sums of their wealth in the form of ordinary income tax at death. “How could this be,” you may ask, “when I’ve been paying income tax my whole life?” The answer lies in what has become the biggest asset for most working Americans: pre-tax retirement plans. These retirement nest eggs have yet to be taxed and, as such, are fully taxable at the ordinary income tax rates of your beneficiaries when you die. Recent changes to the tax laws have eliminated the ability for beneficiaries to “stretch” the tax burden over their lifetime, so the tax impact is greater than ever. Enter church and charity. They, of course, pay no income tax. Unfortunately, the vast […]
According to a 2015 Rocket Lawyer estate planning survey by Harris Poll, 64% of Americans do not have a Will. That follows several Gallup polls with similar results. According to Gallup, 48% of Americans had Wills in place in 1990, declining to 44% in 2014. When someone dies without a Will in place, the person is characterized as dying “intestate.” The question becomes, what happens to a person’s assets when there is no Will? In effect, unless the person was able to somehow designate how those assets would pass after death, without executing a Will, that person has left it up to the government to direct how a large part of the legacy passes. Each of the states settles this issue by having an intestacy statute as part of its statutory code. Pennsylvania is no different. In enacting the statute, the legislature and governor attempted to, as best they could, step into the shoes of the person who died without a Will, and disperse the person’s estate as he or she would have probably wanted. Pennsylvania’s statute concerns all or any part of the estate of a decedent not effectively disposed of by Will or otherwise. The statute then looks to the surviving spouse. If there is one, with the decedent having no surviving descendants of parents, the surviving spouse gets the entire intestate share. If the decedent had a surviving spouse and children with the surviving spouse only, the surviving spouse would receive the first $30,000 of the estate, plus one-half of the balance of the intestate estate; the children would receive the rest. The statute goes through various family permutations, moving further outward from the decedent to any descendants, parents, siblings and their descendants, grandparents, and finally to uncles, aunts and their children and grandchildren. If the decedent […]
Tangible Personal Property
The physical items we own, called “tangible personal property” (or TPP) is part of the legacy that we leave to those who we wish to bless. Tangible personal property, may have significant or minimal monetary value. Regardless of monetary value, however, TPP may hold a lot of sentimental value to us and to those who are a natural part of our legacy. Whatever its value, and however the value is measured, TPP sometimes requires additional thought and planning when devising an estate plan. One way to define TPP is that it is our “stuff;” anything that we can put into our vehicles and drive off with, including the vehicle itself, is our TPP. This may prompt some people to wish that they had bought a bigger vehicle with more hauling capacity! Our TPP is not limited by that, but includes everything from household furniture, jewelry, books, clothes and tools, to our collections of anything and everything from dolls to classic cars. In many Wills, TPP is dealt with in a separate section of the document. And, if there is a specific bequest of certain TPP items to a beneficiary, this property may be found in two sections of a Will. Most often, TPP is left to a surviving spouse, and if none, to descendants to decide among themselves who gets what as part of the estate administration process. In Pennsylvania, there is some added flexibility in how we can leave our TPP to beneficiaries. If we choose, we may create a list to keep with our Will on which we can specify who will receive a particular item of TPP. The list must be signed and dated, and can be changed at any time. The list does not have to be notarized or witnessed.
Last Will & Testament
While this may be the last thing that you want to think about, your Last Will and Testament is the cornerstone of your estate plan. Through it, you can exercise your will with regard to your possessions, and, most importantly, who will become guardians of your minor children if both you and your spouse are called home. Through this document, you give a testament to how you have lived your life and how you have been a steward of what you have been given charge over during this life. Anyone who is of legal age and who has testamentary capacity may execute a Will. Testamentary capacity is a relatively low standard, and the individual executing a Will need only have testamentary capacity at the time of execution. Testamentary capacity exists when the individual executing his Will understands the nature of making a Will, has a general idea of his possessions, and knows who are the members of his immediate family or other “natural objects of his bounty.” Wills often deal with the individual’s Tangible Personal Property (which will be covered in more detail in a future blogpost), and any specific gifts or bequests the individual wants to set forth in his Will, such as giving $2,000 to that nice young neighbor who mowed your lawn when it just got to be a bit too much for you to handle in later years. The Will also deals with the residue, which are your possessions that do not include tangible personal property or assets that pass by beneficiary designation, like a 401K. Checking and savings accounts, and an individual’s residence are often part of the residue. Sometimes younger couples say that they don’t need a Will, because they don’t have much in assets. They may be telling you this while rocking […]
Fiduciary Relay Race: From Agent to Executor
