Pennsylvania Estate Planning, Trust, and Executor and Probate Frequently Asked Questions (FAQs)
Do you have a question for us about Pennsylvania estate law that you do not see answered below? Contact us today to talk to an experienced lawyer about your legal needs or email your question to David Frees [email protected]
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What is "Asset Protection"?
Asset protection is the pratice of using a series of strategies, and tactics, of designed to protect a persons asssets from litigation, divorce and other claims. It is, when done properly, a legitimate form of preserving wealth from depletion by creditors and other claimants. In its most common form it the srategies use retirement accounts (such as IRAs, and 401(k)s), life insurance policies, and other forms of property ownership to shield assets from potential claimants.
Asset protection planning techniques often employ revocable and irrevocable trusts. However, great care needs to be taken to preserve the legitimacy of the strategies. For example, the transfer of assets into these protective structures, must be done before a claim is made, or before you have reason to know a claim. Transers made in an attempt to avoid creditors once a claim exists, are called fraudulen conveyances or transfers. And, fraudulent transfers bring grave and negative asset protection consequences. Assets can be recaptured and the protection planning can fail.
For that reason, asset planning should be done well in advance of claims.
This blog will examine such issues andwill give you a practical guide to avoiding the legal traps of asset protection planning. In particular it will examine:
Tension between asset protection planning and fraudulent transfers
- How legitimate forms of asset protection planning can go wrong and how to avoid such problems
- The many types of creditors and their specific and often very different rights
- Special estate planning, divorce, tax, and criminal law considerations
Please leave us a comment of question.
You can also reach David M. Frees III at 610-933-8069 or [email protected]
How much can an executor charge for an estate in Pennsylvania?
Generally, 3% to 5%. Less for larger estates. For more, see my article on fees by clicking here.
How long does probate take in Pennsylvania?
The answer varys from estate to estate. The biggest factors seem to be how mant executors and beneficiaries are there and what are the asset type? The more beneficiaries and executors, the more likely there is to be a dispute and or a prolonged process of decision making about the sale of assets. Also, real estate and closely held businesses often take longer to sell than publicly traded stocks and cds or bank accounts. In general most estate that we help to administer are done and closed within 6 to 14 months. But distributions can often be made much quicker.
How much is the annual gift tax exclusion?
The annual gift tax exclusion is currently $13,000.00 per person (2009). This means that without using any of your lifetime exemption (currently $1,000,000.00 million dollars 2009) yo can give any child, grandchild or other person $13,000.00. If you are married, you can each make a gift of that amount. And, if one spouse has all of the assets involved in the gift, the other spouse can join in the gift and the couple can make a "split gift" of $26,000.00. However, this requires that the gift be reported on form 709.
Here is a chart of the amount of the annual gift tax exclusion for the past few years.
David M. Frees III, Esquire 610-933-8069
How much can I give away during my lifetime?
Currently, (2009) each person can give away $13,000.00 to any child, grandchild, spouse of your heirs, or for that matter, any other person. In addition, you have a lifetime exemption of $1,000,000.00 million dollars that can be given away during your life without a tax. A form 709 must be filed when gifts of over $13,000.00 are made and gift tax returns should be filed whenever a hard to value asset such as a gift of real estate or a closely held business interest is made.
What taxes affect estate planning?
You are probably not doing a complete and thorough plan unless you consider the ways in which state death (or inheritance taxes) taxes, federal estate taxes, gift taxes, and generation skipping taxes as well as income taxes individually and on trusts. These taxes are often interrelated. And, the best strategy for one person or family might not be optimal for another. This is also why your attorney, accoutnant and other advisors might need to work together. Here is a brief article on the taxes affecting estates. Click here.
What is a pour-over will?
A pour- over will is used when you have a revocable living trust. A pour-over will states that if I die and I have things outside of the trust in my name that those things such as a house, a pension, or perhaps an inheritance, will be put by the executor into the trust and lets the trustee administer and distribute it.
As an Executor, how do you make sure a handwritten will is authentic?
