Many readers of this article are being more careful these days. A global public health crisis and an unstable economy are causing people to take a harder look at their wills and planning. Even people who normally stick to a personal budget, have some retirement investments, and maintain insurance policies are wondering whether their families will be financially secure in the event of an untimely death.
Despite a general understanding about the purposes of a will, also formally known as a Last Will and Testament, many adults have not completed this basic form of planning. Even individuals who have taken the time to document plans for the transfer of financial assets to their heirs may not fully understand how a will operates. The following assumptions can make your best intentions go awry.
- If I don’t have a will, everything will automatically go to my spouse. In Pennsylvania, this may not be the case. If you have children with your current spouse or with someone else, those children may be entitled to a percentage of your assets. Without a will, you cannot specify how much of your property will transfer to your spouse or to each child.
- My will controls the distribution of all of my assets. Actually, wills are designed to dictate the distribution of assets which are in the individual’s name alone and do not have a beneficiary designation (also called probate assets).
For example, a parent may want each of two children to receive an equal inheritance. The parent adds one child’s name to his or her checking account so that the child can help pay bills in case of an emergency. If the parent dies, the child whose name is on the account automatically becomes the owner of that account and is not required to share any of it with a sibling. (Note: if the child is added to the account as a power of attorney, this situation does not apply). The funds in the checking account are not controlled by the will because property that is jointly owned passes directly to the surviving owners. Consider another example. A first-time parent may take out a life insurance policy and name the newborn child as the beneficiary. Some years later, another child arrives. If the parent forgets to add the second child as a beneficiary on the policy, when the parent dies the older child will receive all of the proceeds of the policy and the younger child will receive nothing.
• I have a “simple will” leaving everything to my spouse. I’m all set! According to available statistics, adults aged 65 or older have a 70% chance of needing some form of long-term skilled health care. Whether that care involves rehab from a broken hip or around-the-clock care for dementia, it is very costly and Medicaid is the most common way to pay for that care. There are ways to preserve assets for the family when one parent needs Medicaid, but the parent needing Medicaid can usually have no more than a couple thousand dollars to his or her name. If the spouse staying at home were to pass away, and the will leaves all of the couple’s preserved assets to the spouse on Medicaid, then Medicaid goes away and all of the couple’s life savings will likely be spent on skilled health care. Nothing will be left for children or anyone else. A well drafted will anticipates this situation.
- Leaving an inheritance to a loved one is always beneficial for that individual. If your heir is a minor, a lack of planning may allow that minor to access funds and splurge on something that you would not believe is in their best interest. If your heir receives some type of government benefit, the receipt of an inheritance could create ineligibility and discontinuation of that benefit. Specialized planning within a will can avoid these complications while still allowing you to provide for these individuals. https://keystoneelderlaw.com/planning-for-loved-ones-with-special-needs/
- Probate should be avoided. Many people fear the cost of probate and go to great lengths to organize their assets in such a way that a will is not needed. If you are considering trust planning solely to avoid the cost of probate, unless you are extremely wealthy you will pay more for a trust than for probate. Trusts are sometimes preferable to wills, but there are many factors to consider.
- Pennsylvania has no death taxes. While it is true that Pennsylvania law imposes no gift tax or estate tax, there is an inheritance tax on the transfer of money and property from a deceased person to others. Whether an asset is inherited through a will or automatically by the death of a joint owner of an asset, Pennsylvania may require the payment of inheritance taxes. Inheritance taxes are calculated based on the value of the percentage of the assets which are inherited. (If you own a house with one other individual and that individual dies, you inherit 50% of the value of the house.) Certain deductions are allowed so that individuals do not pay inheritance tax on funds that are utilized to pay the expenses of the deceased.
Current PA inheritance tax rates are 0% for spouses, charities, and transfers from the estate of a minor age 21 or under; 4.5% for lineal descendants (parents, children, grandchildren); 12% for siblings; and 15% for other beneficiaries. Even though a spouse does not owe inheritance tax, an inheritance tax return must still be filed. Inheritance tax returns are due within nine months from the date of death. A discount on inheritance tax will be applied if prepayment of the tax is made within three months of the date of death. https://www.revenue.pa.gov/GeneralTaxInformation/Tax%20Types%20and%20Information/InheritanceTax/Pages/default.aspx
- I don’t have an “estate.” We’re a young couple with very little money! Even people who feel like they spend all their money on diapers and day care should have wills. If both parents were to die in an accident, their wills can name a guardian to care for the children and ensure that a trusted friend or family member – and not a government agency – takes immediate custody of the children.
Everyone is living through a time of great uncertainty, but wills and estate planning are ways to take some control over your family’s future. It does not have to be intimidating. An attorney who understands your unique situation can ensure that your wishes are documented and reduce the burden of paperwork when family members are grieving the loss of a loved one. Your peace of mind in both situations should be the top priority.
Patrick Cawley, Attorney