Probate

First, let me apologize for the hiatus in blog posts.  The school year started up again, and with it everyone became a bit busier, myself included.  However, I am hopefully back on track to keeping you updated and informed on Estate Planning and Elder Law.

Estate planning can be easy, and when done right it saves a lot of hassle in the end.  However, this is a confusing topic and the possibility for error is huge.  Being an estate planning firm, we have seen and heard all the horror stories about plans going wrong.  To prevent that from happening, here is a list of the most common mistakes of estate planning.

1.  Failure to plan at all!!  This is pretty simple, if you don't have a plan everything can go down the drain.  We've had stories of families being torn apart because they didn't know the wishes of their loved one.  The claims of "She wanted me to have it" are endless, and unless you have a will to truley know, the claims can cause families to fall to pieces.

2.  Having an improper or antiquated plan.  This is just as bad as not having a plan.  Think about where you were 10 years ago compared to where you are today.  Were you married then?  How about now?  Do you have kids?  Has someone passed away?  Was someone else born?  All of these changes are likely to happen in a person's lifetime and require will revisions.  Old wills may also be following old tax laws, which no longer apply and can still cause problems.  At the bare minimum, estate planning documents should be reviewed every five years, and they should definitely be reviewed after any major life changes.

3.  Improper use of joint property.  Don't be tempted to avoid estate planning by using joint accounts on property.  This planning could cause huge problems.  For example, if your co-owner is sued or files for bankruptcy, your valued asset will be attacked by creditors, causing you to lose it.  Additionally, you could accidently disinherit people completely through joint ownerships if the co-owner doesn't know (or follow) your wishes post death.  Prior planning can avoid these mishaps, but it requires thought and effort before declaring a joint owner.

4.  Not properly using IRS-approved annual gift accounts.  By current law, every American can gift $13,000 annually, completely tax free, to anyone they want.  Of course, doing so might not be the wisest move, but it might be very effective to shrink an estate.  Shrinking the estate will then lower the income tax paid by the estate.  While you may not want to give these funds to family members while they are young, it is still an idea to consider later in life.

5.  Failure to plan for the distribution of your pension retirement accounts.  An alarming 80% of all pension and IRA monies are passed (and therefore taxed) to beneficiares named on the accounts, meaning only 20% of the nation's IRA monies are used as retirement income.  In other words, we set aside pension money just in case we need it, but then don't usually touch it.  And these investments can grow to astronomical numbers, but only a few people know to plan for them.  Accounting for these pensions is a crucial part to your estate plan.

6.  Lacking liquidity to cover estaet settlement expenses.  After your passing, there will be a financial assessment, and no matter what your situation is, your heirs and executor will need cash!  Because many people don't have a sound estate plan, most heirs have to liquidate assets to generate enough cash to cover estate costs.  This can cause stress, which might have been avoided if there had been a strategic plan in place beforehand.

7.  Improperly arranged and owned life insurance.  The proceeds of a life insurance policy might pass income tax free, but they are not free from estate tax.  That is, unless the policy is owned by someone other than yourself (in which case the estate would have no claim on the account).  Another common mistake is the failure to name a contingent beneficiary.  Millions of dollars lay unclaimed due to their beneficiary predeceasing the insured.  And a third error is that many clients have antiquated policies.  These policies served a purpose for when your kids were younger, or when you just started a new business.  Now that times have changed in your life, it's time to change your policy so that it is more useful.

8.  Not planning for the cost of long-term care.  Four out of ten Americans will need long-term care, according to the Health Insurance Association of America.  This costs between $40,000 and $80,000 yearly, which is definitely enough to wipe out many estates.  Also, in order to apply for Medicare (or Medical Assistance), you must spend down your assets, by which point your estate might be gone or almost gone.  Are you prepared to take the chance that your assets will endure any potential costs?  Could you survive a long-term illness or accident financially?

9.  Not leaving behind your story.  When you pass, don't think of your legacy just being in financialy terms.  After working with older clients, we always ask what piece of advice they can give us from their experiences.  Write down this advice and your own unique history.  For the most part, these histories become faded memories before disappearing forever, so make sure yours is there to be remembered.

If you enjoyed reading this post, check out this one, What Might be Missing from Your Will.

A Will is the legal document that declares how a person (the testator) wants to distribute his or her assets after they pass.  You may think that once their wishes are stated, there is no changing them, but an unhappy family member has the right to contest the Will.  Will contests can drag out for years and may keep all heirs from getting their entitled shares.  Although it may be impossible to prevent future relatives from fighting over your Will, there are steps you can take to minimize quarrels and ensure that your intentions are carried out.

The first step to preventing a Will contest is to understand how it can happen.  A family member may contest your Will if they believe that you did not have the requisite mental capacity to execute the Will, someone exerted undue influence over you, someone committed fraud, or the Will was not executed properly.

