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Pennsylvania Estate Planning FAQ

What is a Will?

In Pennsylvania, a will is an instrument by which a person makes a disposition of property to take effect at death. The will should address all a person’s property, not just what is located in Pennsylvania, but also accounts and real property no matter where else located. A will can be “simple”, which means that it simply says all assets that you own pass to someone else. A will can also be more complex, such as forming a trust for a minor child. If you have a minor child, a simple will is not satisfactory, as a minor child cannot accept the inheritance. A will should clearly reflect your personal priorities, wishes and values. Peter Klenk and his dedicated Pennsylvania Attorneys can help you draw up or modify existing wills that meet your specific needs and circumstances.

What is a Simple Will?

A Simple Will is a will that does no tax or asset protection planning.

What is a Trust?

At its most basic level, a Trust is an arrangement where one person (Trustee) holds some asset for the benefit of another person (Beneficiary). Trusts can exist in a Will, called a Testamentary Trust, coming to life only upon the death of the person who created the Will. A Trust might also be formed while you are alive. Trusts can be Revocable (sometimes called a Living Trust) or Irrevocable. Trusts can be Complex or Simple. Trusts can be crafted to address very specific sets of circumstances, such as for funding education for grandchildren or to assist a person with Special Needs.

Who is the Grantor of the Trust?

The Grantor is the person who created the trust and, in general, is the same person who places assets into the trust. This person can also be called the Trustor, the Settlor or the Creator. All these names refer to the same person, but the IRS prefers to use the term “Grantor”.

What is a Revocable or Living Trust?

A Living Trust (also called an inter vivos trust) is created by a living person and is effective during the grantor’s lifetime to the extent that assets have been put in the name of the Trust. If the Trust is a Revocable Trust, even after transferring assets into it, the grantor retains full control of the assets, and can revoke or change the Revocable Trust at any time during his or her life. If it is an Irrevocable Trust, the grantor gives up the ability to change the terms but will typically realize a substantial benefit, such as reducing taxes, obtaining Medicaid coverage for long term care, or protection of assets against outside claims. Property transferred into a Living Trust does not have to go through probate and may be distributed to your chosen beneficiaries or even held in a continuing trust after you are gone.

Is a Revocable Living Trust Right for Me, as a Resident of Pennsylvania?

A Revocable Living Trust can be an excellent estate planning tool, but for most Pennsylvania residents the cost of creating and implementing a Pennsylvania County Revocable Living Trust might not be worth the expense. For more information, read my article, Is a Revocable Living Trust Right for Me?

What is a Testamentary Trust?

A Testamentary Trust is a trust that does not exist during your lifetime, but comes into existence at your death, being established under your will. An example of a testamentary trust would be if your will said that at your death your house in Philadelphia was to be held in trust for your friend so he could live there rent-free for his lifetime. During your lifetime the Philadelphia house is in your name and you could sell it if you wished. If you owned the Philadelphia house at your death, then the trust would be created and it would own the Philadelphia house. Your friend would be the beneficiary of that house, benefiting from the opportunity to live there rent free, but he would not own the house.

What is an Inter Vivos Trust?

An Inter Vivos Trust (Latin, between the living) refers to a trust formed during your lifetime, as opposed to a Testamentary Trust (a trust formed at your death). Inter Vivos Trusts can be Revocable Trusts or they can be Irrevocable Trusts. A typical example of an Irrevocable Inter Vivos Trust in Pennsylvania would be the formation of an Irrevocable Life Insurance Trust.

What is an Irrevocable Life Insurance Trust?

An Irrevocable Life Insurance Trust (or ILIT) is an Inter Vivos Trust formed for the specific purpose of holding a life insurance policy (or policies) on your life. The typical goal is to remove the life insurance from your taxable estate. For example, if you are a Philadelphian purchasing a $1,000,000.00 term policy that is to benefit your spouse and children, you will never personally benefit from the policy, so ownership is irrelevant, as long as your spouse and children are cared for by the policy at your death. By having your Pennsylvania Irrevocable Life Insurance Policy purchase the policy on your life, the trust owns the policy, not yourself. At your death the policy pays out to the trust, which benefits your spouse and children, but the policy is not part of the Federal Taxable Estate, nor part of your Pennsylvania Probate Estate.

What is an Education Trust?

An Education Trust refers to a trust set up for the sole purpose of paying for the beneficiary’s education. The trust can pay for only tuition, or it could pay for any or all expenses of the beneficiary’s education. Peter Klenk has formed many Education Trusts in Pennsylvania. When adequately funded, these trusts can pay for the education of your descendants for hundreds of years. Perhaps a great-great-great-great Grandchild of yours will toast to your health because of his or her tuition being paid from your Pennsylvania Education Trust?

What is a Spendthrift Trust?

A Spendthrift Trust refers to a trust whose terms limit the beneficiary’s creditors from successfully making claims against the trust. A Pennsylvania Spendthrift Trust is a perfect tool to protect any beneficiary of yours that regularly has creditor problems. The trustee is usually authorized to use the trust assets “on the beneficiary’s behalf”, which means pay the person’s bills. Those payments are made free of creditor claims. A Pennsylvania Spendthrift Trust can also be a safe haven even for those who do not have regular creditor issues. We all live with the possibility of an unexpected lawsuit or a financial downturn. Peter Klenk can draft a PennsylvaniaSpendthrift Trust that helps protect your children from the unexpected.

