Pennsylvania Estate & Elder Law Planning

Why do you need life insurance?

In my next three posts, I will discuss life insurance and its importance in the financial and estate planning context.  Many financial and estate planning experts consider life insurance to be the cornerstone of sound planning.  In this post, I will discuss why life insurance can be an important tool.

Replace income for dependents - If family members or others depend on your income, life insurance can replace that income for them if you die.  The most commonly recognized case of this is parents with young children.  However, it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner.  Insurance to replace your income can be especially useful if the government or employer sponsored benefits of your surviving spouse or domestic partner will be reduced after your death.

Pay final expenses - Life insurance can pay your funeral and burial costs, probate and other estate administration costs and debts and medical expenses not covered by health insurance. 

Create an inheritance for your heirs - Even if you have no other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries.

Pay federal estate taxes and state death taxes - Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate other assets or take a smaller inheritance. 

Make significant charitable contributions - By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy's premiums.

Create a source of savings - Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner's request.  Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of "forced" savings plan.  However, these types of insurance policies can be rather expensive and difficult to evaluate. 

In my next post, I'll discuss the principal types of insurance - term and whole life. 

What is an Advanced Health Care Directive? (Part 2)

In my last post, I discussed the basics of advanced health care directives - the types of health care directives, who to choose as your heath care agent, etc.  Now I'll focus on what you should think about when preparing your health care directives and where to keep them.

What should you think about when making your living will?

When preparing your living will, you should give some thought as to how you would like to be cared for if you have an end-stage medical condition (i.e., an advanced illness or other medical condition that cannot be cured or reversed or will result in your death even if you receive medical treatment) or are permanently unconscious (i.e., you are totally unconscious and this cannot be reversed or made better).  You may want to give specific instructions about:

• Life support and other treatments to keep you alive - Do you want to receive highly technical treatments, tube feeding (artificial nutrition and hydration) or other care that your doctor believes will only delay the time of your death or keep you in a permanent unconscious state?  It is important that you specifically state your wishes about tube feeding when you make your advance health care directive.  Pennsylvania law has protections to make sure that tube feeding is given when necessary to preserve your life unless it is clear that you would not want it under the circumstances.

• Pain Control and other relief - Do you want medicines and other treatments to relieve your pain or other severe symptoms, even if these will cause you to sleep more and possibly make you less able to interact with others?

Where should you keep your advanced health care directives?

You want to keep your advanced health care directives in a safe place, but you should make sure that it is somewhere that your family or health care agent can get it if you are ill.  Consider giving a copy to your health care agent (including the people who you name as alternate agents).  Also consider talking with them about your instructions, preferences and goals for medical treatment, even if you have stated them in your advance health care directive. 

What is an Advanced Health Care Directive? (Part 1)

There may be times in your life when you cannot make your own health care choices.  An advance health care directive helps you plan for your care in these situations. 

There are two main types of advance health care directives:

Living Will: in this document, you write specific wishes about life support and other medical treatments. Instructions in your living will take effect only when you cannot understand and communicate your treatment choices and you either have an end-stage medical condition (an advanced illness or medical condition that cannot be cured and will result in your death) or are permanently unconscious (you are totally unconscious and this cannot be reversed or made better).  

Health Care Power of Attorney: in this document, you name a person who you trust to make health care choices for you.  This person is your health care agent.  You control what choices your agent may make and when your agent may make those choices.

You generally may name any adult (18 years or older) as your health care agent.  Consider choosing someone who:

• Knows you well and can be trusted to honor your choices;

• Is able to make difficult choices under stressful circumstances;

• Is able to stand up for you to make sure that your choices are honored as much as possible; AND

• Is likely to be available, able and willing to make health care decisions for you.

It is always a good idea to name one or more alternate health care agents.  There may be times when your first choice is unavailable (e.g., vacation), unable (e.g., sick) or unwilling to serve. 

In my next post, I'll discuss what to think about when making a living will and where to keep your living will.  

Obama Plans to Keep Estate Tax

The Wall Street Journal reported today that President-elect Barack Obama and congressional leaders plan to move soon to block the estate tax from disappearing in 2010. Under the Obama plan detailed during his campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million ($7 million for married couples) from any taxation. The value of estates above that amount would be taxed at 45%.  

Under current laws, the estate tax will be repealed for one year (2010) and would then revert in 2011 to Clinton-era levels. This would only exempt estates of $1 million ($2 million for married couples) from any taxation and estates above that amount would be taxed at 55%. According to the article, the Democrats believe that if they don't act now, it will be politically harder to go ahead with their plan to resurrect the estate tax once it disappears in 2010.  

Three Problems to Avoid in Making a Will

Problem #1 - Don't Use Family Members as Witnesses

The rules relating to the formalities for execution of a Will are among the most strict of all legal rules. One common error is to have family members or other beneficiaries of your Will act as witnesses. Having a beneficiary witness a Will does not necessarily, in all states, invalidate the Will.  However, it will make the admission of the Will to probate more complex and costly.  It may also increase the probability of a Will contest.  

