Estate Planning

Why Plan Your Estate?

Estate planning is the process whereby we work with our clients to make sure that their ultimate desires with regards to their property will be carried out after death. A successful estate plan starts with a clear understanding of the client’s goals and the client’s current and projected financial circumstances. A well-drafted estate plan clearly establishes who will take what property, when, and under what conditions and, while taxes should never dictate an estate plan, carefully considers the tax consequences, minimizing them to the greatest extent possible.

The knowledge that we will eventually die is one of the things that distinguishes humans from other living beings. At the same time, no one likes to dwell on the prospect of his or her own death. But if you postpone estate planning until it is too late, you run the risk that your intended beneficiaries – those you love the most – may not receive what you would want them to receive whether due to extra administration costs, unnecessary taxes or squabbling among your heirs.

This is why estate planning is so important, no matter how small your estate may be. It allows you, while you are still living, to ensure that your property will go to the people you want, in the way you want, and when you want. It permits you to save as much as possible on taxes, probate costs and attorneys’ fees, and it affords the comfort that your loved ones can mourn your loss without being simultaneously burdened with unnecessary red tape and financial confusion.

All estate plans should include, at a minimum, two important estate planning instruments: a durable power of attorney and a Will. The first is for managing your property during your life, in case you are ever unable to do so yourself. The second is for the management and distribution of your property after your death. In addition, any complete estate plan should include a durable power of attorney for health care and a living will.

Taxation and Estate Planning

Estate Taxation - Under federal tax law, whatever you own is subject to the federal estate tax upon your death. However, that does not mean that your estate will automatically be subject to federal estate tax. First, a spouse can leave any amount of property to their surviving spouse, if the spouse is a U.S. citizen, free of federal estate tax. Second, the estate tax applies only to estates valued at more than $5.4 million. The federal government allows you this tax credit for gifts made during your life or for your estate upon your death. Third, gifts to charities are not taxed.

Making Gifts: The $14,000 Rule - One simple way you can reduce estate taxes is to give some or all of your estate to your children (or anyone else) during your life in the form of gifts. Certain rules apply, however. There is no actual limit on how much you may give during your lifetime. But if you give any individual more than $14,000 (in 2016), you must file a gift tax return reporting the gift to the IRS. Also, the amount above $14,000 will be counted against a $5.4 million lifetime tax exclusion for gifts.

The $14,000 figure is an exclusion from the gift tax reporting requirement. You may give $14,000 to each of your children, their spouses, and your grandchildren (or to anyone else you choose) each year without reporting these gifts to the IRS. In addition, if you’re married, your spouse can duplicate these gifts. The gifts will not count as taxable income to your children.


A Will is a legal document that helps your executor to put your affairs in order at the time of your death. It allows you to express your intentions regarding your estate (your home, money, and other assets). Your Will identifies who will handle your estate (your "executor"), to whom your assets will be distributed (your "beneficiaries"), and who will serve as guardian of your minor children. If you have a potential beneficiary who has special needs (such as a disabled child), your Will can contain instructions to your executor to make sure such a beneficiary is taken care of according to your wishes. A properly drafted Will can also make sure that any disabled beneficiary who is receiving government benefits can receive your bequest without losing those public benefits.

If you die without a Will, your estate will be distributed according to a formula established by Pennsylvania law. Your surviving spouse may have to share your estate with other family members. A court may name a guardian of your minor children of whom you would not have approved. The state’s formula does not take the special needs of a disabled beneficiary into account.

Wills can be simple or complex; they will differ for single individuals or married couples, for people with minor or disabled children and for people with no children, and for people who have a taxable estate and those who do not have a taxable estate. A variety of techniques are available for use in a Will to minimize or eliminate estate taxes

Your Will covers only "probate" property. Probate property is property titled solely in the decedent's name at the time of his or her death. Many types of property or forms of ownership pass outside of probate. Jointly-owned property, property in trust, life insurance proceeds and other property with a named beneficiary, such as IRAs or 401(k) plans, all pass outside of probate. Please note that even though these types of assets do not pass to your heirs by way of your Will, they must be carefully considered in developing your estate plan. Note that your retirement plans (IRAs, 401(k)s, etc...) are subject to Pennsylvania inheritance tax even though they are not part of your probate estate.

Why Should You Have a Will?

With a Will you can direct where and to whom your estate (what you own) will go after your death. If you died intestate (without a Will), your estate will be distributed according to state law. Such distribution may or may not be in accord with your wishes.

Many people try to avoid probate and the need for a Will by holding all of their property jointly with their children. This can work in some cases, but often people spend unnecessary effort trying to make sure all the joint accounts remain equally distributed among their children. These efforts can be defeated by a long-term illness of the parent or the death of a child. A Will can be a much simpler means of carrying out one’s wishes about how assets should be distributed.