What is a Special Needs Trust?

Though it seems that medical science has found a way to cure most of life’s illnesses, there are still many people who suffer from physical and mental diseases that make Medicaid necessary. If you were to leave a Pennsylvania Special Needs person an inheritance, that inheritance might disqualify them from Medicaid or any other financially based government program. Instead, Peter Klenk can craft a Special Needs Trust for that person so the assets you leave are available to supplement the Pennsylvania Special Needs Person’s care and lifestyle, but will not disqualify them from Medicaid or other needs based programs. A Pennsylvania Special Needs Trust can literally be a lifesaver.

What is a Charitable Trust?

Sometimes an outright gift to the charity of your choice is not the best answer. Peter Klenk can draft for you any number of trusts that have a Charity as a Beneficiary. These Trusts make sure your wishes are carried out and can provide many tax benefits.

What is a Generation Skipping Trust?

One of the most difficult estate tax related taxes is the Federal Generation Skipping Tax. Many Pennsylvania estate planners try to ignore this thorny problem. Peter Klenk’s NYU Masters in Tax Program even included a single course only on this difficult subject. In short, you wish to avoid this tax. Peter Klenk cannot only explain the tax to you, he can also draft a Pennsylvania Generation Skipping Trust to help your future generations avoid paying the tax.For more about the Generation Skipping Tax (I have an article).

What is a Pet Trust?

A Pennsylvania Pet Trust refers to a trust created for the care of a pet. Peter Klenk has created protective trusts for many animals over the years; horses, dogs, cats, fish and even turtles. Sometimes your pets mean more to you than most of your human heirs, so make sure they are cared for after you are gone. If you do not take special steps to address what happens to your pets after your death, pets are then treated like any other item of personal property, such as furniture. Peter Klenk has worked with Pennsylvanians for decades to ensure that after their deaths their pets are cared for in loving homes and with adequate funds. For more about Pet Trusts (I have an article)

What is a Grantor Trust?

Grantor Trust” is a term used in the Internal Revenue Code to describe any trust over which the Grantor or other owner retains the power to control or direct the trust’s income or assets. If a grantor retains certain powers over or benefits in a trust, the income of the trust will be taxed to the Grantor, rather than to the trust. This would be true even if the Grantor never receives that income. This shifting of income tax obligation was congress’ attempt to punish Grantors who retained to much power over Irrevocable Trusts but still claimed the trusts were now outside the Grantor’s Federal Taxable Estate and no longer subject to the Federal Estate Tax at the Grantor’s death. Examples of what retained powers create a Grantor Trust include:

  • The power to decide who receives income;
  • The power to vote or to direct the vote of the stock held by the trust;
  • The power to control the investment of the trust funds; and
  • The power to revoke the trust (all “Revocable Trusts” are by definition grantor trusts). An “Irrevocable Trust” can be treated as a grantor trust if any of the grantor trust definitions contained in Internal Code §§ 671, 673, 674, 675, 676, or 677 are met.
  • The Result: If a trust is a Grantor Trust, then the Grantor is treated as the owner of the assets, the trust is disregarded as a separate tax entity, and all income is taxed to the Grantor.

Why Would I want to Create Pennsylvania Grantor Trust?

After congress created the Grantor Trust status to punish Grantors by making them pay the trust’s income tax, even though the actual income went to other Beneficiaries, clever estate planning lawyers realized that this punishment could be turned into a benefit. For example, if you are Pennsylvania resident and you create a Grantor Trust in Pennsylvania that pays out its income to your children, then your children will receive this income free of income tax, because you will pay the income tax on your return as “punishment” for retaining to much power over your Pennsylvania Grantor Trust. But if you look at the payment of the income tax for your children as an additional gift to them, then you are able to pay this tax for your children but not be required to recognize it as a gift for Gift Tax purposes. It is a matter of perception, but if your goal is to get the most money to your children free of the Federal Estate Tax, the Federal Gift Tax and the Pennsylvania Inheritance Tax, then a Pennsylvania Grantor trust might be a good idea as part of your Pennsylvania estate plan.

Grantor’s Do Trusts have to File Federal Income Tax Returns?

A Revocable Living Trust formed in Pennsylvania does not file a Federal Income Tax Return, because all the income is recognized on the Grantor’s own income tax return. Irrevocable Trusts, though, must file a Form 1041, U.S. Income Tax Return for Estates and Trusts, for each taxable year where the trust has $600.00 of income or the trust has a non-resident alien as a Beneficiary. However, if the Trust is a Grantor Trust, it is not required to file a Form 1041, provided that the Grantor reports all income and allowable expenses on his or her own Form 1040, U.S. Individual Income Tax Return.

Can I Avoid Paying Income Tax on My Assets if I Assign the Income to a Trust?