If a will is written in someones own handwriting that is called a holographic will. In Pennsylvania unlike many other states it is valid. You will need two witnesses that can identify the signature. You will have to have to have a copy fair which is a typed transcript of the will with what you interpret as the authors intentions. You will have to make an appointment and go to the Registrar of Wills who will take this information and determine the wills validity. A holographic will is not what you want if you are planning your estate. A holographic will is more work and the state will interpret it rather than you.
In your Estate Planning how do you choose an Executor?
In your Estate Planning the Executor can be anyone over 18 that you choose. The person should be someone you trust to carry out your estate administration intentions. In most cases they are family members. In our experience people younger than 25 are not as equipt to handle the responsiblity of being an Executor. In Pennsylvannia you may also choose a friend over 18. Again make sure they are someone you trust and are capable of following your instructions. You may also choose various professional advisors from accountants to lawyers and financial advisors. Be aware if there are any ethical restrictions in that particular profession. Make sure you know what they will charge and their experience level. You may also consider a bank or institutional fiduciairies if you do not have a close family member or friend or need a neutral third party.
Is a safety deposit box frozen at death under Pennsylvania law?
Pennsylvania law provides that a safe deposit box is frozen at death except for certain exceptions.
And, while many people are afraid to leave a will in their safe deposit box, that might be the very best place.Heirs will find it. It doesn't get destruyed by accident or by a house fire, and the exceptions allow the executor to get the will out of the safe deposit box.
First, a jointly held box owbed by a husband and wife is not frozen. Also, executors can remove cemetary deeds and the will.
However, if the box was not titled in joint names between spouses, then once the will or cemetery deed is removed, a freeze will be put on the box until it is inventoried according to state rules. The inventory is made part of the inheritance tax division's records and the contents are taxable for inheritance tax purposes.
How much can I give to my children without having to file a gift tax return in 2012?
Do you want to give your children or grandchildren some gifts each year to
reduce your estate, help them with a house or educational expenses but
don't want to pay taxes?
For information about 2012 and earlier years read on....
2012 Is an important Year for gifting.
Currently the annual gift tax exclusion (for 2012) is $13,000.00 per person.
So, you can give that amount to each of your children. But wait. There's more!
If you're married you can give even more - see below
A husband and wife can therefore gift $26,000.00 per child and, if they wish, to each grandchild.
This gift is not tax deductible to you but is also not taxable for income tax purposes to the recipient.
And, if you're paying tuition bills directly you can give even more - see below
If you're going to give the $13,000.00 and pay for tuition, you can but you must pay
the schoold directly.
Whether your gift is to a child or grandchild, if your gift is at or
below this $13,000.00 amount, no gift tax return is required.
For gifts above that amount, a gift tax return may be required but each person also has a
$5,000,000.00 million dollar lifetime exemption before they must begin to pay tax.
You can also make gifts to people other than family members too.
And, to make matters more complicated, you can also use your non renewable federal estate tax
exemption of up to $5 million per individual donor. In short, if you want to help a child to
buy a house, form a business, or do anything else, you and your attorney should be able to find a
For more information on gifting to children and grandchildren see our videos on this page or
if you live in Pennsylvania call 610-933-8069 for a telephone consultation on gifting.
To receive your complimentray consultation mention attorney David M Frees.
Doesn't holding my assets in joint names protect them from my creditors or from lawsuits?
In many states that designation will protect your assets fromt the creditors of one spouse. But, if you are both sued, and a jusgment goes against you then those assets can be reached. Also, those assets are not protected from mediciad (for long term care expenses). Finally, joint accounts with children and others may not be protected and in some states (including Pennsylvania), if the joint account holder dies you may be taxed on your own funds.
Does the federal estate tax apply to me?
For a quick review see my article on www.UTBF.com and just click the link.
For a quick and easy calculator. Click this link to SmartMoney.