A Will facilitates the smooth administration of your estate. Often, the probate process can be completed more quickly and at less expense to your estate if there is a Will. With a clear expression of your wishes, there are unlikely to be any costly, time-consuming disputes over who gets what.

Only with a Will can you choose the person to administer your estate and distribute it according to your intentions. This person is called your "executor" (or "executrix" if you appoint a woman).

For larger estates, a well-planned Will can help reduce or eliminate estate taxes.

Most importantly, through a Will you can appoint who will take your place as guardian of your minor children should both you and their other parent pass away.

How We Can Help

Whatever your needs, we can help. We will work with you to:

  • Determine how simple or complex a Will you need based on your personal situation.
  • Update an existing Will to reflect your current circumstances.
  • Make sure your Will is integrated with a Medicaid asset protection plan to ensure your estate is not subject to Medicaid estate recovery.


A trust is a legal arrangement through which one person, called a "trustee," holds legal title to property for the benefit of another person, called a "beneficiary." The rules or instructions under which the trustee operates are set out in the trust instrument. Trusts can be created within a Will or as a free-standing entity in order to accomplish a number of objectives, such as the following:

  • To transfer the ownership of property while maintaining a measure of control over the property;
  • Tax savings;
  • Protection for a disabled loved one;
  • To avoid guardianship proceedings;
  • Protection from creditors;
  • Protection from the costs of nursing home care.

Uses of Trusts

There can be several advantages to establishing a trust, depending on your situation. One is the advantage of avoiding probate. In a trust that terminates with the death of the donor (the person who establishes the trust), any property in the trust at the time of the donor’s death can immediately pass to the beneficiaries by the terms of the trust without requiring probate. This can save time and money for the beneficiaries. Certain trusts can also result in tax advantages both for the donor and the beneficiaries. Other trusts may be used to protect property from creditors or to help the donor qualify for Medicaid. Unlike Wills, trusts are private documents and only those individuals with a direct interest in the trust need to know of trust assets and distributions. Provided they are well-drafted, another advantage of trusts is their continuing effectiveness even if the donor dies (if that is the donor’s objective) or becomes incapacitated.

Types of Trusts

Trusts fall into two basic categories: testamentary and inter vivos.

  • A testamentary trust is created by your Will, and it does not come into existence until you die.
  • In contrast, an inter vivos trust is established during your lifetime. You create it now and it exists during your life. There are two kinds of inter vivos trusts: revocable and irrevocable.

Testamentary Trust

A testamentary trust is a trust created by a Will. Such a trust has no power or effect until the Will of the donor is probated. Although a testamentary trust will not avoid the need for probate and will become a public document as it is part of the Will, it can be useful in accomplishing other estate planning goals. For instance, the testamentary trust can be used to reduce estate taxes on the death of a spouse or provide for the care of a disabled child.

Inter Vivos Revocable Trusts

Revocable trusts are often called "living" trusts. With a revocable trust, the donor maintains complete control over the trust and may amend, revoke, or terminate the trust at any time. This means that the donor can take back the funds put into the trust or change the trust's terms. Thus, the donor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death.

Revocable trusts are general used for the following purposes:

  • Asset Management. They permit the named trustee to administer and invest the trust property for the benefit of one or more beneficiaries.
  • Probate Avoidance. At the death of the donor, the trust property passes to whomever is named in the trust. It does not come under the jurisdiction of the probate laws and its distribution need not be held up by the probate process. However, the property of a revocable trust will always be included in the donor's estate for tax purposes.
  • Tax Planning. While the assets of a revocable trust will be included in the donor's taxable estate, the trust can be drafted so that the assets will not be included in the estates of the beneficiaries, thus avoiding taxes when the beneficiaries die.

Inter Vivos Irrevocable Trusts

An irrevocable trust cannot be changed or amended by the donor. Any property placed into the trust may only be distributed by the trustee as provided for in the trust document itself. For instance, the donor may set up a trust under which he or she will receive income earned on the trust property, but bars access to the trust principle. This type of irrevocable trust is a popular tool for Medicaid asset protection planning.

Special or Supplemental Needs Trusts

The purpose of a special or supplemental needs trust is to enable the donor to provide for the continuing care of a disabled spouse, child, relative, or friend. The beneficiary of a well-drafted special or supplemental needs trust will have access to the trust assets for purposes other than needs provided for by public benefits programs. In this way, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid and low-income housing. A special or supplemental needs trust can be created by the donor during life or as part of a Will.

How We Can Help

For whatever reason you might need a trust, we can help. We can work with you to:

  • Determine when a trust is needed and appropriate.
  • Update an existing trust to reflect your current circumstances and changes in the law.
  • Integrate your trust with other important estate planning tools such as Wills and powers of attorney.
  • Integrate your trust into a Medicaid asset protection plan.

