Why Do I Need an Estate Plan?

No one knows what the future holds, but one thing is sure: if we leave unanswered questions and no directions about how to handle our affairs after we are gone or are incapacitated, life for those we love will be even more difficult. That is why addressing questions and formalizing them in an estate plan now is an important question and should not wait.

Here are some questions it’s best to answer now!

  • Who gets what when I’m gone?
  • Who will take care of the kids?
  • If I’m out of it, who will call the shots and take care of business?
  • Who knows where to find my records?
  • Doesn’t everything go to my spouse?
  • Would a trust make sense for me?
  • Do I have the right beneficiaries on my accounts?
  • How can I preserve more money for my heirs?

What Is an Estate Plan?

An estate plan is a collection of documents that specify how you want your money and other assets distributed and which provide directions for taking care of your affairs and conducting your business if you are unable to do so. All of this is designed to make it easier for your loved ones to handle your affairs after you are gone, in a time of grief and sometimes chaos. Additionally, an estate plan typically provides for:

  • The identity of someone you trust to make decisions for you if you become incapacitated.
  • Specifies who will care for your minor children if you are unable to do so
  • Minimizes estate taxes and other transfer taxes.
  • Sometimes, in special cases, it can help avoid the cost, publicity and delays of probate, the court-supervised processes used to value your estate, sell any debts, pay taxes and transfer assets to your heirs.

Who Needs an Estate Plan?

Bride-and-Groom-imageYou do. If you are young and single, you may need only a simple estate plan, to make decisions such as beneficiary designees and medical and financial powers of attorney.

If you have children, you need a will to name a guardian for them. If you have substantial wealth, you may need one or more trusts to help control how your assets are taxed, managed and distributed after you are gone.

“OK. I need an estate plan. What do I do next?”

Asset Titling

Titling assets jointly with rights of survivorship (or by the “entireties” for married spouses) is a way to ensure that they pass without delay to your heirs for example, assets you may hold jointly with another person, such as your spouse, go directly to them without the need for a will, a trust or probate.

Titles have specific legal meanings and take precedence over wills and trusts. Because your assets may have been titled years ago when you first opened an account or made a purchase, it is important to check and make sure the titling continues to reflect your intentions and needs. Assets titled as “tenants in common” go in equal shares to those named and if one co-tenant dies, then to that cotenant’s heirs.

Naming Beneficiaries

For assets such as retirement accounts, insurance policies, and annuities, you are asked to name your beneficiaries—those whom you want to inherit the assets. For non-retirement accounts, you probably will not be asked to name beneficiaries, but you can do so. Be sure to keep all your beneficiary designations up to date.

Check and update titling and beneficiary designations for all your accounts, insurance, retirement accounts and annuities.

Create a Will

Leave no doubt about your wishes. If you have young children, you need a will. No questions asked. No argument!

A will is the legal instrument you can use to name guardians for your minor children. Without a will, the state will chose a guardian from among your relatives and it might not be the person you would have chosen.

By creating a will, you can arrange for your possessions to be distributed and managed the way you want. Without a will, the state will pick your beneficiaries.

Financial Advisor Talking To Senior Couple At HomeA will specifies how you want your assets distributed including items of both financial and sentimental value. Some assets pass to your designated beneficiaries or joint owners, based on beneficiary clauses in the instrument, life insurance, or based on titling. The remainder (residue) of your assets pass under your will.

Beyond specifying how your assets should be distributed, in your will you can:

  • Name an executor to settle your estate and manage the probate assets, which is a court-supervised process used to validate your will and distribute your assets.
  • Name a guardian for your minor children.
  • Provide direction regarding how debts, taxes, probate fees and other costs that would be paid.
  • Provide instructions for covering family member living expenses during the probate period.
  • Designate assets to be placed in trust for family members or other beneficiaries where a trust might be beneficial.
  • Designate someone to manage the financial affairs of an incapacitated beneficiary.

Name a Power of Attorney

With Powers of Attorney (POAs), you name someone to act for you if you are unable to do so or are incapacitated.

  • If something bad happens to you, you may need someone to take over.
  • There are several types of Powers of Attorney (“POAs”) that can authorize someone to act on your behalf. However, a Durable POA is the only type that is effective if you become incapacitated. It can be written to take effect now or to activate only if you are no longer able to make your own decisions. Like all POAs, a Durable POA expires at your death.
  • Financial POAs can be created for your living and financial affairs.
  • Medical POAs name a trusted person to make medical decisions for you. Medical directives, while not technically POAs, allow you to state what type of medical treatment you do or do not wish to receive if you are too ill to direct your own care and in most cases, you ask for non-heroic measures to keep you alive if your brain is not functioning.

If one partner is hospitalized and needs someone to make medical decisions, the other partner, if not legally a spouse or next of kin, may be unable to step in even though he or she may be most qualified to do so. Preparing a medical POA solves this problem.

Ask us to review or prepare POAs that are appropriate.