No, even if the income is paid directly to the trust, you are still liable for the income taxes due. Further, you will be deemed to have made a gift to the trust of the full amount transferred into the trust, and that gift will be subject to the Federal Gift Tax rules.

What is a Simple Trust?

A Simple Trust is an IRS Tax term that does not refer to whether the trust is easy or difficult to understand. Instead, a “Simple Trust” is a term used to define a trust that:

  • Is not a Grantor Trust or required to be treated as a Grantor Trust;
  • Is required to distribute all income annually; and
  • Does not distribute the corpus of the trust or make charitable contributions. (IRC Section 651).

What is a Complex Trust?

A Complex Trust is a trust that the IRS does not deem either a Simple Trust or a Grantor Trust . It is a tax term that does not tell you if the trust itself is difficult or easy to understand.

Will My Transfers to a Trust be Subject to the Federal Gift Tax?

Your obligation to pay Federal Gift Tax and the requirement to file a Form 709 Gift Tax Return, will depend upon the type of trust you have created. For Gift Tax purposes, a gift is complete (taxable) to the extent the donor (usually the Grantor ) has irrevocably parted with dominion and control over all or part of the transferred property, whether directly or indirectly, leaving the donor without the power to change its disposition, whether for the benefit of the donor or for the benefit of others. If the trust is a Grantor Trust (all Revocable Living Trusts are Grantor Trusts), then no Gift Tax is due. If the gift is instead to a n Inter Vivos Irrevocable Trust, a Form 709 Gift Tax Return need be filed.

What is a Trustee?

Every Trust requires a trustee. For a Living Trust the grantor often serves as the trustee during his or her lifetime. However, a trustee can be an individual or institution, such as a bank or trust company. A trustee must be carefully chosen in order to protect your wishes. The NY Attorneys at Weiss, Buell & Bell can guide you regarding the characteristics to consider when choosing a trustee.

What Does a Trustee Do?

The Trustee is the Fiduciary responsible for carrying out all the terms of the Trust.

Who should I Pick to be Trustee?

Serving as the Trustee is a job that comes with potential liability. If the Trustee makes a mistake, the Trustee may have to use his or her own funds to correct that mistake. When selecting a Trustee don’t think of it as a reward for a friend or family member, think of it as a irksome job that will last as long as the Trust terms dictate. That could be a lifetime! The person will be responsible for filing taxes, managing the trust assets, working with the Beneficiaries, fielding phone calls from Beneficiaries and other, unpleasant tasks. A Trustee should be someone financially responsible, stable, able to keep excellent records, able to work well with the Beneficiaries and trustworthy. Be honest with yourself about the difficulties and complexities of the trust assets and your family. Select someone who is up for the job. Remember, the Trustee does not need to accomplish every task, as the Executor is free to hire a Financial Advisor, Estate Lawyer and a CPA. The Trustee is the quarterback and needs to make sure the Trust terms are carried out.

What is an Executor?

The Executor is the person named in the Will who will be responsible for carrying out the Will’s terms.

What Does the Executor Do?

For example, lets say that your uncle, a long time resident of Philadelphia has died leaving a Will. The Executor takes the Original Will, Original Death Certificate, an ID and a checkbook to the Philadelphia County Register of Wills. If the paperwork is correct, the Register will then issue the Executor letters that the Executor uses to prove that he or she represents the Estate. The Executor then is responsible for collecting the estate assets, protecting the estate property, satisfying creditor claims, paying taxes, pursuing claims for the estate, deciding if assets should be liquidated or not, investing estate assets, and then distributing the estate assets to the Beneficiaries. Other responsibilities that are not legal, but come with the job, include communicating with family members, resolving disputes over personal property (who gets the engagement ring), answering Beneficiary questions, overseeing the Estate Attorney and Accountant and even finding good homes for pets.

Who Should I Pick to be my Executor?

Serving as an Executor is a job that comes with potential liability. When selecting an Executor, don’t think of it as a reward for a friend or family member, think of it as a irksome job that may last well over a year. The person will be responsible for filing taxes, selling real estate, collecting on debts, dividing up personal property between nettlesome relatives, fielding phone calls from beneficiaries waiting for their inheritances and other, unpleasant tasks. An Executor should be someone financially responsible, stable, able to keep excellent records, able to work well with your heirs and trustworthy. Be honest with yourself about the difficulties and complexities of your estate and your family. Select someone who is up for the job. Remember, the Executor does not need to accomplish every task, as the Executor is free to hire an Estate Lawyer, CPA or realtor. The Executor is the quarterback and needs to make sure things get done.

Should I Make my Pennsylvania Estate Attorney my Executor?

Unless you state otherwise, whomever you select to serve as your Executor will take a fee. If you select a family member as Executor who then hires an Estate Lawyer and Accountant to assist them, then it might prove less costly to simply name the Estate Attorney as the Executor. Peter Klenk often serves as Executor, but instead of taking a fee equal to a percentage of the estate, he takes an hourly fee, which often is less expensive to the estate than having a family member. If you have a family that does not get along, the Estate Lawyer as Executor sometimes avoids costly litigation and family fights. Be honest also about your spouse, at your death your spouse maybe be incapacitated by grief, illness, or disability and unable to effectively serve as Executor. Having your Pennsylvania Estate Lawyer serve as Executor will increase the chances that necessary tasks will be accomplished, taking the burden off your spouse.

