Misinformation – Intro
The best gift you can give your loved ones is to have your Estate Planning complete.
Unfortunately, to a great extent, misinformation about critical terms such as inheritance tax, estate tax, probate, avoiding probate, simple will, living will, and living trust, tends to lead to misunderstandings of estate planning.
These misunderstandings, in turn, tend to lead to mistakes in estate planning.
These mistakes, again, in turn, tend to lead to unintended results after one’s death.
In an effort to eliminate such misinformation, misunderstandings, and mistakes, this article – and the upcoming posts – will hopefully serve as a primer – in very simple terms – of the basic, core issues of estate planning and its basic documents.
Cornerstone
Misinformation – The Documents
There are four primary documents that tend to form the foundation of most good estate plans.
These documents are a Power of Attorney, an Advance Directive for Health Care (often referred to as a Living Will), a Will, and a Trust.
Although each document has a different purpose, each document designates someone who is responsible for carrying out the wishes set forth in the document.
Each document has a boss who is in charge of carrying out the terms of that particular document.
Misinformation – The Bosses
I refer to these people – those in charge – as “The Bosses.
Under Pennsylvania law, the proper terms for the bosses are an Agent (under a Power of Attorney), a Surrogate (under an Advance Directive for Health Care), an Executor (under a Will), and a Trustee (under a Trust).
Although a technical knowledge of these terms can be useful, it is not the point of this article.
The focus is to illustrate that an Agent, a Surrogate, an Executor, and a Trustee are just the bosses of that respective document.
Misinformation – The Powers
Each boss has powers, and these powers can be summarized very simply.
An Agent (under a Power of Attorney) can help manage all of your affairs; a Surrogate (under an Advance Directive for Health Care) can execute your end of life decisions; an Executor (under a Will) can administer your Estate; and a Trustee (under a Trust) can monitor and manage your Trust.
Again, and although a technical knowledge of the parameters of these various powers can be useful, it is not the point of this article.
The focus is to illustrate that an Agent, a Surrogate, an Executor, and a Trustee can generally possess broad powers to act for you under that respective document.
Misinformation – The Traits
Although all four of the documents require bosses that possess certain traits or characteristics in order for that document to be as effective as possible, I have experienced that two traits should be inherent in all of the bosses of all four of the documents: ability and willingness.
Misinformation – The Documents
Although the bosses of each of the documents should also possess additional traits for that particular document to be effective (all of which shall be addressed later), unless your boss is able and willing to act on your behalf, your desires and wishes may not be followed.
Pa Power of Attorney
A Power of Attorney can grant your boss (Agent) the ability to control all of your affairs.
It is a very powerful document; it can permit your Agent the broadest of powers to do anything which you could have done (i.e., give all your money away), but yet, inherent in these broad powers, is the reality that you Agent may actually do anything which you could have done (i.e., give all your money away).
A Power of Attorney can be durable (effective after you are incapacitated), current (effective now), or springing (effective upon the happening of a future event (i.e., the decision by your treating physician that you can no longer act for yourself).
A common misconception is that a Power of Attorney eliminates your ability to act for yourself.
Quite to the contrary, and until you are deemed incapacitated, a Power of Attorney should properly be viewed as a shared authority – you still retain all of the powers and decision making ability that you possessed before you executed the Power of Attorney.
Pa Advance Directive for Health Care
With respect to additional traits that your boss should possess (in addition to being able and willing), I have found that your boss (Agent) should also be levelheaded and familiar with your affairs.
An Advance Directive for Health Care (“Pa Living Will”) can grant your boss (Surrogate) the ability to execute your end of life decisions and decide whether life-sustaining measures should be used.
The common misconception of this document is when it will become operative.
There are two triggers that must occur before your Surrogate is even given the option of acting: the first is that you must be unable to communicate your own decisions, and the second is that you must have been diagnosed with a terminal condition or as being permanently unconscious.
Pa Last Wills
A Will can grant your boss (Executor) the ability to administer your Estate.
