Wealth Preservation, Trusts and Estates

Family Limited Partnerships

A family limited partnership can clearly be a great estate and business-planning tool but if it is drafted or implemented incorrectly it could cost you money and headaches.  Family Limited Partnerships allow families to own and operate a business or series of investments as part of an executor estate plan to protect both parents and children. In addition, it offers the owners of real estate and closely held business a powerful tool for protecting whole businesses from dissolutions, excess taxes, and claims in divorce or lawsuits.

2011 Pennsylvania Estate Planning News:

In the Estate of E.V. Jorgenson the decedent (the person who just passed away) transferred substantial assets to two family limited partnerships and claimed that the retained powers and interests were minimal. The IRS assessed an estate tax deficiency and Tax court found that the decedent had retained the economic benefits and control of such property and that the transfers did not involve a bona fide sale for full consideration. Estate of E.V. Jorgensen, 2011-1 USTC

Why did the taxpayer lose?

Because she had written checks on partnership accounts to pay some personal expenses and make some family gifts.

What does that mean?

Because she maintained too much control of these assets and used them for personal purposes  the value of the family partnership assets were taxed in her estate.

The estate tried to argue that the amounts involved were so small that she really did not have control of the assets but the court did not agree and believed she had access to the funds.

To find out more about tax planning options that could offer significant family tax relief click here to read $ 5 Million Gift Tax Exemption Makes Gifting of Small Business Easier.

What does this mean for you and or your family limited partnership (FLP)?

Transfers of marketable securities, cash or other assets to family partnerships need to have a significant non tax purpose or the court, as it did here, will not consider them a bona fide sale for adequate and full consideration and they will remain in your estate. You and your attorney need to be aware of the heightened scrutiny involved in transferring this type of asset into Family Limited Partnerships FLP’s and its tax and other consequences. The FLP should have a bonafide business purpose and retained control should be minimal.  Using such assets to pay personal expenses will likely cause the technique to fail.

Here are a few questions to think about in considering creating an FLP or transferring or funding your FLP:

• If you were considering funding the FLP with residential or vacation real estate do you want to continue to be able to use that real estate? If so this is not the right tool.  Think instead about a qualified personal residence trust or an outright gift since property values are at historic lows.

• Do you instead need a qualified personal residence trust to implement your above desires?

• What powers or sources of income can be retained without including the FLP in your estate?

• Should you consider a GRAT – Grantor Retained Annuity Trust where some of the assets can be returned to you for your personal use?

If you are not sure of these answers or want to find out more about family limited partnerships contact a wealth preservation attorney to discuss what might work best for you and your unique situation.

Family Limited Partnerships can be a useful tool if they are created and implemented correctly. Figure out what you want to do and then think about the questions above and talk to your attorney or seek an attorney who specializes in wealth preservation to give you all the options available and what possible consequences each of those options may pose.

David M. Frees III, JD For more information about these techniques, call:
610-933-8069  or email dfrees@utbf.com

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The Romney’s 2010 tax return (which is quite  lengthy and can be viewed in it’s entirety by clicking Mitt Romney’s Tax Return) gives us a few hints about trust and estate planning techniques of the wealthy that may have relevance for you – even if your net worth is closer to 1 million dollars than 150 million.

Article By: David M. Frees III, JD

As a matter of side interest, the Romney’s assets were held in a “blind trust” which arguably eliminates or minimizes conflicts of interest for a politicain or officeholder since they no longer know what investments are held by the trust and make no direct investment decisions.

However, the existance or not of a blind trust makes no difference from an estate tax planning perspective.

Why?

Any trust which allows you to continue to use the assets, and/or to control or revoke the trust will generally be included and taxed in your estate.

So what can we tell from his income tax return that might hint as his estate planning and why do you care?

Well, you should care if your assets, including real estate, IRAs and life insurance, business interests and investments exceed $1 million dollars since at the end of this year the amount that can be passed to your heirs without federal estate tax falls back to only $1 million dollars.

And, to make matters worse, the effective rate rises again from 35% to 42-55%.

Since Romney presumably has paid for some very  savvy lawyers, there might be a few lessons here that could matter to you and should be reviewed with your own lawyer before the end of the year.

First, there appears to have been a Grantor Trust established as the return shows income from a trust reported on his return.