What is a Fiduciary?

A Fiduciary is someone who is legally obligated to act in your best interests. Examples of Fiduciaries are Agents, Executors and Trustees.

Probate Estate vs. Taxable Estate:

The Probate Estate refers to the assets which pass at your death through the probate process. The Taxable Estate refers to the assets that are subject to tax at your death. The Probate Estate and Taxable Estate are not necessarily the same, but they can be. For example, lets say you are a Philadelphia resident owning a house in Philadelphia in your name alone, a bank account and an IRA. Lets also say that you have named your friend, also a Philadelphia resident, as beneficiary of your IRA, but have no beneficiary for your bank account. If you die, then your Probate Estate will include your house and bank account, because these assets pass at your death through the probate process. The IRA, though, passes by beneficiary designation to your friend, outside the probate process. The IRA, even if held in a Philadelphia institution, is not part of the Probate Estate. The Taxable Estate includes the house, the bank account AND the IRA, as the Pennsylvania Inheritance Tax taxes all three assets, no matter how they pass at your death.

Is My Estate Subject to the Federal Estate Tax?

If the estate assets create income that exceeds $600.00 the Executor must file a federal income tax Form 1041. Common examples of estate income include interest from bank accounts, dividends from stocks or rent from estate owned rental property. Some estates do not have income and then do not need to file a Form 1041. For example, estates that own a residence or bank accounts that name beneficiaries.

What is a Power of Attorney:

You cannot be everywhere at once, and sometimes you need someone to be somewhere for you and speak or sign for you. A Power of Attorney is a document you sign that authorizes someone else to act as your Agent. An Agent is someone acting for you. Powers of Attorney can be either General Powers of Attorney or Special Powers of Attorney.

Who Can Create a Power of Attorney?

To create a Power of Attorney you have to be an adult of sound mind, able to understand the powers, which you are granting to your Agent. Sadly, people often put off signing a Power of Attorney until either age or infirmity reduces their capacity so they are no longer legally able to grant a Power of Attorney. In that case the family is required to file a Guardianship Petition with the Orphans’ Court, which is much more complex and costly.

What is a Special Powers of Attorney?

If you are a Pennsylvanian and you give someone a Special Power of Attorney, it means that you have signed a power of attorney that addresses s specific, narrow situation. A Pennsylvania Special Power of Attorney will give your agent the narrow power to do certain, specified things on your behalf. For example, lets say that you have a house in Philadelphia, which you plan to sell, but on the sale date you are out of town in Atlantic County, New Jersey on business so you can’t be in Philadlephia at the closing time to sign the documents. You can give a Special Power of Attorney to someone you trust to attend the closing on that specific date with the limited power of signing the closing documents. You could even narrow the power to sign those documents only on that one day in a certain location. A Special Power of Attorney can be crafted to address any number of specific situations.

What is a General Power of Attorney?

A General Power of Attorney gives your Agent broad rights over your assets and affairs. Typical examples include transferring the title of your car, selling your real estate, communicating with the IRS, hiring an estate planning attorney, open or close bank accounts, pay the expenses of you and your family.

What is a Durable Power of Attorney?

A Power of Attorney is durable if its terms state that the power you granted to your Agent continue if you become incapacitated. A General Power of Attorney may be durable, but not unless the document contains the correct terms.

What are the Advantages of a Durable General Power of Attorney?

If you are a Pennsylvanian and you are concerned about who could handle your affairs should you ever become incapacitated, then you need a Pennsylvania Durable General Power of Attorney. A Pennsylvania Durable General Power of Attorney grants very broad powers to your Agent, usually so broad that the Agent can essentially replace yourself. For example, if you part of a married couple in Philadelphia and you own a Philadelphia residence in both you and your spouse’s name, if one of you should be in a car accident and go into a coma, the survivor may need to sell the house. But, the house is in both names and both signatures are required to sell the house. If there is no General Durable Power of Attorney from the spouse in the coma to the spouse who is now trying to sell the house, you will now need your Philadelphia Estate Planning Attorney to go to the Philadelphia Orphans’ Court and have the comatose spouse declared incapacitated. The Judge will then appoint someone as Guardian of the Estate to sign the deed. This is much more expensive, and the court is free to decide who is named as the Philadelphia Guardian, and it might not be who you would choose. By executing a Pennsylvania Durable General Power of Attorney naming a person you trust to serve as your agent, you avoid these extra steps and you know that person who is taking care of you is the person that you trust.

How Long Does a Power of Attorney Last?

Most often a General Power of Attorney will be open ended, ending only at your death or when you choose to Revoke the General Power of Attorney. A Special Power of Attorney often limits by its terms how long it will last, as a Special Power of Attorney is often crafted to address a specific event at a specific time. For example, if you cannot attend the sale of your Philadelphia home on June 4th, you may give your Philadelphia lawyer a Special Power of Attorney to sign those documents, but only on June 4th of this year.