When discussing the role of fiduciaries in your legal documents, it is important for you and those you appoint to understand how responsibilities begin and end within each of the documents you create. Similar to a relay race, the baton (your physical estate and intangible legacy) is passed between fiduciaries who are appointed for various roles prior to ending in the hand of your eventual beneficiaries. While you are alive and well, you hold the baton, making decisions as a good and faithful steward. In the event of incapacity, however, you hand your baton to your agent/attorney-in-fact via the Power of Attorney (POA). The hope is that the agent will be handing the baton back, sooner rather than later, but during his/her time with the baton, he/she is “you” in the eyes of the law. The more power and flexibility you provide your agent, the better he/she can serve your interests. In the event that your condition never improves (or you die without using the POA), your baton is passed to the Executor of your Last Will and Testament. The Executor “runs” with your estate for about a year, garnering assets, arranging for the payment of any final expenses and taxes, and helping ensure that everything gets where you want it to go. Thereafter, the baton will pass to one of two runners: your beneficiaries or a trustee for your beneficiaries. In the case of a Trustee, because you have set restrictions on the access to funds, the Trustee runs with the baton for as long as you set forth in your trust. In this role, depending on the age of your beneficiaries, the Trustee might be working hand-in-hand with another fiduciary, the Guardian of your minor beneficiaries. Here, the hope is that the two fiduciaries work in tandem, to […]
My Power of Attorney Lives Out-of-State
As discussed in prior blogposts, Power of Attorney documents are some of the most important documents you need to have in your estate planning arsenal. The Power of Attorney can provide peace of mind to you, the Principal, in knowing that your finances—and most importantly, yourself—will be taken care of regardless of what life throws your way. Part of the struggle that many people find when setting up their Power of Attorney is determining who their Agent will be. Many people will choose a spouse or family member to be their primary Agent. But what happens if that family member or trusted individual lives out-of-state? Years ago, having an Agent who lived out-of-state may have posed significant challenges, since often the original document was required to be produced in order to gain access to the Principal’s accounts or personal information. But thanks to recent technology and updated statutes, many out-of-state Agents can gain access with minimal trouble. For instance, according to Pennsylvania’s Power of Attorney Statute 20 PA C.S. 5602 (d) “a photocopy or electronically transmitted copy of an originally executed power of attorney has the same effect as the original.” Although it is still important to consider proximity when selecting your fiduciary, modern technology makes it easier for someone to appoint a trusted agent and fiduciary regardless of where they live.
Health Care Declaration & Power of Attorney
The Health Care Declaration and Powers of Attorney, often called a Health Care Power of Attorney, is another key document that is part of one’s estate planning “suite” of documents, along with a Financial Power of Attorney and a Will. The need for a Health Care Power of Attorney has increased in recent years. Doctors and other medical professionals regularly request that their patients provide a signed Health Care Power of Attorney for their files. Upon admission to a hospital or nursing home, it is now common practice to either produce your own executed Health Care Power of Attorney, or sign a form required by and produced by the attorneys of that particular institution. A standard Health Care Power of Attorney document generally includes the following: a section specifying the specific powers granted to the fiduciary, a section where the signer may elaborate on what sort of care they wish to have provided to them in an end-of-life situation, and whether the signer wishes to donate any organs or tissue following death. Because it allows an individual to specify what end-of-life care regimen should be followed when that time comes, the Health Care Power of Attorney is an effective document that gives the fiduciary named in the document some peace of mind when having to make these health care decisions under stressful times.
Aevitas Law is committed to serving you in the wake of COVID-19. In the interest of global and community health, our office is utilizing remote capabilities to continue providing prompt and quality service. We are staying up to date on the latest developments regarding how court deadlines and filings are affected, as well as creative opportunities for business owners during this time. In addition, this is an opportune time to review those personal documents and communication tools that might be needed if you are unable to make decisions yourself (either due to illness or just the inability to leave your residence). Two important estate planning documents, your Financial and Healthcare Powers of Attorney, help ensure that you don’t miss a beat. If your Financial Power of Attorney (FPOA) was signed prior to 2015, it is likely missing new PA statutory language that is required by many financial institutions. Making sure your Healthcare document has adequate HIPAA language is also important. You can learn more about these documents and the process at aevitas.law/blog/. If you’d like to get started, contact us at [email protected] We are honored to serve you and walk with you during this time and always.
Durable Vs. Springing Powers of Attorney
Most Financial Powers of Attorney are known as Durable Powers of Attorney. That means that upon signing the document (and the document is notarized), your appointed Agent will be able to act on your behalf right away, as well as after such a time as you may be unable to act for yourself. This ability to appoint someone else to step in and act for you is one of the primary reasons someone chooses to execute a Power of Attorney, so it is important to ensure the financial document you are signing does indeed include the language to make it “durable.” A “Springing” Financial Power of Attorney, in contrast, only goes into effect when you cannot act for yourself. Until you are deemed incapacitated, your Agent may not step in on your behalf. This allows you to maintain sole control of your financial affairs until such a time as you are unable. However, if an emergency arises while you are unavailable, such as a resolving an insurance claim while you are traveling abroad, your Agent would not be able to step in for you. Generally, as long as you are appointing someone you trust as your Agent, you should be confident to sign a Durable Power of Attorney document to cover any unexpected situation that may arise.