If you own a business, certain types or real estate, and other assets and your estate exceeds certain limits, a Grantor Trust, or the sale of assets to a defective grantor trust might be an excellent way to transfer the asset and the growth on the asset out of your estate and further benefit the next generation by continuing to pay all of the taxes due on that income.

It also appears that the Romney’s funded a CRUT or Charitable Remainder Uni-Trust.

The CRUT can be an excellent way to transfer appreciated assets, to get a charitable deduction, and to retain income from those assets for some period of time.

There are lawyers, financial advisers, and accountants who advise the use of these trusts for tax planning alone.  Personally, I believe that they are best suited for those clients with a true charitable intent.

But, if you need income but would like to make a sizable gift to a charity that is important to you, consider and discuss this technique.

The 203 page return reveals the truly complex and seemingly insane level of energy required to comply with the intricacies of the Internal Revenue Code but I’ll take lessons and get ideas for my clients wherever I find them.

If you need information about Grantor Trusts, GRATs or CRUTs or any other planning techniques to protect your surviving spouse or herirs, we are pelased to offer a consultation to determine if you would benefit from an enhanced estate plan.(TM)

Please feel free to call 610-933-8069.

By:  David M. Frees III, JD

dfrees@utbf.com

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Picking an executor is a critical part of any sophisticated or even simple and effective estate plan. Having the wrong executor or someone that does not fully understand your wishes can wreak havoc on your estate’s administration and more importantly on the execution of your wishes. In fact, other than the decision to create and execute an estate plan; executor selection may be one of the most important estate planning decisions you will make. Consider the Pennsylvania case below.

In a recent 2011 Pennsylvania case a co-executor removed decedent’s safe and financial records two days before the death and failed to return or disclose this to the beneficiaries or list the items on the inheritance tax return. The Orphans Court removed and surcharged the co- executor for attorney fees and costs of the estate. Jonik Est. (O.C. Div. Phila.), 1 Fiduc. Rep. 3d 296.

Would your executor do this to you?

Do you have the right executor?

How do you pick the right person or institution to do this job?

Click here to read more about how to select the right executor for your estate plan.

Being an executor is a tough job. The executor must find your legal and financial documents, gather your assets, pay off all your debts, keep the beneficiaries informed, make financial decisions, and implement your wishes as if you were there.

Many times we see executors who are overwhelmed by the amount of work required by law to be an executor in Pennsylvania.  For that reason, it is important to pick someone who can handle it and even more importantly can get the job done the way you would want your estate administered.

Furthermore we often see even dedicated executors make the same simple but dangerous mistakes. To educate yourself and or your executors click below to get a free copy of our resource for executors.

The Ten Most Common Mistakes Executors Make… and how to avoid them

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One of the Irrevocable Trusts we prepare for clients who enter into

Nursing Home Asset Protection planning is referred to as the Medicaid Intentionally Defective Grantor Trust (MIDGT).  One of the tax features of the MIDGT is that the person, usually an elderly parent, who transfers assets to the irrevocable trust will continue to be responsible for paying the income tax due on the trust earnings even though he or she has severed all other ties to the assets.  One of the significant benefits of the parent, in this scenario, retaining the responsibility to pay the income tax is that he or she will be able to offset the income earned by the trust using possible long term care costs.

Below is a brief review of the Medical Care Costs that you or a loved one might incur and which might be used to offset income or gain.

It is important to maximize all income tax deductions available to you or a loved one.  Medical expenses are deductible only to the extent they exceed 7.5% of a taxpayer’s adjusted gross income (AGI). You can only use medical expenses that are not reimbursed through insurance or other means.  It is infrequently the case that the common medical expenses can be used as deductions because either the costs are covered by insurance or they do not rise to the necessary percentage of gross income.

That being said, the entire cost of a long-term care facility, including meals and lodging, can be a deductible medical expense. The care cost is fully deductible if the principal reason for entrance into the facility is the provision of medical care.  The retained ability to take such a large deduction could result in significant income tax savings.

A person living in an assisted-care facility can only deduct a portion of the cost of the payment to the care facility.  The IRS does not view the entire payment as a medical care cost considering the taxpayer is only being “assisted” and is not receiving complete care.

You can also take medical deductions if you are spending significant dollars to upgrade your home in order to remain at your residence comfortably.  Equipment and home modifications to accommodate the handicapped (no age limit) that do not increase the market value of the home are deductible as a medical expense.  Examples of such deductible improvements include additions of handicap accessible bathrooms or hospital beds.