Who Should I Pick to be my Agent?

Who should you pick as your Agent? Select as your Agent only someone that you would trust with all your assets and your life. All Agents must be adults of sound mind. If you are Pennsylvania selecting an Agent for a Special Power of Attorney, then there is normally a specific task on a specific date that need be addressed. You should select a person you trust that can competently handle this job on that date. If you are selecting an Agent for a General Durable Power of Attorney, then your Agent will have a great deal of responsibility over a variety of task and that responsibility could be over a long period of time. If you have become incapacitated, this person cannot consult with you for your opinion. You should select a person who will shoulder this responsibility, who is trustworthy, honest and will be able to make difficult choices. If you have children, then you also need to take into consideration your family dynamic. Will one of your children feel slighted if you do not pick him or her, and will that feeling pour over into conflict with the child you did select.

Can I Select More Than One Person as my Agent?

Certainly, but you should be honest about the personalities of the people you choose. They might have to make difficult choices with one another over a long period of time. If your children do not work well together, then they should not be Co-Agents. If you name two or more Agents, you must be clear if the Agents may act independently or whether they must act jointly. Giving your Agents the right to act independently allows them great flexibility, but confusion may result if they act counter to one another. If your require your Agents to act jointly, then each will be part of every decision, but a deadlock may result if they cannot negotiate over important matters. Once again, knowing your Agents and how they will work together is vitally important.

Can Someone Who Lives Far Away From me Serve as my Agent?

Distance has diminished as a factor when selecting an Agent. In today’s world of scanned documents and the internet, if one of your children lives in California and the other lives in Philadelphia, they can easily serve as Co-Agents.

Do I have to Name my Spouse as Agent?

In Pennsylvania there is no requirement that you name your husband or wife as your Agent.

Do I Need a Durable Power of Attorney if my Spouse and I own Everything Jointly?

Yes! If your husband or wife become incapacitated, you can still sign checks and make withdrawals on joint bank accounts, but you cannot sell jointly owned stocks or real estate without your Spouse’s signature. You also cannot easily get information from your spouse’s pension or qualified plan provider (401k, IRA, SEP, etc.) or even sue the person who caused an accident that made your spouse incapacitated. You might also have problems obtaining information from insurance companies. For example, if you and your spouse own a house in Philadelphia jointly, but your spouse has become incapacitated, you might need to sell the house and move into an apartment. If you do not have a Durable Power of Attorney from your spouse, you will not be able to sell the house without your spouse’s signature. It is a good practice for both spouses to have Durable General Powers of Attorney.

Can my Agent Tell Me What to Do?

No. By signing a Power of Attorney you are giving your Agent the power to take care of the things you want done, but does not limit your own ability or power to do things on your own. If you grant your Agent a Durable General Power of Attorney, then you have given your Agent the power to act for you once you become incapacitated. Selecting the right Agent is important, because you might lose some ability to care for yourself and you want an Agent that will work with you, not try to take over from you when you still are able to do some things on your own.

I am Nervous about Giving A Power of Attorney, How Can I be Protected?

Granting a Power of Attorney can give your Agent a great deal of power, but not granting the Power of Attorney can leave you exposed if you should ever become incapacitated. How to balance these two, valid concerns? Peter Klenk typically has his clients store their Powers of Attorney for free in his fireproof safes, then has them sign a document that authorizes him to release the powers of attorney to the Agent but ONLY if the client has become incapacitated. This way the Power of Attorney is signed, ready to let the trusted Agent take over in case the client becomes incapacitated, but the Agent has no access to the document while the client is competent.

Can I Make a Power of Attorney that Becomes Effective Only if I Become Incapacitated?

Years ago it was common to use “Leaping” Powers of Attorney, that only came into power if you became incapacitated. The problem with these documents is that banks and other financial institutions do not want the responsibility of determining if you are incapacitated or not. Some of these documents required a doctor to write a letter declaring you incapacitated, but this exposes the doctor to potential litigation if the Agent should misuse your funds, so doctors often decline. If you wise to have a Power of Attorney, but you are hesitant because you don’t want the Agent to use the document if you are competent, then Peter Klenk developed a system to address your concern. Peter Klenk typically has his clients store their Powers of Attorney for free in his fireproof safes, then has them sign a document that authorizes him to release the powers of attorney to the Agent but ONLY if the client has become incapacitated. This way the Power of Attorney is signed, ready to let the trusted Agent take over in case the client becomes incapacitated, but the Agent has no access to the document while the client is competent.

What if My Spouse is my Agent and we file for Divorce?

If your spouse is your agent, then the Power of Attorney will end the day your divorce is granted by the Pennsylvania Family Court, but if you are getting divorced you likely no longer wish your spouse to have control over your assets. As soon as you feel uncomfortable with your spouse having power over your assets, you should consult with a Pennsylvania Estate Planning Attorney about naming another Agent. You are not required to name your spouse as your Agent.

I am a Philadelphia Resident, What Happens to my Durable Power of Attorney if the Philadelphia Orphans’ Court Appoints a Guardian for me?