Financial Power of Attorney
One type of fiduciary role is contained within the Financial Power of Attorney document. Proper preparation of these documents is key in order to allow whoever is named in the document to handle any financial matters that we cannot handle ourselves, whether that be due to illness, incapacity, or even for such reasons as being away due to travel. Whoever we name in the document is our Agent, and our Agent acts in a fiduciary capacity in fulfilling his role. (Please see previous blogpost What is a Fiduciary.) One important note regarding Financial Power of Attorney documents is that many states have developed uniform provisions that require precise notices and acknowledgements in order to be valid. These states often require the document to be notarized and signed by two witnesses, modified wording to the official Notice on the first page, and revised wording to the Acknowledgement form at the end. Accordingly, if you have not updated an official Power of Attorney document that meets these requirements in the past four years, it would be wise to review your current document to ensure its validity.
How to Appoint a Fiduciary
Fiduciaries can be appointed to serve you in a variety of ways. Three of the most common roles of a fiduciary include acting as an Agent or Attorney-in-Fact in financial or health-related matters during your lifetime, as the executor of your estate once you pass, or as a trustee. When preparing your estate plan, you may find that there is one person best suited and willing to serve as your fiduciary in all of these roles, or, more commonly, you may choose to appoint different individuals for your various fiduciary needs, according to their giftings and the dynamics of your family. When appointing a fiduciary, it is often wise to consider a “successor,” or back-up person, in case, for whatever reason, your first choice is unable to act when the time comes. The names and structure by which you choose to appoint your fiduciary can be identified in the corresponding formal document drawn up for this purpose.
What is a Fiduciary?
What happens in the event of your death or incapacity? Or, perhaps more importantly, who is carrying out your plan? What should this person do? What if the doctors are saying that all hope is lost and you should be taken off of life support? Have you effectively communicated your wishes? What type of person is well suited to balance your care with your goals and objectives? A person designated to “step into your shoes” and act when you can’t is known as a fiduciary. Essentially, a fiduciary is a person (or organization) acting on behalf of another person, putting his/her own interests behind that of the person being served, and being bound by the duties of good faith and trust. When choosing a fiduciary, there are three key characteristics to consider. In order of importance, the first key is values. It is essential that your fiduciary share your values. When the rubber meets the road, you want to know that the person you select will land on a decision the same way you would. Next to values, it is important to have a fiduciary that possess some degree of knowledge. Although the vast majority of fiduciary functions can be outsourced to other professionals, having a fiduciary that shares your values and has a sound head on his/her shoulders is ideal. Lastly is proximity. In today’s day and age, being “there” is not nearly as important as it once was. That said, having a fiduciary that embodies all three of these key characteristics makes for a great pick!
What is a Legacy Plan?
Estate planning is commonly defined as the preparation of structures that serve to manage an individual’s asset base in the event of incapacitation or death. Having an estate plan is essential and as you consider crafting your own, you would be wise to consider how your estate fits into your overall legacy. As previously discussed, your legacy (and your legacy plan) represents more than just your “stuff.” How will you be remembered, when you no longer have a pulse? What will that fingerprint that you leave behind look like? You will, undoubtedly, need to ensure clear communication of those things important to you, but you must also guard against two other challenges to leaving a lasting legacy: taxes and long-term illness. Planning for the challenges that each of us faces in today’s world is the best way to give you, your family and the charities you support a “leg up” on the multitude of factors that can ravage your estate and your entire legacy.
Everything Starts with Communication: Why Have a Legacy Plan?
“The single biggest problem in communication is the illusion that it has taken place.” -George Bernard Shaw. Perhaps more truer words have never been spoken when it comes to intrafamily discussion surrounding financial and estate planning. In fact, a lack of communication is regarded by most as the single biggest challenge to leaving a lasting legacy. Your legacy is much more than just your “stuff,” of course. In large part, your legacy is the fingerprint you leave behind for future generations: your values, your time-honored traditions, as well as words of wisdom, perhaps, that you have yet to say in person, just to name a few. Part of your legacy does, however, involve the way in which you set your loved ones up for success after you are gone. In order to leave a lasting legacy, you have to start with adequate communication. Adequate communication, for most, begins with the completion of your estate planning documents: Powers of Attorney, Wills and, perhaps, Trusts. If you don’t take the time to communicate your wishes with regard to your “stuff,” the likelihood of your fingerprint surviving you after death is slim. In this blog series, we will explore several of the key communication devices in estate and legacy planning, as well as how to navigate the pitfalls that exist in each.