So you can see, the income tax savings could be significant if the care recipient is claiming the income and offsetting it with care costs.  This would potentially let the trust assets to grow income tax free for years.

As a side note, these medical deductions can even be taken at the estate level after a person’s death.  When a person dies owing medical expenses, and those expenses are paid by the estate within one year, a medical expense deduction can be taken on the decedent’s final income tax return (Form 1040) or on the federal estate tax return (Form 706).

For a more detailed review of the Medicaid Intentionally Defective Grantor Trust click here.

For additional information on Elder Law Planning and the use of Elder Law, asset protection planning please contact Douglas L. Kaune at 610 933 8069 to schedule a client conference to determine if the Firm can be of assistance. For a review of Doug’s bio page click here.

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When a person dies without a will, (intestate), his or her property will go through a court supervised intestate process.

That process is a set of inflexible rules created by state law that dictates how the deceased person’s property and assets are distributed.  Only a will, or a non probate beneficiary designation (a combination of the two is usually best) will prevent these state rules from applying to your assets.

Want to avoid the intestate process?  Make sure to execute a will and make sure to coordinate your will with your non probate property such as IRAs and life insurance payable under a beneficiary designation.

Here’s a brief video from Bloomberg on why it’s important to have a will. You can skip the ads.

If you have a will click here to read Is It A “Probate Asset” Or Not”? to find out more about which of your assets go through probate.

The Pennsylvania Intestate Process

If there is no will the intestate process begins with the Orphan’s Court appointing a personal representative to pay creditors, to receive legal claims, and manage the estates expenses. Estate expenses range from the decedents (person who has died) unpaid bills, loans, administrative fees, costs, and payments to the administrator for their service.

After the court appoints the administrator and the expenses are paid the intestate law will identify heirs for distribution of assets. Here is a summary of Pennsylvania intestacy statutes, which dictates to the court and the estate as to the heirs of a given estate when there is no will:

State	Priority Under Intestate Laws	When there are Children of Different Generations (grandchildren)
PA	1. Spouse and no children or parents – everything to spouse. 2.Spouse and parent (no children) — everything to spouse. * 3. Spouse and children — spouse takes 1/2 the estate. If the children are also the spouse’s, the spouse also takes $30,000. If they are not, spouse only takes 1/2. Children divide the remainder equally as long as they are in the same generation. 4. Children and no spouse — the children take all. Shares are divided equally among the children in the same generation. 5. Parents, no children or spouse — parents share equally. 6. No spouse, children, or parents –brothers, sisters, or their children take all. Shares are divided equally as long as those eligible are in the same generation. See 20 Pa. Con. Stat. Ann. §§ 2101, et. seq. (2002).	The estate is divided into as many shares as there are living members of the nearest generation of children to the victim, including deceased children in the same generation who left behind children. Each surviving heir in the nearest generation to the victim receives one share and the share of each deceased person in the same generation is divided among his or her descendants in the same manner. See 20 Pa. Con. Stat. Ann. §§ 2101, et. seq. (2002).

• Pennsylvania intestate statute was amended on October 3, 2003. See 2003 PA Legis. Serv. 26 (West).

• This is a general summary only.  It does not include distributions when none of the relatives set forth in these charts is alive.  This is not a substitute for state law, and to the extent state law varies with this chart, state law controls. For more information, an attorney familiar with state statutes and case law should be consulted.

If no heirs can be identified the estate and its property and assets will be given to the state.

If there are heirs the administrator will distribute the assets to the heirs according to Pennsylvania’s probate laws.

If you do not have a will and die the probate court will distribute your estate according to intestate law. And, Pennsylvania’s intestate law may vary significantly from your actual wishes.  This is especially true if you have children from a prior marriage, want your spouse to have all of the assets, want to include other people or charities.

Why?  No close friends are factored in and family to whom you are not close to may inherit the most.  No charities are included and your spouse may not even get to receive or use your assets.

In the end, administering an estate without a will may not do what you want, it may not select the administrator that you desire, and it may be considerably more expensive than probating an estate with a will.

Questions about having a simple will, trusts for children and grandchildren, special needs trusts?