If the Philadelphia Orphans’ Court decides that you need a permanent Guardian, then your Philadelphia Durable Power of Attorney will end. If this happens, the judge will likely have determined that your Agent is not looking out for your best interests. The judge of the Philadelphia Orphans’ Court could name a temporary guardian, only suspending the Durable Power of Attorney for some time and the judge could appoint for you a Guardian of the Estate, but not a Guardian of the Person, leaving the Agent in charge of your activity, but moving the responsibility for all financial matters to the Guardian of the Estate. The entire Guardianship process can be avoided if you have executed a General Durable Power of Attorney. The advantages of a General Durable Power of Attorney include:

  • You select the person who has control over your assets and your care, not the Philadelphia Orphans’ Court judges.
  • You avoid the time and expense of the Philadelphia Orphans’ Court Guardianship proceeding.
  • You and your family have the peace of mind knowing that if you become incapacitated a plan has been implemented.

What are the Advantages of a Power of Attorney Over a Guardian?

If a person becomes incapacitated because of an accident, illness or age, unscrupulous persons or family members can easily take advantage of the person. To protect incapacitated Pennsylvanians the Commonwealth created a system where the Pennsylvania Orphans’ Court has the power to appoint Guardians. Unfortunately, the Pennsylvania Orphans’ Court judges do not know you or your family. They do not know whom you trust and to whom you would like to have these extensive power. The judge will select someone to care for you, but it may not be someone that you would have picked. Further, the process of petitioning the Pennsylvania Orphans’ Court and having the hearing can be very expensive, using up funds that should otherwise go to your care.

How do I Stop a Power of Attorney?

You can “Revoke” your Power of Attorney at any time as long as you are competent (you understand what you are doing). The burden of informing all your financial institutions is on you, so if something has occurred to cause you to revoke your power of attorney, you should communicate this to the Agent and to any other person or entity to whom your Agent might take the Power of Attorney. This is best accomplished by having your Pennsylvania Power of Attorney Lawyer draft a revocation which can be sent immediately to your financial team.

What are my Agent’s Obligations and Duties to me?

Your Agent is a fiduciary, and he or she is obligated to follow your instructions and act in your best interests. Your Agent should keep accurate records of all actions taken and all assets under the Agent’s control. If the Agent harms you, the Pennsylvania Orphans’ Court can force the Agent to repay or repair the harm. Agents can be forced to account to the Pennsylvania Orphans’ Court.

What is a Pennsylvania Health Care Power of Attorney and Living Will?

Your health care is your business, and you have the right to make your own health care decisions as long as you are capable. In today’s world of modern medicine, you may easily need health care decisions long after you are competent and capable to communicate with your health care provider. These situations can arise quickly, the result of an accident or unexpected illness, leaving decisions such as what doctor should care for you, what treatment protocol should be followed and what medical care should be refused up to someone else. These can be very difficult decisions and it is important to you that the person making them represents your wishes and it is important to the person on whose shoulders you place this burden to know exactly what you wish from them. By completing a Health Care Power of Attorney and Living Will you are able to voice your wishes, select the person who will speak for you, but also give that person guidance to make these very difficult and personal decisions. A properly drafted Health Care Power of Attorney and Living Will should:

  1. Appoint a person who can make health care decisions for you if you are ever unable to make them yourself;
  2. Give that person the power under HIPPA to review your medical records and to gather information from your medical team;
  3. Give your Surrogate guidance as to what your wishes are for medical care; and
  4. Give your Surrogate the power to agree with your physician to stop providing you medical care if you are in a persistent vegetative state or in a terminal condition.

In addition, you may choose to address other issues, such as designating your Surrogate to have the power to donate your organs. Not every person is able or willing to serve as a medical surrogate and the decisions made might mean turning off your life support, so communication to your Medical Agent about your wishes and ideas on life support is a vital step in your estate plan. Without your guidance there could be disagreements among your family and friends as to who should be making decisions and what your truly wished.

Who Should Have a Pennsylvania Health Care Power of Attorney and Living Will?

Every adult should have one of these documents so that their own personal wishes about health care are respected and that the person they most want to speak for them when they are unable, has the power to communicate with health care providers.

Who Should I Select to Serve as my Health Care Agent or Surrogate?

The person you select as your Health Care Agent might face many difficult decisions including the decision to stop providing you health care. This person must have the characteristics of caring for you, but also being able to do the job for which you have appointed them.

Do I Have to Select My Spouse as my Health Care Agent?

No. Your spouse is the most obvious choice as your Health Care Agent, but if he or she cannot carry out your wishes, you should select someone else.

What is a Guardian?

What is a Temporary Guardian Document?

If you have minor children in Pennsylvania, you should have a document that appoints a temporary guardian for your children should both parents be unavailable or unable to make medical decisions for the minor children. Often overlooked, Peter Klenk has been drafting these documents in Pennsylvania for clients for years. For example, if you are a Pennsylvanian and you and your minor child are in a car accident that leaves both you and the child’s other parent unconscious, a Temporary Guardianship will appoint someone who has the immediate authority to make medical decisions for your minor child until you regain the ability to make those decisions. Your Pennsylvania will might appoint a guardian for your child if you have died, but in this circumstance, you are not dead but are instead unconscious. The Pennsylvania will does not apply. The Temporary Guardianship document fills that gap.

