Estate Planning Mistakes - Number Eight

How do you want the death taxes to be paid on your estate? If you are not clear in your Will, there could be unintended tax consequences.

For example, if your Will is silent on how death taxes are paid, your beneficiaries could have to sell assets to pay the taxes due at your death. If the Will provides that all death taxes are paid out of your estate, this could affect some heirs differently by reducing their inheritance.

Don't let estate planning mistakes leave your loved ones exposed. Contact us at

2. Saves Money - final comment

A final comment regarding Max and Margaret. Not only can they save on Federal Estate Tax but they can save on the state inheritance tax in states with an inheritance tax like Pennsylvania.

Who will get Margaret’s extensive art collection? If she leaves it to a charitable organization or qualified non-profit, there would be no inheritance taxes. However, her sons may also have an interest in art. In order to avoid the taxes on personal property, Margaret could begin gifting during her lifetime some of her art collection to her sons. There would be no taxes if she is under her one million dollar lifetime exclusion amount for gifting.

All of this requires planning on the part of Max and Margaret. In the long term as well as the short term, the value of a little planning today goes a long way to your family's future savings and security.

Contact us at www.ythlaw.com or leave your comments here.

2. Saves Money

The Second essential benefit of estate planning is saving money. Today we meet Max and Margaret whose estate is in excess of 5 million dollars. They both have high-level corporate careers at companies where they now hold highly appreciated stock options. Both of them have personal passions. For over 30 years, Max has collected historical manuscripts and other memorabilia on the American Revolution. Margaret formed a local foundation that supports women and girls in her local community. She also has a fine art collection that rivals the collection of her local museum. Max's and Margaret's three sons (two of which are sons from Max’s first marriage) are married with children and have their own successful businesses.

The federal estate tax consequences would be significant (almost ½ of their estate would be at risk) if Max and Margaret did not engage in any estate planning. Further, if they reside in a state with inheritance tax, like Pennsylvania, planning could avoid costly mistakes. Clearly, they do not want money they have accumulated over their lifetime to be depleted by taxes and other circumstances that, with advance planning, they can control.

Let's continue to follow Max and Margaret on the road to saving money. Contact us at http://www.ythlaw.com/

Costly Estate Planning Mistakes

I often attend continuing legal education seminar. Actually, I enjoy them because it keeps me current. I like to learn what others are doing for their clients in the area of estate planning. This evening's event addressed the top estate planning mistakes. Here is the run down of the list so you can see whether you need to see an estate planning attorney, like me, soon:
A. Is your estate in excess of 3.5 million dollars....then you should have federal estate tax planning done, immediately and correctly.
B. Is your estate under 3.5 million dollars and you still have federal estate tax planning done, revisit your plan immediately. You do not want terms and conditions that are no longer relevant to your situation. It will only complicate matters for your estate.
C. How many trusts do you have? Make sure you fund the correct trust. Terminate any trusts that you no longer require.
D. Make sure you review joint ownerships and beneficiary designations to make sure they are consistent with your intent for distribution of your estate.
E. Who will be responsible for the inheritance tax that must be paid? Make sure you cover your preference in your documents.
F. Oh, by the way, do not write on your will after you have executed it. Put it away and keep it clean. AND, do not lose the original....that will be a big problem. So, do you know where your original will is??

These are things to think about that I thought would be helpful to my bloggers. Let me know what you think. Contact us at www.ythlaw.com

How can I avoid State Inheritance Tax?

QUESTION
My estate is currently under the Federal Estate Tax exclusion but I also want to avoid having my estate pay State Inheritance tax, like that in Pennsylvania. How can Estate Planning help me?

Answer
Transfers to a surviving spouse or a charity are tax free. Certain type of joint ownerships between non-spouses would allow the surviving owner to receive the deceased owners share without an inheritance tax. The concept behind this ownership (Joint Tenants with Rights of Survivorship) is that both individuals owned the whole so upon death there was no “inheritance” by the other owner. This generally occurs when parents name an adult child as co-owner (Joint Tenant with Rights of Survivorship). Though this would allow one to avoid inheritance tax, there are other things to consider before naming another person as a co-owner. Remember, that person’s creditors would have another asset to attach if outstanding debts occur.

Gifting provides another mechanism to avoid or reduce the inheritance tax. The basic rule is that in the year 2009 anyone can give up to $13,000 in money or other property to any number of parties without gift tax. This $13,000 per year, per recipient rule is known as the annual gift tax exclusion and one’s estate is reduced by that amount.

Perhaps the most significant tax disadvantage of gifting is the loss of the so-called "stepped-up" basis. This can be best explained by an example. Let's say you purchased unimproved land for $10,000 but the land is now worth $100,000. If you sell the land, you would realize a $90,000 (100,000 minus 10,000) gain. If you were to make a lifetime gift of this property, the recipient would stand in your shoes and would also realize a $90,000 gain if they were to sell the property. If, however, you were to die owning the property and leave it to your beneficiaries in your Will, those beneficiaries would receive it as if they paid $100,000 for it. As such, they could in turn sell it for $100,000 and realize no taxable gain. Because of the “stepped-up basis” that a decedent's beneficiaries receive, it’s suggested that a donor refrain from gifting appreciated property. You have to do the numbers to see what might work best for your heirs.

Send your questions in by providing a comment or visiting my website at http://www.ythlaw.com/

Irrevocable Trusts

Let's say you have a home and you want to leave it to your children. What would be the best way to leave your home to them? Today, I want to address the Irrevocable Trust for that purpose. Over the next few days, we will look at other options and you can decide which alternative might work best for you.