Please email me at dfrees@utbf.com

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As many of you know, the present Federal Estate Tax Law allows for a surviving spouse to carry forward the Federal Estate Tax Exemption available to his or her deceased spouse at his or her death.  To garner the benefits of this “Portability” provision, the Internal Revenue Service (also referred to as “IRS”) does not require a surviving spouse to establish a credit shelter trust like those utilized in many estate plans in years past.

Now that you know that the Portability provision exists, we can tell you the mechanics of making the proper election.  The IRS Notice 2011-82 issued on September 29, 2011 explains that the executor of the first decedent spouse’s estate must timely file a Form 706 “on which the executor computes the deceased spousal unused exclusion amount ["DSUEA"] and makes a portability election.”

The Internal Revenue Service makes it clear through its statement that “most (if not all) married decedents dying after December 31, 2010, will want to make the portability election.”  Although the surviving spouse or other executor of the surviving spouse’s estate might have to do a bit more work to prepare and file the federal estate tax return, the benefits for the future generation could be significant.  It is calculated that the additional $5,000,000 of federal estate tax exemption resulting from the portability election could result in a federal estate tax savings of $1,750,000.

Again, we believe it is important for virtually all surviving spouse’s to file for the Portability of their deceased spouse’s estate tax exemption.  While a surviving spouse’s estate value might be under the present $5,000,000 exemption per person, one of the following could happen:

1)  The surviving spouse’s estate value could rise significantly and ultimately exceed his or her exemption at his or her death.

2)  The Federal Estate Tax Exemption could be reduced below the surviving spouse’s estate value.

3)  There could be a rise in the estate value and a decrease in the exemption amount.

Regardless of which of those occurs, the extra $5,000,000 of exemption that could be carried forward from the decedent spouse would go a long way toward protecting some or all of the second deceased spouse’s estate from the 35% tax that now would apply.

While the preparation and filing of the Form 706 can be complex and time consuming it is likely well worth the effort when considering the potential tax savings.

IMPORTANT NOTE: For decedents dying on January 1-3, 2011, the deadline for filing a 706 is Monday, October 3, 2011. You may secure an automatic six-month extension by filing Form 4768 by the original due date for the 706.

Click on the link below to view or download a copy of this important Notice. http://www.irs.gov/newsroom/article/0,,id=246604,00.html

To read our article on the Federal Estate Tax’s Future click here

Will the Federal Estate Tax Law Be Modified in 2012? Obama Gives Us A snippet of Insight.

For assistance in preparing and filing a Form 706 and making the necessary Portability elections, please contact Douglas L. Kaune, Esquire at 610 933 8069 or dkaune@utbf.com.

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Want Your Estate Plan To Really Work ?
Most Plans Don’t.

If You Have A Clear Desire To Leave
A Legacy and To Protect Your Heirs
You Need Your Estate Plan or Will To Be Clear,
Loud, and Effective.

If You Want Yours To Actually Work, Then Here
Are The Must Know Strategies and Steps To Ensuring
That Your Plan is Clear and Really Works…

Really?
Most Wills and Estate
Plans Don’t Work?

True.

Most people, even many
wealthy people, don’t even
have a will.  And, of those
who do a will, most will fail
to carry out their wishes.

Why?

Because they fail to take the few additional steps
and the couple of extra steps that really make the
difference.

These steps to success aren’t a secret.

But they are unknown to many people and in many
cases, to their lawyers.

So if wills and estate plans don’t work, why bother?

It’s not that wills don’t work. They can and do.

It’s just that most people (even many affluent people)
don’t take the time, or spend the tiny bit more money
to make them work properly.

They just need a few strategies and a
few extra hours of time to make the plan  work
many times better, to save more money, and to
create much more effective protection.

And, to make matters worse, many people, and/or
their advisers often ignore the important step of
getting clear about what they want, who gets what,
when they get it, how they can use it, and how these
assets can be protected.

Finally, even if they take these steps, they often fail
to coordinate how they hold their wealth and assets with
what the lawyers and advisers have done in the estate
planning documents.

This article presents a brief review of some of the essential
strategies, and the specific steps designed to protect your
heirs from losing their inheritance to taxes, divorce,
frivolous litigation, fees and estate expenses.

Take just a few more minutes to read this article and
I can guarantee that you’ll be a much better consumer
of estate planning services, and that you’re estate plan,
will or trust will be many times more effective.

Let’s get started.