To make a Will contest less likely to succeed, try following these steps:

• Make sure your Will is properly executed.  Although this seems like a no brainer, it is a common way for a Will to be contested.  Each state has laws dictating what makes a Will valid.  In Pennsylvania, anyone of sound mind over the age of 18 years old may make a Will.  The Will must be in writing and signed by the testator and this signature must be witnessed by two competent witnesses.  They must also be self-proven before a notary.  The best way to ensure that your Will is properly executed is to have an estate planning attorney assist you in the drafting and executing of the Will.
• Explain your decision.  If family members understand the reasoning behind your decisions, they may be less likely to contest them.  It is a good idea to talk to family members at the time of your draft and explain to them why someone may be left out or receiving an unequal share.  If you don't talk to them about it, state the reason in the Will.  You may also want to include a letter with the Will with an explanation
• Use a no-contest clause.  A no-contest clause is one of the most effective way of preventing a challenge, but it will only work if you are willing to leave something of value to the potentially disgrumbled family member.  The way a no-contest clause works is that it allows an heir to challenge the Will, but if her or she loses the  challenge, they also lose their inheritance.  For this to work, you must leave the heir enough so that a challenge is not worth the risk of losing the inheritance.
• Prove competency.  Another common way of challenging the will is to argue that the decedent was not of "sound mind" at the time of the signing.  Avoid this argument by making sure that the attorney drafting the will tests for competency.  This may involve seeing a doctor or answering a series of questions.
• Videotape the signing.  This may be more on the extreme side, but videotaping your signing will allow family members and the court see that you are signing under your free will and makes the argument of incompetence more difficult.
• Remove the appearance of undue influence.  To avoid the appearance of undue influence, do not involve any of your possible heirs in the drafting of your will.  Family members should not be present when you discuss the will with your attorney, nor when you sign it.  To be totally safe, they shouldn't even drive you to the attorney's office.

Here are the 8 most common mistakes executors make when administering an estate.  There are oftentimes other mistakes made as well, so you should seek legal advice to ensure that all matters are handled.

1.    Probating the Wrong Documents.  When most executors hear the word “probate” they think of the long, difficult, expensive process of administering an estate and want to avoid it.  But, in Pennsylvania, that is mistake number one!  Pennsylvania’s probate process is not nearly as bad as most states and is in fact fairly easy, simple, and straight forward.  When someone ways they are going to probate a will, it means that you are going to the Register of Wills and someone there will verify that the will is authentic and that you are indeed the executor.  Then, as executor, you will take an oath promising to protect and distribute the estates assets.  There will be a small probate fee, but not nearly as large as other states.
    One of the first duties an Executor must do is to make sure that you have the right documents.  These are the most recent documents, so check the safe deposit box and with the lawyer who drafted the documents at the very least to make sure there aren’t more recent documents!

2.    Distributing early without protection from liability for that distribution.  As Executor, you are personally liable for the estate and distributions.  When executors make distributions before everything else is done, the executor is personally at risk (and these distributions are known as “at risk distributions”).  This does not mean that you cannot give some money out before paying creditors and anyone that can assert a claim or the estate assets, it just means that you better make sure that you can get the money back if there has been a miscalculation!

3.    Failing to comply with probate requirements.  In Pennsylvania, like we previously mentioned, the probate requirements aren’t too strict, however there are a few things that must be done.  Once sworn in as Executor, Pennsylvania requires that everyone named in the will is at least notified that it is in probate.  Once everyone is notified, you must notify the court by filing a certification.  If you are using an attorney to help administer an estate, they will do it for you and make sure it is done correctly.  Additionally, if someone has been disinherited under a will (for example a child), they must receive notice.  People do have the right to challenge the will, so Pennsylvania law requires that everyone who is supposed to know about this does know about the will.

4.    Failure to get discount for early inheritance tax payment.  Pennsylvania gives a discount for paying the inheritance tax within 3 months, rather than waiting 9 months when the inheritance tax is due.  But just because there is this discount doesn’t mean that you should rush to pay the inheritance tax.  Sometimes, say if you’ve got a lot of cash, it makes sense to pay the inheritance early and receive the discount.  In other situations, you may be earning more than the value of the discount with the money in another investment form.  Getting the advice of an estate administration attorney will help you with this decision.

5.    Forgetting to advertise the estate.  The law requires that the naming of the executor and the creation of the estate be advertised once a week for three weeks in a paper of general circulation and in the legal newspaper of the county of the decedent’s death.  When working with a law firm like ours, this will be handled by the attorney.  This is so that if debts were owed, creditors can come forward and make their claim on the estate.  In Pennsylvania, there is a 4 to 6 year statute of limitations, meaning 3 years after the estate administration is done, a creditor could have a valid claim, but had you advertised, the creditor could have known beforehand.  Additionally, advertising the estate cuts off claims after one year.

6.    Getting help too late.  Probate and estate administration can be a complicated process and is not as simple a job as it seems.  Those who have been executors know that it can be very time consuming and difficult.  Getting both legal and accounting help can make the job less time consuming, less difficult, and less emotionally draining as well as limiting your liability exposure.  Let someone who has been through the process many times before help you through it.  If a loved one just died and you need help with estate administration, our office can help.

7.    Not meeting tax deadlines.  Within 9 months you must file a PA inheritance tax return.  In some cases, you must also file a Federal estate tax return.  They must be filed timely, or you will get in trouble!  Generally, these returns look simple, but there are many strategic issues and you have to make certain elections that can create a bit of confusion.  Equally important in when you file them is how you file them.  You want your returns prepared and filed professionally because professionals really know what they’re doing.  They can help save you because they know the red flags, the things to avoid, the documents to attach.

8.    Failing to conclude the estate.  Once executors get to the end of an estate, oftentimes they just distribute the money without ever formally closing the estate.  Before distributing assets, you can go to a court and get the okay from a judge, or if you want to skip that piece of the probate process and your family is all in agreement, you can form a family settlement.  This gives everyone records of the estate administration so that they know where assets went and how much expenses were, so that the family can agree on these and not hold the executor liable for any mistakes.  By documenting everything among family members, if later debt pops up, everybody agrees to give the money back and the executor has managed their liability.  This must be prepared by an attorney and is a very powerful tool in protecting the executor’s liability.

These mistakes are common in the administration of an estate, so the best advice we can give you is to seek legal counsel to help you through the process.