Durable Powers of Attorney

An important part of estate planning is the recognition of the possibility of incapacity and to plan for substitute decision-making. For most people, the durable power of attorney is the most important estate planning instrument available – even more useful than a Will. A power of attorney allows you to appoint your "agent" to act in your place when and if you ever become incapacitated.

In that case, the person you choose will be able to step in and take care of your affairs. Without a durable power of attorney, no one can represent you unless a Court appoints a guardian. That Court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under the guardianship, your guardian may have to seek Court permission to take asset protection planning steps that he or she could implement immediately under a durable power of attorney. In a guardianship, the Court supervises everything that a guardian does.

Types of Powers of Attorney

A power of attorney may be limited or general. A limited power of attorney may, for example, give someone the right to sign a deed to property on a day when you are out of town. Or it may allow someone to sign checks for you. A general power of attorney is comprehensive and gives your agent all the powers and rights that you have yourself.

A power of attorney may also be either current or "springing." Most powers of attorney take effect immediately upon their execution, even if the understanding is that they will not be used until and unless the principal (the person who executes the power of attorney) becomes incapacitated. However, the document can also be written so that it does not become effective until such incapacity occurs. In such cases, it is very important that the standard for determining incapacity and triggering the power of attorney be clearly spelled out in the document itself.

While you should seriously consider executing a durable power of attorney, if you do not have someone you trust to appoint as agent, it may be more appropriate to have the Court looking over the shoulder of the person who is handling your affairs through a guardianship. In that case, you may execute a limited durable power of attorney simply nominating the person you want to serve as your guardian. The Court should respect your nomination except for good cause.

Note - Clients report that they are experiencing increasing difficulty in getting banks or other financial institutions to recognize the authority of an agent under a durable power of attorney. A certain amount of caution on the part of financial institutions is understandable – when someone steps forward claiming to represent the account holder, the financial institution wants to verify that the agent indeed has the authority to act for the principal. Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute such forms offered by the institutions with which you have accounts in addition to a general durable power of attorney.

Any complete estate plan should include a power of attorney for health care and a Living Will. A durable power of attorney for health care designates someone you choose to make health care decisions for you if you are unable to do so yourself. A Living Will is a document in which you state your wishes regarding life sustaining medical treatment under circumstances where you are terminally ill with no hope for recovery and are mentally incapacitated so that you cannot make decisions for yourself. A Living Will can instruct your healthcare provider to withdraw life support if you are terminally ill or in a vegetative state.

The Issue of Capacity

Proper execution of a legal instrument requires that the person signing it has sufficient mental "capacity" to understand the implications of the document. While most people speak of legal capacity or "competence" as a rigid black line —either the person has it or does not— in fact it can be quite variable depending on the person's abilities and the function for which capacity is required.

One side of the capacity equation involves the client's abilities, which may change from day to day depending on the course of an illness, fatigue, and the effects of medication. On the other side, greater understanding is required for some legal activities than for others. For instance, the capacity required for entering into a contract is higher than that required to execute a Will. Testamentary capacity, that is, the capacity to execute a Will, requires the ability on the part of the testator (the individual signing the Will) to understand in a general way the nature and situation of his or her property and the "natural recipients of his or her bounty." And it requires ability at the time of execution of the Will to comprehend the nature of the act of making a Will.

This is a relatively low threshold, meaning that signing a Will does not require a great deal of capacity. The fact that the next day the testator does not remember the Will signing and is not sufficiently "with it" to execute a Will then does not invalidate the Will if he or she understood it when he or she signed it. The standard of capacity with respect to a durable power of attorney is also quite low. The principal (person signing the power of attorney) need only know that he trusts the agent under power of attorney to manage his financial affairs.

While the standards may seem clear, applying them to particular clients may be difficult. The fact that a client does not know the year or the name of the President does not necessarily mean that he or she cannot execute a Will or a power of attorney. The determination mixes medical, psychological, and legal judgment. It must be made by the attorney (or by a judge in a guardianship proceeding) based on information gleaned by the attorney in interactions with the client, from other sources such as family members and social workers, and, if necessary, from medical personnel. Doctors and psychiatrists cannot themselves make a determination as to whether an individual has capacity to undertake a legal commitment. But they can provide a professional evaluation of the person that will help an attorney make this decision.

Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by an experienced Elder Law attorney. Downloaders beware!

How We Can Help

We will work with you to:

  • Determine the scope of your power of attorney
  • Identify the criteria for selecting the right person as agent under your power of attorney.
  • Select the type of power of attorney that’s right for you.
  • Integrate your power of attorney with other important estate planning tools such as Wills and trusts.
  • Integrate your power of attorney into a Medicaid asset protection plan.