Do you have a business, stock ownership, a second home
or other assets that you want to leave to others or to a charity
as a legacy of your time and effort throughout your life?

Do you have a son in law or daughter in law that
has values that differ from your own?

Have you ever worried that a son or daughter might
get divorced and lose an inheritance to an ex spouse?

Do you care how and when your heirs and beneficiaries
get the assets?

How they are protected from lawsuits,
taxes, divorce and creditors?

Even if you think that you don’t care because your gone
when your kids inherit these assets, do you have any desire
to protect assets and wealth for grandchildren, charity or others?

So, if your definition of a successful estate plan is one that
protects your heirs from losing their inheritance, from taxation,
from will contests, legal expenses, and from other risks, then
you’ll want an estate plan that really works.

So what are they key strategies and steps to a successful will,
trust or estate plan?

Strategy #1  Get Clarity First -
About Your Assets and Your Wishes

This will save you time, money and, when coupled with
the right estate planning documents and your voice, will
send clarity to all involved.  It’s the opposite of mumbling.

This sounds simple and obvious. But, I have had 8,000 clients
over 25 years and I personally still see hundreds per year.
And more often than not, they come to me before they figure out.

As you can imagine, that’s not good for them and it’s hard for
us to create a plan that does exactly what they want when they
haven’t even figured it out.

And, if your married, this involves clarity and a uniformed vision
of two minds not just one. And, anyone married beyond the
honeymoon knows that agreement on all of the issues of estate
planning doesn’t always come easy.

So what’s the solution?

What are the specific steps you need to take?

First get a net worth statement together. Know what you have,
how you own those assets, and what they are worth.  With the
right kind of guide, this isn’t as hard as it sounds. And, it’s essential
information that any effective estate planning lawyer will need
to do the job for you.

And if you want a great estate planning tool, download my
Estate Planning Questionnaire or order my Definitive Guide to
Enhanced Estate Planning (for this guide, call 1-888-349-5016)

Second, married or single, start with your personal set of estate
planning goals.  Be clear about what you want.

How do you get clarity?  Ask yourself these questions.

What legacy do you want to leave?

Who gets what?

When do they get it?

Are there restrictions on the uses of such an inheritance?

Are you worried about divorce or lawsuits?

Do any heirs have special needs?

Do you have charitable intentions?

Are just children included or are there
direct gifts to grandchildren or others?

Do you have a charitable intent?

Who are the executors, trustees, guardians,
trust protectors, and other fiduciaries?

Are they the right people or institutions?

What do they have to do?

Now, if you’re married, you have to work with your
spouse to meld these two – often very different
sets of goals, aspirations, and if there are children
from multiple marriages, or a blended family, then
the issues are even more complicated as
both spouses will want to protect one another and their
children by this and/or prior marriages.

That brings us to the next and final step.

Strategy #2 Get the right attorney.

So how do you do that?

Start again by asking the right questions.

Most people want an attorney who is local and
convenient.  But, if all other factors aren’t met you
can often find an attorney who is right for you within
a thirty to forty five minute drive.

This extra investment of time should pay real dividends.

How?

Most lawyers don’t have extensive experience in estate
planning.  A general practice lawyer might be right for a
young couple just starting out.

But when you have a family
business, when you’re a n executive, a business owner,
or when you have extensive assets, vacation homes, or
hard to value assets, then more experience may be called for.

One of the best ways to find the right lawyer is to get a referral
from your own lawyer, accountant, or other friends or family
members with situation similar to your own.

In fact, most of our clients are referred to us by their lawyers,
affluent or wealthy friends, family members, or other advisers.

Of course, it’s great when someone who you trust
(or even more than one) gives you the same name and a glowing
legal recommendation.  That’s a great place to start.

Consider calling that lawyer for an appointment, but be sure
to ask if there is a consultation fee for the first appointment.
Many good lawyers offer low or no fee initial consultations.
But many good estate planning lawyers also charge.  It’s just good to
know in advance.

But, if you don’t get a clear referral, or, if you want to know
more about the lawyers in your area, then you can also use lawyer
rating services like www.Avvo.com or Main Line’s Top Trust and Estate
Lawyer Designation or SuperLawyer designation.
You can click those links to see a sample of my profiles at those sites
or to search for other lawyers with those ratings.

Finally, it might also be helpful, or reassuring to Google some
of the estate planning questions, and issues that are important to
you.