With respect to additional traits that your boss should possess (in addition to being able and willing), I have found that your boss (Surrogate) should also be stoic and stro
The most common misconception that surrounds a Will is the process called probate and the seemingly universal theme that it should be avoided at all costs.
Again, and virtually to the contrary, the word probate is merely the Latin infinitive verb that means to prove, and, although some states do have onerous probate procedures (where the avoidance of probate may be a prudent strategy), Pennsylvania is not one of those states.
In fact, probating a Will in Pennsylvania is very simple.
Also very important is the fact that a Will only disposes of the assets (1) that you own in your individual name alone and (2) that possess no beneficiary designations (i.e., no tags).
Consequently, items owned jointly with another are controlled by property law (not Will law) and will pass to the joint owner(s) at your death, and items that have beneficiary designations will be controlled by contract law (not Will law) and pass to the designated beneficiaries at your death.
Pa Trust
With respect to additional traits that your boss should possess (in addition to being able and willing), I have found that your boss (Executor) should also be honest and diplomatic.
A Trust can grant your boss (Trustee) the ability to monitor and manage your Trust.
The types of Trusts can be viewed simply as being either (1) revocable (which are created during your life and which become irrevocable upon your death), (2) irrevocable (which are created during your life and become irrevocable upon their creation), and (3) and testamentary (which are created under your Will and which become irrevocable upon your death.
Vital is the fact that they can be extremely useful for individuals with Special Needs (i.e., autism, addictions, minors, etc).
Misinformation – The Taxes
With respect to additional traits that your boss should possess (in addition to being able and willing), I have found that your boss (Trustee) should also be attentive and decisive.
Fourth – and most importantly – pick your bosses very carefully.
Another area of misconception in the estate planning area is the taxes that are imposed on value of your assets on the date of your death.
Basically, two death taxes can be imposed on Pennsylvania residents: the Federal Estate Tax and the Pennsylvania Inheritance Tax.
Unlike the income tax, which is very descriptive in its title as it is imposed upon your income, the phrases Estate Tax and Inheritance Tax are misnomers that may tend to belie the actual fact that these are taxes imposed by virtue of your death.
The Federal Estate Tax begins at a wealth threshold.
The federal estate tax exemption — also referred to as the estate tax exclusion — is $11.4 million per person as of 2019.
A married couple can effectively leave behind $22.8 million combined.
This exemption is cumulative for gifts made during life as well as your estate at death.
Because the exemption is so high, very few people have to file an estate tax return or pay estate taxes.
However, this exemption is scheduled to get cut to $5 million in 2026.
Although the basic exclusion amount will be reduced in 2026, the IRS’s regulations provide a special rule that effectively allows an estate to compute its estate tax credit using the greater of the exclusion amounts applicable to gifts made during life, or the exclusion amount applicable on the date of death.
If you possess less than the wealth threshold at your death, the federal estate tax will not be applicable.
In addition to the estate tax — which is a tax on property transferred at death — a personal representative of the decedent might have to pay a gift tax on money or property given during the decedent’s life if it hasn’t already been paid.
However, no tax is owed if the gift does not exceed the exclusion amount. You can give $15,000 per year to any person without using any of your exclusion amount.
Giving more than that to any person reduces your basic exclusion amount — and the amount you can pass estate-tax-free at your death. Say, for example, you give $115,000 to your child to help them buy a house. Because you gave $100,000 more than the $15,000 annual exclusion, you use up $100,000 of the basic exclusion amount and can only leave $11.3 million estate-tax-free at your death.
Although gifts can be excluded from taxes, they are not deducted from your overall taxable income — there is no gift tax exemption.
If it is applicable, the tax is imposed on a percentage scale according to the amount of wealth (i.e., potentially 47% of the value of your assets above the current $1,500,000. 00 wealth threshold).
This threshold has been, is, and is scheduled to continue to increase. In 2005, the threshold is $1,500,000. 00; in 2006, 2007, and 2008, the threshold is $2,000,000. 00; in 2009, the threshold is $3,500,000.00; in 2010, the Federal Estate Tax is scheduled to be eliminated; but in 2011, the Federal Estate Tax is scheduled to return with a threshold of $1,000,000.00.