Pros of the Irrevocable Trust:
(1) The Irrevocable Trust allows you to take property out of your estate. Therefore, for purposes of Federal Estate Tax, your home would not be an estate asset at your death and would reduce the value of your taxable estate.
(2) If you should need medical assistance in the future, the home would not be subject to recovery by the state if the trust held your home for at least 5 years.
(3) Upon your death, your children would not have to pay an inheritance tax when the home is transferred to them from the Irrevocable Trust.
(4) Unless your home is rental property, there would not be any income for income tax purposes. Therefore, though the Irrevocable Trust would have its own EIN for tax purposes, when income tax filings are done, there would be no income tax due.

Cons of the Irrevocable Trust:
(1) When the property is transferred into an Irrevocable Trust, there would be a transfer tax due. In Pennsylvania, that would be 6% of the fair market value.
(2) An Irrevocable Trust can not be changed and you can not serve as the Trustee.
(3) If your home is rental property, income taxes would have to be paid at the trust rate which is a higher rate than for individuals.

An Irrevocable Trust is ideal when:
(1) you are well into retirement, late 70s into your 80s and beyond
(2) your property is not income producing
(3) the transfer tax is not a problem for you to pay
(4) you want to avoid the inheritance tax

Consult with our office if you would like to more about this estate planning technique.

Generational Wealth

I was listening to an entertainer recently commenting about his neighborhood. He said there are a few other wealthy entertainers living in his area. However, this neighborhood of multi-million dollar homes included many people who do not have multi-million dollar salaries.

This is where generational wealth is an advantage. It is not about what the individual makes. It is about access to wealth and to other sources of assets. Generational wealth is about trust funds, inheritance, gifting and other estate planning techniques. In order for one generation to help another generation, there has to be planning done. It can not be done in a choatic way or at the last minute if your intent is to make a positive financial difference for the next generation.

Whether expensive homes, exotic travels, charitable endeavors or other opportunities are of interest to your heirs, you can make it all possible in a way that is most productive and beneficial to those you love. Let's talk about what your plans might be soon. Call for a free consultation.

Probate - Inheritance Tax Return

It is tax time. Hopefully, you have already done your taxes and are now awaiting a nice, big refund. OK, that may be wishful thinking.

One the major tasks in settling an estate is filing the Inheritance Tax Return (in those states with inheritance tax). The deadline for filing inheritance tax return is not the same as the April 15th, income tax deadline. Inheritance tax returns for states like Pennsylvania are due within 9 months of the death. After determining the taxable assets less all debts of the decedent, the net amount will be subject to the applicable state tax rate. Generally, the will provides who will be responsible for the payment of the tax. However, for ease of administration, it is best if the tax is paid by the estate. Otherwise, if the beneficiaries fail to make the tax payment, the executor might be held responsible.

The executor will want to seek professional advise when preparing the inheritance tax return. Contact our office for that advice and guidance.

Probate - Duties of Administrator/Executor

Many times the person appointed as an administrator or named as the executor under the will knows very little about the duties of that position. I advise my clients to tell the person they appoint as executor. It should not come as a surprise to anyone. I then let them know what that person's responsibilities would be so that such information can be shared with their executor.

The main duties of an administrator (one who is appointed during probate if there is no will) or executor (person named under the will) are to:
(a) ascertain the assets subject to probate (not all assets are subject to probate, such as assets owned jointly, assets in a trust, assets transfered by beneficiary designation;
(b) gather and provide an inventory of the assets;
(c) open up an estate account (checking account) to place assets and receive other assets due the estate, including interest, dividends, and other income;
(d) determine the beneficiaries - who is going to get what and how much under the Will (if there is no Will, the state’s "interstate succession laws" apply);
(e) determine or obtain appraisal of the estate’s assets;
(f) give legal notice to potential creditors (generally done via legal advertisement - determine state or local requirements for notifying creditors);
(g) investigate the validity of claims against the estate;
(h) pay funeral bills, outstanding debts, and valid claims;
(i) pay the expenses of administrating the estate;
(k) handle various paperwork, such as discontinuing utilities, memberships and charge cards, and notifying Social Security and others of the death;
(l) file and pay inheritance tax;
(m) distribute the remaining property in accordance with the instructions provided in the Will or under intestate law; and
(n) close probate.

In some states, you may be required to hire an attorney to handle probate. In other states, you proceed without counsel. Call our office if you have a probate issue and we can help you meet the requirements.

Probate - Time it Takes to Do

Often, I have heard, as a complaint about probate, that it takes a long time before heirs can get their money. As a result, many people seek to avoid probate for that reason. How long probate actually takes depends on a number of factors. Those factors include, the size of the estate, the complexities of the estate, the disagreements among potential heirs, the jurisdiction (which state) where probate occurs, the lack of clarity in the will, the skill of an executor/administrator, the notification period to creditors and potential heirs, the source of payment of inheritance taxes and the efficiency of the Register of Wills, among other factors.

When you are getting your will prepared, you can make sure some of these factors will not result in delaying the administration of your estate. Be clear and concise with the specifics provided in your will. Pick a person who can handle managing the distribution of your estate. Address inheritance tax payments. Know the probate laws of your state and if they provide very burdensome requirements, then consider the use of a trust instead of a will.

Contact our office for a free consultation on this and other estate planning issues.

Hiring an Estate Planning Attorney - 10 Things that Matter Most

TENTH, you want an estate planning attorney that will save you MONEY!! How can your estate save on Federal Estate Tax and State Inheritance Tax? Your attorney should demonstrate the tax savings applicable to your circumstances and she should show how you assets can last for generations. SAVE MONEY, PROTECT ASSETS and DISTRIBUTE WEALTH are the important things you want your attorney to do for you!!!