Make sure that any financial POAs that are drafted meet your financial institutions’ requirements. Alternatively, get special POAs that are agreed as permissible by your local banks.

Life Insurance

estate-assetsProtect the future for your loved ones. Many use life insurance to provide financial security for those who depend on you. For many, life insurance is a critical part of estate planning. There are good reasons to buy life insurance:

  • Income replacement. Term life insurance can be a vital resource for your loved ones to help replace your income, pay off the mortgage, or fund your children’s education in the event of your death.
  • Terminal Illness. Some policies allow you to access a percentage of your policy benefit over your lifetime if you become terminally ill. The proceeds from insurance can help cover unexpected expense or medical cost at a time that is critical to you and your family.
  • Estate Taxes. Insurance proceeds can be used to pay estate taxes, preserving your estate for beneficiaries.
  • You Own a Business. Life insurance can be used to cover outstanding business loans, provide financial stability after the untimely death of a key employee, or secure cash needed to fund a buyout by a surviving owner.

Not Everybody Needs Life Insurance. You may not need it if you are single with no children and no dependents, or if you have enough assets of your own to provide for your family and heirs.

As a general rule of thumb, consider coverage equal to six to eight times your annual salary. For an estimate reflecting your own situation, there are online asset calculators that may help you.

Search for competitive rates on term life insurance coverage that you may need from respected insurance companies.


Depending on your circumstances, we may recommend that you set up a trust or combination of trusts to achieve one or more of the following objectives:

  • Control and preserve your assets for your loved ones.
  • Distribute assets without the costs, time delay, and publicity of probate.
  • Reduce your estate tax bill.
  • Provide a way to manage your assets if you are incapacitated.
  • Create your own rules for how assets will be distributed and name a trustee to carry them out.

You can set up a trust to hold and govern all kinds of assets such as bank accounts, real estate, securities, mutual fund shares, limited partnerships, life insurance, and personal property.

Living Trusts

There are many types of trusts. A commonly used trust is a revocable living trust. With it, you transfer ownership of your assets from your name to that of the trust. After you transfer the assets, you maintain the same access to and control over them as before. You can buy, sell, trade, and freely move assets in and out of the trust. You do not lose any control, but you may need separate checking and other financial accounts and sometimes incur the cost of a separate annual tax return. You may also want to consider an irrevocable trust as an alternative

After your death, the trustee you appointed assumes control of the trust, paying taxes, managing assets, and making distributions to beneficiaries according to your wishes in the trust.

Irrevocable Trusts

Irrevocable trusts are commonly used to own life insurance to transmit wealth minimizing possible estate taxes. We often use these irrevocable trusts in our estate plans.

Trusts vs. Wills

Like wills, trusts specify how assets should be distributed, but with important advantages. Unlike wills, trusts are not subject to probate, so assets can go immediately to heirs without the need for court approval. Trusts are private documents, making them more difficult to challenge. You should still have a will, as you will need to appoint guardians for minor children and take care of other matters not covered by beneficiary designations, account titling, and trusts. On the other hand, property passing by will may qualify for the tax advantage of a “stepped up basis” meaning that value of the property being passed is valued for the benefit of the person receiving the property as of the date of death, not the cost minus depreciation of the decedent.

Talk with us to determine what type of trust, if any, you may need.

Further Tax Planning

Transfer Wealth, not Taxes

Estate taxes, income taxes, and transfer taxes could diminish your estate by as much as half or more. While trusts can go a long way toward sheltering assets, making gifts during your lifetime can help cave on taxes while giving you the added benefit of watching loved ones or charities use your gift while you are alive.

Take Advantage of Gift-Tax Exemptions

In 2014, you can give up to $14,000 ($28,000 for spouses who “split” gifts) to any number of individuals without incurring gift tax. Amounts over the annual limit apply against a lifetime exemption amount which is currently $5,340,000.

Consider Custodial Accounts for Gifts to Minor Children

With a custodial account, you can make gifts to a minor child (tax-free up to the $14,000/$28,000 limits) and manage the account on your child’s behalf until he or she reaches the age of majority. Withdrawals can be made at any time as long as they are for the benefit of the child, and the account must be transferred to the minor when he or she reaches 18 in Pennsylvania.

If you want to transfer a substantial amount of wealth to a child, consider a trust, which can offer more flexibility, control, and protection than any other type of account.

Help Fund College with a Tax-Free Gift

Using a 529 account you can give five times more than the annual tax exemption ($14,000 x 5 = $70,000 or $140,000 for spouses who “split” gifts) in a single year, without incurring gift tax. Simply file a gift tax return as if it were made in equal payments over five years.

Donor-advised funds, private foundations, charitable trusts, and other charitable vehicles enable you to pass on your commitment to philanthropy. Funding a charitable vehicle gives you a current-year income tax deduction while removing assets from your taxable estate.

What if I Already Have an Estate Plan?

Fine. Just be sure to review your plan regularly and make updates as things in your life change so it continues to reflect your intentions. We recommend updating your estate plan every three years.

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