Problem #2 - Never Execute More Than One Copy

Your Will will not be invalid because you execute multiple originals.  However, if all of the originals of your Will cannot be located upon your death, a court will need to be convinced that the instrument should be admitted to probate nonetheless.  There could even be a contest as to whether the Will should be admitted under any circumstances.  Those who would take under a prior Will and those who would take if there were no Will may argue that the instrument offered for probate as your Will is not valid.  

Problem #3 - Never Make Changes to the Original Signed Copy

If you keep the original of your Will (something you should not do as discussed in my last post), and you want to make changes to it, you should not write on the original instrument.  Handwritten changes on your original Will almost never will be regarded as valid and may result in the invalidity of the underlying instrument.  

Where to Keep Your Will?

States have rules relating to the execution of a Will that are rather strict.  If you do not comply with these rules, the Will itself may not be valid. If you do comply with these rules, but the original of your Will is lost, there is a presumption that the Will was revoked. Even for the most careful individuals, there is a probability that the original Will (as opposed to a photocopy) will not be located after his or her death.  If the original Will cannot be produced when you die, your estate may face litigation and related expenses. 

• At Home:  Once you have signed your Will, you may be inclined to take the original home with you. If you were to die in a fire at home, your Will could be destroyed at the same time.  Your Will could also be thrown out inadvertently. The bottom line on keeping your original Will at home - don't do it!

• Safe Deposit Boxes: Individuals keep important documents and valuables in a safe deposit box for safekeeping. Some states have restrictions over accessing a safe deposit box following the death of the owner. If your state has these restrictions, a special proceeding will have to be commenced in court to gain access to the box.  This will cost money and delay the administration of your estate. In any case, if you decide to store your Will in a safe deposit box, make sure that someone knows the location of your Will and that the key to the box can be located easily.  Another option is to have your nominated executor or a trusted family member hold your Will in their safe deposit box.   

• Attorney: Many attorneys will keep the original of your Will in their firm's safe deposit box without charge.  This may be the most simple and safest way to protect your original Will.  

In any case, you should retain a photocopy of your original Will.  In some circumstances a Will can be admitted to probate even if the original document is lost.  As a practical matter, that will be much easier to do if you have an exact photocopy with signatures.   

Do You Need a Will? - Yes! (Part 2)

In my last post, I discussed the most important reason for having a will - you, rather than the state, get to control the distribution of your assets on death.  There are many other significant reasons for having a will. Here are five of those reasons:

1.  In your will, you can name the person (executor or personal representative) to carry out the directions in your will and to dispose of your property in accordance with the will's terms.  Your executor may be a relative or a close friend.  However, if your estate is large or complicated, you should consider appointing a professional or institution (e.g., trust company) accustomed to dealing with the distribution of assets.

2.  A will can provide for the terms of a trust in which a trustee can manage assets on behalf of the trust's beneficiaries for many years after death.  This may be very appropriate in order to manage assets for the benefit of your minor children.  This type of trust is called a "testamentary trust" since it is created through your will and comes into existence at the probate of your will.  

3.  When there are minor children, the will can nominate a guardian of each child.  If there is no provision, the court will name the guardian based on available information and depending on who volunteers. 

4.  Even if you have a living trust which holds most of your assets in order to avoid probate, it is still important to have a will which will "pour over" into the previously established trust any assets which were not transferred into the living trust.

5.  A will gives you an opportunity to minimize estate taxes and other transfer costs and provide who will bear those costs.  

To summarize, a will provides control over many end of life affairs.  Everything from the distribution of your assets to the care of your children.  Do you need a will?  Yes!    

Do You Need a Will? - Yes! (Part 1)

A will is the legal expression of an individual’s wishes as to the disposition of his or her property after death.   A will is not operative until death and is revocable during the individual’s lifetime.

The most important reason for creating a will is to provide you with an opportunity to control the passing of your property and avoid “intestacy.”  Without a will, your assets will pass by the laws of intestate succession of the state in which you reside or in which your property is located.  Thus, the government, rather than you, dictates how your property will be distributed. 

Most intestate succession laws provide that separate property (i.e., property not held jointly with another individual) is to be distributed as follows:        

• If you die with a spouse but no children, your spouse takes the entire estate.
• If a spouse and children survive, each takes some portion of the estate.
• If only your children survive, they take the entire estate. 
• If no spouse or children survive, the estate goes to your parents, and if they don’t survive, then to your siblings or their heirs.
• If no spouse, children, parents or siblings, then to your grandparents and their heirs (i.e., aunts, uncles and cousins).
• If none of your heirs survive, the next takers are the issue of your pre-deceased spouse.
• If none of the above survive, your estate goes to the next of kin.  
• If no next of kin, then your estate goes to the state. 

Keep in mind that although the above rules are typical, the laws of the state of your residence may vary. 

Without a valid will, your property will go to your relatives in accordance with state laws.  By making a will, you can pass property in a manner different than those laws.  With a will, your property can be left to one or more relatives, friends or charities.  With a will, you control the distribution of your property!

In my next post (Part 2), I’ll discuss other reasons for having a will and the tremendous benefits a will can provide.