Does a law firm or lawyer in your area or community consistently
come up in the search results?

Do they offer great and informative information?

Do they represent other clients like you?

Do they have experience with special needs trusts (if you have a
child or grandchild with a disability or special need)?,

Are they experienced in the tools and techniques of wealth transfer,
such as gifting, GRATS (if you own rapidly appreciating assets),
Qualified Personal Residence Trusts
(if you have a vacation home or valuable primary residence),
ILITs (if you have or plan to buy life insurance)?

And, if this sounds too complex, don’t worry.

You may not need or want any of these particular tools.

But, what you do want is a lawyer
who knows all of the options.

Once you learn them, then it’s up to you to choose what
your estate plan looks like and how it works.

You want a lawyer that can discuss these options.

These are a few of the ways to make sure that you have clarity,
and get the right lawyer to help you and a spouse (if you’re married)
to devise a clear estate plan and the documents to carry it out.

Finally, you need to go the extra mile to make sure that your
plan is clear, that it works, and that it is designed to save your heirs
time and money, and if desired, that it also protects them
from lawsuits and divorce.

This means hiring a lawyer or law firm that will help you
to coordinate your assets and to structure your affairs to match
and to compliment the documents, tax clauses, wills and trusts
that make up your estate plan.

You’re also going to want a lawyer that can coach you on:

how to avoid will contests,

how to create estate planning memos

how to hold family meetings when explaining the plan,
the trusts, and the strategies is desirable.

There’s more to great estate planning than this, but if you follow these steps,
you’ll be well on your way to creating a successful, powerful, and
effective legacy and avoiding the will contests, taxes and litigation
that often results when families fail to plan.

Strategy #3 Take Action, Get It Done and Feel Better

Don't gamble with the future of your heirs - Get The Estate Plan Done

So stop saying “I’ll get to it tomorrow or
next year. ”

Get your planning done right and you’ll
make your spouse and heirs very happy.

You’ll check it off of the long to do list
and you’ll feel better – much better.

For more of our free reports, a free copy of our
Enhanced Estate Planning Questionnaire, or information about
Family Meetings call 1-888-349-5016.

David Frees Chairs The Trust, Estate and
Wealth Preservation Section of the firm.

He can be reached by email at dfrees@utbf.com
or by calling 1-888-349-5016.

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In the past month the estate tax has been back in the limelight.  As most of you know, in December of 2010 President Obama signed the Tax Relief Act of 2010. Prior to the ratification of the present law, the federal estate tax was repealed for the 2010 tax year.

For 2011 and 2012 we have the largest federal estate tax exemption at $5 million and the lowest federal estate tax rate of 35% in the last 50 years.

There has been rampant speculation as to what will happen when the present law is set to expire at the end of 2012.  Some say the estate tax will revert back to the 2001 exemption rate of $1 million and a tax rate of 55% others say this Act was the beginning of the end for the federal estate tax and still others believe the law will stand at the present exemption and tax rate.

Recently, President Obama addressed this very issue. On the final stop of President Obama’s three state Midwest bus tour in Alpha, Illinois someone asked about the future of the estate tax.  The President addressed her and many others’ concern over what will happen for 2013 and beyond.

The president explained that at the end of 2012 the estate tax does not have to go back to the 2001 rates and that there is a compromise being discussed that would put the estate tax exemption at $3.5 million per person for a potential total of $7 million per family. This mid level proposal would exempt a large segment of the population, but would still serve to tax the “wealthy.”  This statement by the President is by no means a definitive word on what will transpire at the end of 2012.  It is nice to get insight into his thoughts and to know that the topic is being discussed.

The final disposition of the Federal Estate Tax law will be important to you and the planning you have done under your will and/or trusts. Maintain your vigilance on this topic so you can ensure that your estate plan reflects the most current law and you get the most out of any changes that are made at the end of 2012.

As the war on the federal estate tax rages on let me know what you think?

Do you think President Obama’s compromise of an estate tax exemption of $3.5 million per person for a potential total of $7 million per family is fair?

Do you think the federal estate tax should be repealed for good or that the tax should apply to more people at higher rates?

To read the full transcript of President Obama’s answer to a question about the estate tax on the last stop of his bus tour in Illinois click here.

Click here to read our brief article U.S. Rep Ross Wants To Kill The Estate Tax

Stay tuned for updates on the future of the federal estate tax and what that means for you, your will and/or trusts.