The Pennsylvania Inheritance Tax has no wealth threshold and starts immediately.
It is imposed on a percentage based on the relationship of the beneficiary.
Spouses and Charities are taxed at a 00.00% tax rate, lineal descendants are taxed at a 4.50%, brothers and sisters (but not brothers-in-law nor sisters-in-law) are taxed at a 12.00% tax rate, and everyone else is taxed at a 15.00% tax rate.
The Pointers
In conclusion, there are four basic pointers for all who are faced with estate planning.
First – title you assets with the utmost care (i.e., joint ownership, beneficiary designations, etc.).
Second – with respect to transferring your assets (i.e., re-titling, gifting, etc) during your lifetime, get advice before you do so (before the bombs go off).
Third – always have your estate planning documents up-to-date because laws, taxes, and people change.
Misinformation – Lightning
“The difference between the almost right word and the right word is really a large matter – it’s the difference between the lightning bug and the lightning.” (Mark Twain).
Whether you are a Pa Agent (under a Pa Power of Attorney), a Pa Surrogate (under a Pa Living Will), a Pa Trustee (under a Pa Trust), and/or (most importantly) a Pa Executor (under a Pa Last Will), you will ultimately be responsible for any and all problems, mistakes, and unpaid taxes.
Please also be aware that, when it comes to tax returns that were not filed, there is no statute of limitations – meaning that you could receive notice that taxes were due, but not paid, and are still currently due at any time.
Lastly, and most importantly, if you retained a professional (i.e., a lawyer, an accountant, etc.), call that professional and ask them what is the status of anything with which they assisted you. They should be able to give you accurate, precise, and immediate answers to any of your concerns. If they do not, please be forewarned. You may want to seek assistance elsewhere.
In keeping with Mark Twain’s quote, let’s try to separate the lightning bugs from the lightning.
Please contact me if you have any questions.
Thank you.
John B. Whalen, Jr., Esq.
John B Whalen Jr Esq
John B. Whalen, Jr., JD., LL.M., is an AV Peer Review Rated Preeminent 5.0 and Avvo Rated 10.0 Superb (obtaining over 95 client reviews and peer endorsements). Free Initial Consultations All 7 Days. Pa Probate Wills Estates Attorneys. AV Peer Review Rated Preeminent. Attorney And Counselor At Law. John B. Whalen, Jr., J.D., LL.M. Avvo Rated Superb 10.00. 1-610-407-0220
About John B Whalen Jr Esq
Free Consults • Home Visits • Flat Fees. 1199 Heyward Road Wayne Pa 19087, Serving All Surrounding Counties. All 7 Days • 9:00 AM • 10:00 PM. Evenings Weekends Holidays. jw60297@me.com. 1-610-407-0220.
Practice Areas
Pa Model Court Accountings. Pa Estate Administration. Pa Powers of Attorney. Pa Estate Planning. Pa Living Wills. Pa Last Wills. Pa Probate.
Serving All Surrounding Areas
West Chester Pa Probate Wills Estates Lawyers. Media Pa Probate Wills Lawyers. Norristown Pa Probate Wills Lawyers. Malvern Pa Probate Wills Lawyers. Ardmore Pa Probate Wills Lawyers. Wayne Pa Probate Wills Lawyers. Collegeville Pa Probate Wills Lawyers. Skippack Pa Probate Wills Lawyers.
Client Testimonials
Over 3,967 LinkedIn Profile Followers. 99 LinkedIn Peer Endorsements. 27 Avvo Peer Endorsements. 24 Martindale Peer Reviews. 12 Lawyers Client Reviews. 68 Avvo Client Reviews. Over 5,000 Reviews
Accolades
He is the recipient of the Legum Magister Post-Doctorate Degree (LL.M.) in Taxation (from the Villanova University School of Law), a recipient of the American Jurisprudence Award in Wills, Trusts, and Estates, from the Widener University School of Law), and a recipient of the ABA-BNA Law Award for Academic Excellence (from the Widener University School of Law). He has also been named as an Awesome Attorney in the field of Estate Planning Law (by the Suburban Life Magazine of the Philadelphia suburbs) for the years 2010 through 2018, and was Editor-in-Chief of the Delaware Law Forum at Widener School of Law.