What Type of Guardians May the Pennsylvania Orphans’ Court Appoint?

The Pennsylvania Orphans’ Court may appoint a Guardian of the Person and/or a Guardian of the Estate. Each type can be either plenary, meaning unlimited, or the Pennsylvania Orphans’ Court judge can limit the Guardian’s powers as the judge sees fit.The person who is determined incapacitated by the court is called the Ward of the court and of the appointed Guardian.

What is a Guardian of the Person?

A plenary Guardian of the Person is given the power to make all necessary decisions for the Ward. For example, deciding where the Ward lives and which doctor the Ward visits. A Limited Guardian of the Person will only have the power to make decisions for the Ward that the judge allows.

What is a Guardian of the Estate?

A Limited Guardian of the Estate is typically named when the Pennsylvania Orphans’ Court Judge determines that the Ward is not fully incapacitated, but does need a Guardian’s assistance.The Court will appoint a Plenary Guardian of the Estate when the Pennsylvania Orphans’ Court Judge determines the Ward is totally incapacitated and the Plenary Guardian is given control over all of the Ward’s assets and financial matters.

Who Should I Pick to Serve as Guardian of my Minor Children?

This is a very personal decision, which gives many people angst; who should care for your children in your place if you should die? You know your children better than anyone, and you have your own philosophy of parenthood, which you will likely want to have the Guardian share. Here are some thoughts that might help you make your decision.

  • Talk to the Potential Guardian About their Willingness and Ability to Serve. This might seem uncomfortable, as after talking to a candidate you might select someone else, but by asking the candidate their thoughts you might find out vital information. Perhaps the marriage you thought was stable is not, or that the candidate is planning on moving into a one-bedroom apartment in Philadelphia.
  • Will the Potential Guardian Respect Your Religious and Moral Beliefs: This might not be black and white. A friend asked me to serve as Guardian for his children because I would raise them Jewish, even though I am not Jewish. He understood that I would respect his wishes where his siblings would not.
  • What is the Guardian’s Age and Health: Your mother and father might have been great parents for little children when they were younger, but will they be able to keep up with your active five year old on a full time basis? On the other hand, perhaps a younger person with one child already simply is not capable of taking on your two additional children?
  • Will the Guardian Have the Money to Raise Your Children: Children are expensive, can the Guardian shoulder these extra costs? Can you set up a trust to pay for the extra costs?
  • Where Would Your Child Attend School: Your sister might be a great parent, but what school district would you child be living in if she was the Guardian?
  • Parenting Style for Your Child: Be honest about your child. Does your child need structure? The maybe that easy going brother of yours isn’t the best choice. Does your child need her space, then maybe that caring, but rather intrusive sister maybe is not the best choice.

The choice of a Guardian is an important part of your estate plan. The best advice is be honest about the potential Guardians and your children and the right choice will likely present her/himself.

What is a Pennsylvania Trust Beneficiary?

A Pennsylvania Trust Beneficiary is a person or entity entitled to receive benefits from a trust whose situs is in Pennsylvania. For example, if a Philadelphia resident executed an Irrevocable Trust naming his brother, also a Philadelphia resident, as trustee with instructions to give ½ the generated each year to a nephew and ½ to his church, the nephew and church would be the Beneficiaries of the Philadelphia situs Trust.

What is a PennsylvaniaTrust Contingent Beneficiary?

A Pennsylvania Trust Contingent Beneficiary is a person or entity entitled to receive benefits from a trust whose situs is in Pennsylvania. For example, if a Philadelphia resident executed an Irrevocable Trust naming his brother, also a Philadelphia resident, as trustee with instructions to give ½ the generated each year to a nephew and ½ to his church, the nephew and church would be the Beneficiaries of the Philadelphia situs Trust.

What is a Pennsylvania Estate Beneficiary?

A Pennsylvania Estate Beneficiary is a person or entity entitled to receive benefits from the estate. For example, if a Philadelphia resident died testate, and his will states that ½ his estate passed to his son and ½ to his church, the son and church would be the Beneficiaries of the Philadelphia estate.

What is a Transfer on Death Account?

Banks and other financial institutions will often allow you to name a person or persons to receive your accounts at your death. A Transfer on Death Account, typically shortened to “TOD Account” ATOD Account allows you to name the person who can come after your death and claim the account. Typically, all the person need provide is your death certificate and an acceptable type of identification. A TOD account does not avoid inheritance or estate taxes, but it does avoid probate.

If I Make an Account Transfer on Death, can I Still Spend the Money?

If you make an account TOD, or Transfer at death, the account is still yours and you can use or spend the money in that investment account any way you wish. The TOD status only matters after your death, when the person you named as the recipient can then claim what remains in the account. Further, the person you name as the recipient will have no rights to the assets in the account during your lifetime.

Is a Transfer of Death (TOD) Account Right for Me?

Only a careful review of your given situation will determine if using a TOD account is a good idea. Here are some pros and cons to consider.