Remeber, no web based tool can replace specific advice from your professional advisors after a thorough review of your goals and assets. Please also make sure that your assets are held in a way to optimize the estate planning documents you have created. Many wills, trusts, and estate plans fail to acieve their primary goals becasue of this problem.
What is the Pennsylvania Inheritance Tax?
The inheritance tax is a tax on the assets owned or controlled by a decedent at the time of his or her death. The tax does not apply to life insurance on the decedent's life but it does apply to many non probate assets. It also applies to assets the decedent gifted within one year of the date of death- subject to certain exclusions. The tax rates are dependent on the relationship of the decedent to his or her beneficiaries. The tax rates for beneficiaries are as follows: Spouse: 0% Charity 0% Child: 4.5% Parent: 4.5% Sibling: 12% Everyone Else: 15%. This inheritance tax return is due within 9 months after the date of death. A discount can be achieved for the portion of the tax paid within 3 months after date of death. A six month extension for the filing of the tax return is available during which interest will accrue against any unpaid portion of the tax ultimately due.
How do I use a trust to protect assets in the event that I need nursing home care?
Clients who want to protect assets from being spent for long term nursing care often make gifts to Irrevocable Trusts. The clients choose gifts to trust rather than outright gifting because gifts to trust are protected from the recipients' creditors, law suits or divorce the giftor can choose a single trustee to be in charge of the assets for the giftor's lifetime. This type of planning needs to be done sooner rather than later in Pennsylvania becasue of the most recent state adoptions of the mediciad laws. Furthermore, careful consideration needs to be given to whether or not an income flow is retained by the person or persons making the gift. If you keep the right to income, the asset is taxed in your estate but your heirs get a setp -up in nasis for tax purposes. If you don't need the income, then the trust will not be taxed in your estate but the trust's tax basis is the value of the gift at the time you make it. There is no single best answer. It really depends on your individual circumstances but make sure that you consider these questions with your lawyer and tax advisor.
What is probate?
Probate is generally the process of court oversight of the estate administration process after a person passes away. Only certain assets are considered probate in nature. Probate assets typically are those owned by the decedent in the decedent's individual name (not jointly with others) and without a beneficiary designated. The Executor, where there is a will, or Administrator, where there is no will, is appointed by the Register of Wills Office in the county where the decedent last resided. He or she then must follow the probate procedures to properly complete the estate administration. However, most of our estates are ended informally and without the need to follow the entire and formal probate proces. This can result in substantial savings of time and money for an estate and is ususally accomplished by careful administration and a contract with all parties to protect the executor from personal liability.
How long does probate take?
The length of the probate process varies greatly from estate to estate and also from state to state. While many states have a lengthy probate process, Pennylvania can be informal and quite reasonable.The determining factors often include the assets involved in the estate, the experience of the Executor/Administrator and counsel and the ease in dealing with the beneficiaries. Contrary to common belief, the process is rarely impacted by the actual probate court requirements which can be accomplished timely if the other factors are favorable. More often, the length of the administration is a product of the inabilitity to sell assets such as homes or a business within a reasonable time frame. Often, we find that executors or trustees also want to make distributions before they have a final clearance from the taxing authorities. While this can be done, be cautious, as such distributions can result in your personal liability.
Should we try to avoid Probate in Pennsylvania?
It is not as important to avoid the probate process in Pennsylvania as it is in other states. The Pennsylvania probate process tends to be less cumbersome than in many other states. The probate fees are also low in Pennsylvania. However, there is an Inheritance Tax that applies to BOTH probate and non-probate assets. As a result, there is often little to be gained in the way of time or cost savings resulting from avoidance of probate in Pennsylvania.
Are assets "frozen" during the probate process?
The estate's assets are not frozen during the probate process. Once an Executor is sworn in (usually within a day or two of the funeral) all of the assets are then available to the executor or administrator. The executor or administrator is then able to control the investments, pay all valid invoices and to make advanced distibutions to beneficiaries. However, when an excutor makes early distributions, he or she should take legal precautions to ensure that they are not personally laible for these "at risk" payments to beneficiaries.