Speaker
Mr. Whalen is a frequent speaker and writer on the areas of Probate, Wills, Trusts, Estates, and has spoken for the Pennsylvania Bar Institute, spoken at the Widener University Osher Lifelong Learning Institute, and spoken at the Delaware County Estate Planning Council. He has also had his legal articles published by the Pennsylvania Bar Institute, the Pennsylvania Law Weekly, the Philadelphia Business Journal, and the Martindale.Com website. He has had his law blogs published on the Lawyers.Com website.
Professional
He is a member of the Pennsylvania Supreme Court and the United States Federal Court for the Eastern District of Pennsylvania. He is past president of the Delaware County Estate Planning Council, a past Internship Instructor of Conestoga High School, and Villanova University School of Law. He is a past member of the Chester County Estate Planning Council, a past President of the Chesterbrook Picket Post Condominium Association.
Practice Areas
Mr. Whalen concentrates his legal practice solely in the areas of Pa Estate Law, Estate Planning, Pa Estate Administration, Pa Executor Representation, Pa Probate, Pa Ancillary Probate, Pa Last Wills, Pa Decedents Estates, Pa Powers of Attorney, Pa Advance Directives, Pa Trust Law, Pa Living Wills, Fiduciary Law, Inheritance, Pa Inheritance Tax, Pa Trusts and Estates, Pa Trust Administration, Pa Cemetery Law, Pa Tax Law, Pa Estates, and Pa Estate Planning for Unmarried Couples.
Client Schedule
Mr. Whalen provides legal services seven (7) days per week, including all evenings, weekends, and holidays.
Areas Served
Mr. Whalen serves, and has served, both individuals and attorneys in the Southeastern Pennsylvania Metropolitan Area (and throughout the country), including Chester County Pa, Delaware County Pa, Lancaster County Pa, Montgomery County Pa, and Philadelphia County Pa. He has served clients in Ambler Pa, in Ardmore Pa, in Aston Pa, in Berwyn Pa, in Blue Bell Pa, in Bridgeport Pa, in Broomall Pa, in Bryn Mawr Pa, in Chadds Ford Pa, in Chesterbrook Pa, in Chester Heights Pa, in Chester Springs Pa, in Coatesville Pa, in Collegeville Pa, in Conshohocken Pa, in Devon Pa, in Downingtown Pa, in Drexel Hill Pa, in Eagleville Pa, in Easttown Pa, in Elkins Park Pa, in Exton Pa, in Frazer Pa, in Great Valley Pa, in Haverford Pa, in Havertown Pa, in Jeffersonville Pa, in Kennett Square Pa, in King of Prussia Pa, in Lansdale Pa, in Limerick Pa, in Linfield Pa, in Linwood Pa, in Lower Merion Pa, in Malvern Pa, in Media Pa, in Narberth Pa, in Newtown Square Pa, in Norristown Pa, in Oaks Pa, in Overbrook Pa, in Paoli Pa, in Parkesburg Pa, in Phoenixville Pa, in Plymouth Meeting Pa, in Pottstown Pa, in Radnor Pa, in Ridley Park Pa, in Rosemont Pa, in St. Davids Pa, in Springfield Pa, in Strafford Pa, in Swarthmore Pa, in Thorndale Pa, in Tredyffrin Pa, in Trooper Pa, in Upper Merion Pa, in Valley Forge Pa, in Villanova Pa, in Wayne Pa, in West Chester Pa, in Westtown Pa, in Whitemarsh Pa, in Willistown Pa, in Wynnewood Pa, and in Yeadon Pa.