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The Answer May Not Always Be What You Expect

Simply “Probate” means at death an estate (the deceased person’s property) is administered and supervised by the court, often called probate court. The court will make sure the Last Will is administered correctly and if there is no will state law is followed by a court appointed administrator.

Many people ask us how they can “avoid probate” before they understand what it means and how long it will actually take. For example in Pennsylvania it is a fairly straightforward process, many cooperative families can “opt out” of much of the process, and it takes as few as several months and can be helpful in making sure the executor, the person who distributes the property, does what the Last Will says to do and that he or she is protected from subsequent claims and law suits.

Many people also do not know that most property transferred at death passes outside of probate through a non-probate mode of transfer. Here are some examples of things that do not go through the probate process and may not even be distributed according to the will.

1. Joint tenancy property both real and personal

The decedent’s (the person who has just died) interest ends at death. The survivor has the whole property.  Bank accounts, brokerage and mutual fund accounts, and real estate are often held in joint tenancy, particularly between married couples. At the death of the first, this property generally transfers directly to the surviving joint account holder or joint tenant on the deed no matter what the will says. These assets are still taxable for both State Inheritance Tax purposes and possibly for Federal Estate Tax purposes. And, who pays that tax is often a function of the tax clause in the will. Be sure to get good legal advise on this issue.

2. Life Insurance

Life insurance proceeds on the decedent’s life are paid by the insurance company to the beneficiary named in the insurance contract. However, while such policies are not taxed by Pennsylvania, they are taxed for Federal Estate Tax purposes.

3. Bonds & Contracts with payable on death (POD) provisions

Federal E and H Bonds, and pension plans often have survivor benefits as do tax-deferred investment plans such as IRA’s 401(k)’s, and brokerage accounts if there is a death beneficiary. While the beneficiary of such accounts receive the money directly, the proceeds may or may not be taxable for Income Tax and or Inheritance and Estate Tax Purposes.

4. Interests in Trust

When property is put in trust, the trustee holds the property for the named beneficiaries. The trustee in accordance with the terms of the trust instrument invests, holds and or distributes the trust property to the beneficiaries.

To read our trust guide How To Find The Right Trust For You click here.

Property in a testamentary trust does pass through the probate process but an inter vivos trust during the decedents’ life does not.  To read more about inter vivos gifts read Should I Make Gifts Now As Part Of My Estate Planning.Such trusts if revocable during your life are Taxable but irrevocable trusts may avoid taxation for Death Tax purposes.

Distribution of non-probate property does not involve a court proceeding.  The controlling contract, trust, or deed terms control the distribution of the property.

Distribution of probate property under a will or an intestate estate (someone who dies without a will) may require a court proceeding involving probate of a will or finding of intestacy followed by appointment of a personal representative to settle the probate estate.

Find out the best way to utilize both the probate and non-probate process in planning your comprehensive will and trust.

A successful comprehensive estate plan takes all of these factors into account when organizing your will or trust.

Whitney O’Reilly

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Learn What To Do To Successfully Obtain Guardianship.

If you have exhausted your options and you are not able to obtain a general financial power of attorney (FPOA) and medical power of attorney (MPOA), it might be necessary to seek guardianship of an elderly or disabled person.  It is important to know that the guardianship is not automatically granted.  The local Orphans’ Court in Pennsylvania (PA) will oversee the process and make a final determination as to whether or not guardianship should be granted.

Any time you have a court process and adjudication there is an opportunity for someone to file a contest and seek a different result.  It is very important for you to foresee the possibility of a guardianship contest and to prepare to answer the challenges.  For guardianship over the elderly or disabled persons, make sure that the medical records and testimony can substantiate the need for guardianship.  Have concrete examples of why the guardianship is needed and how harm will come to the person without the guardianship.  Finally, be ready to demonstrate why you are the best person for the job.  Have all of the necessary witnesses, evidence and answers ready in advance of filing.  It is always easier to gain success when you are properly prepared.

Please contact Doug Kaune at 610 933 8069 or dkaune@utbf.com if you would like assistance with your guardianship matter.

Doug is a Partner with Unruh, Turner, Burke & Frees, P.C. with office locations in Phoenixville, Malvern and West Chester serving all of the counties and towns in South Eastern Pennsylvania.

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