  • TOD Account Pros:
    • Simple and Inexpensive: If you have a small estate and are making no plans to protect your heirs from divorce or creditors, then using a TOD Account to get a small account into the hands of your heirs is a simple and expensive replacement for a will. You can obtain the forms from your financial institution, and the employees will likely help you complete the forms. There is no cost involved.
    • Avoids Probate: For very small estates, especially if there is only a checking or savings account, a TOD designation will help reduce the cost of filing a will and using the probate process. BUT…remember, if you name one child as the TOD recipient of your account, then that child gets that account without restrictions. If you wanted the account to be used for your funeral, the child is not obligated to use the money to pay for your funeral. This has caused many disputes between children over the years.
  • TOD Account Cons:
    • Avoids Probate: If you want all of your estate to be divided under a plan in your will, the TOD funds pass outside your will. The plan in your will might be thwarted. It might be better to let all the assets be collected by your executor, and then divided under the terms of your will.
    • Minors, Special Needs and Incapacitated Persons: If the money is for a minor, a person with Special Needs, or an incapacitated person then that person cannot claim the funds from the financial institution. A Guardian will then need be appointed by the court to hold and use the funds for the person. The cost of appointing that guardian could easily exceed the cost of probate. With a Will, you can select the guardian, usually a better and less expensive result.

What is an In Trust Account?

Most financial institutions will allow you to set up an account “In Trust” for someone else. That account is managed by one person for the benefit of a beneficiary. A typical example of an In Trust Account is a bank account opened for a minor who will receive the account upon reaching age 18 or 21. The minor is the “beneficiary”, the person managing the account is the “Trustee” or “Custodian”. These accounts can be very simple, but the simplicity can cause problems. What if the minor child needs funds for medical care at age 17? A simple “In Trust For” account typically simply says the child gets the money at 18, but gives no terms to use the funds before age 18. Forming an Irrevocable Trust with defined instructions and terms might be better for everyone involved.

What is an UGMA or UTMAAccount?

An acronym for the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA), these accounts were created to address the problem that minors do not have the right to make binding contracts, so they are unable to own most financial assets in their own names (stocks, mutual funds, annuities). Further, if someone wished to give an asset to a minor, they might not wish that child to have ready access to those funds. First to arrive was UGMA, which crated an easy to use form that financial institutions could use to open an account for a Custodian to hold the assets for the minor child. Later UTMA arrived and expanded the assets which the accounts could own (art, patents, real estate) and expanded the age that the asset can be held from 18 to 21 (this can vary from state to state).

Is an UGMA or UTMA Account Right for Me?

UGMA and UTMA accounts are simple and inexpensive to set up, but you need a trusted person to serve as Custodian and the account must be turned over to the beneficiary at age 18 or 21. For some gifts, this arrangement works well, but for some gifts the UGMA or UTMA can be a disaster. For example, if you want to put a small amount of money into an account for your grandchild to be used for college and your child is able and willing to serve as the Custodian, an UGMA or UTMA account can be perfect. If you want to place a larger sum of money into an account for your grandchild, but it would bother you that at age 18 or 21 the child received this money and spent it unwisely (as 18 and 21 year olds sometimes do), then an Irrevocable Trust would better serve your plans. An Irrevocable Trust can prevent the minor from wasting the funds or losing them in a divorce or law suit.

Is an UGMA or UTMA Account Part of my Taxable Estate?

If you create, fund and serve as the Custodian of the UTMA or UGMA account, and you die before the minor takes control over the funds, then those assets will still be taxed as part of your Federal Taxable Estate. If you appoint someone else as Custodian, the account is not part of your Federal Taxable Estate.

Do I Pay Income Tax on the Interest from an UGMA or UTMA Account?

No, once an UGMA or UTMA account is properly formed, and income created is reported under the minor’s social security number and on that minor’s return as if they owned the asset.

What is a Protector?

In a Trust, a Protector is a person appointed to oversee the trustee and usually given the power to remove and replace the trustee without the use of courts or lawyers.

What are the Advantages of Having a Protector in my Trust?

An Irrevocable Trust is, Irrevocable. If you appoint a person or institution as trustee and later regret that decision, your options to remove and replace that trustee are limited and expensive. If you include a Protector in the trust:

  • Trustees will be more likely return your calls faster, as they can be easily removed.
  • If the Trustee becomes incapacitated, inattentive, involved in a dispute with a beneficiary or otherwise problematic, the Trustee may be removed quickly and inexpensively.
  • The Protector can act as a form of communication between a Trustee and beneficiaries and avoid needless litigation.
  • The Protector can obtain data from a Trustee that might otherwise not be released.
  • The Protector can have other powers, which allow them to address changes in the law, circumstances and the tax code.

What Death Taxes Effect a Pennsylvania Estate Plan?

The estates of persons passing as residents of Pennsylvania must the Pennsylvania Inheritance Tax and the Federal Estate Tax. An estate plan should also consider the effects of the Federal Gift Tax and the Federal Generation Skipping Tax.

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Estate Matters
The Klenk Law Blog

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