March 28, 2020


It is obviously important for you, and your family, to know that there are many estate planning choices and tools that are available to you and your family, and that there are limitations to most of them:

A Will does not control some very significant assets

Including: Life insurance. Joint ownership. IRA’s. Pension Death Benefits. 401(k) Plans. Tax Sheltered Annuities. Profit-sharing plans. POD Savings Bonds. Securities registered “TOD” (Transfer On Death) “In Trust For” Bank Accounts. Living trusts. Other Trusts.

Intestate Distribution — When there is no Will

Spouse’s share may be as little as one half of the estate when there is no Will. Children or grandchildren inherit without consideration of age or need. Minors get their share outright at 18 years of age, without safeguards. Inheritances are paid without restrictions whether the heir is capable or not. Stepchildren or stepgrandchildren don’t inherit. Other relatives might. The state rarely “gets everything”, but without your help charities get nothing.

When there is a Will

With a Will, you decide who inherits — your family, friends, charities.

With a Will, you decide whether to pay inheritances outright or in trust.

With a Will, you state your special thoughts about personal items.

With a Will, you decide who will serve as your Executors or Trustees. A Will should be a part of your estate plan, even if you have a “Living Trust”.

But — your spouse can take an “elective share” instead of what is given by Will.

And — by law a Will automatically changes for marriage, divorce, birth or adoption.

And — outdated Wills can create more problems than dying without a Will.

Trusts — Can serve many purposes

  • “Special Needs Trusts”, or “Supplemental Needs Trusts”, can allow persons to qualify for nursing home care, Medicaid, and other government help while preserving assets and inheritances for the family.
  • Credit Shelter Trusts (sometimes called Bypass Trusts) and Marital Deduction Trusts can reduce federal estate taxes on estates of $11 million or more.
  • Charitable Trusts can reduce taxes while still providing for you and others.
  • Irrevocable Trusts can be used to fully avoid federal estate tax on life insurance.
  • Trusts can be used during lifetime, or after death, to manage finances.
  • Trusts can be set up by Will, or as “Living Trusts” funded during life or at death.
  • When coordinated with a Will, trusts might reduce death taxes and expenses.

No Federal Estate Tax for most estates

  • For 2020 each person’s federal estate tax exemption is $11,580,000 and that amount will increase with inflation for following years; the estate tax rate is above that amount is 40%, but any part of the exemption not used on a married person’s death is “portable” and can be added to the surviving spouse’s exemption if an election to do so is filed on time after the first death.

Pennsylvania Inheritance Tax

  • Pennsylvania Inheritance Tax is 4.5% for parents, children, grandchildren, or their spouses; and 12% for brothers and sisters; but 15% for other relatives or friends; Charities are exempt, and no tax is owed on inheritances by a spouse.
  • But bank accounts or other assets titled jointly with anyone other than a spouse are partly taxed even when it really is the surviving person’s money.
  • The amount exempt from Pennsylvania inheritance tax is only $3,500.

Lifetime gifts can provide meaningful tax relief

  • Federal Gift tax laws now have the same lifetime exemption as the federal estate tax exemption; and allow additional yearly gifts of up to $15,000 per recipient as well as unlimited gifts for direct tuition payments or direct payments of medical expenses.
  • Section 529 Educational Plans for college expenses have tax-free earnings if the funds are paid out for college costs.

Durable Powers of Attorney / Living Wills

  • A Durable Power of Attorney, written to be effective immediately or when medical conditions require help, is an alternative to a court-supervised guardianship.
  • Living Wills or Medical Directives can document your directions about medical care when there is little or no hope of survival with a reasonable quality of life.

Nursing Home Costs

  • In the absence of sound legal advice and financial planning, the costs of nursing home care and other healthcare can leave nothing to pass as an inheritance.
  • Giving assets away to become eligible for Medicaid is much more difficult since the federal law changed in February 2006, with strict federal and state regulations relating to gifts of assets. Gifts now must be made at least five years before nursing home admission or they will count against Medicaid eligibility.
  • Planning is important for an incapacitated person to qualify for Medicaid — Use of a power of attorney to gift assets may not be permissible unless gifts are made under specific and detailed authority stated in the power of attorney document, or unless the gifts are authorized by Court order.
  • Long Term Care insurance can be a big help emotionally, as well as financially.

Some Basic Suggestions, and Thoughts

  • Always keep your Will and other documents up-to-date.
  • Sign a Durable Power of Attorney, whether conditional or unconditional.
  • Be careful when titling ownership of assets, and list beneficiaries of life Insurance, IRAs and other investments, with extreme care — and resubmit beneficiary designation forms every five years or so.
  • Be aware of the pitfalls, as well as the benefits of joint ownership.
  • Consider “Special Needs Trusts”, or “Supplemental Needs Trusts” for heirs who would have difficulty handling their finances, or who might be disqualified from Medicaid or other programs if they are given an outright inheritance.
  • Get guidance before gifting your home or investments that have increased in value – your heirs might avoid capital gains tax entirely by inheriting and then selling – and gifts might also disqualify you from Medicaid eligibility.
  • When your plan includes gifts to a church or charities, consider naming those organizations as beneficiaries on traditional IRA’s, TSA’s, 401k’s, 403(b)’s and other tax deferred investments, especially if your spouse does not survive. If paid to persons other than a spouse, these benefits might be triple taxed for federal estate tax, state inheritance tax, and income tax purposes, but can be distributed completely tax free to charities.

Joseph E. Lastowka, Jr.

Of Counsel

Eckell Sparks

Attorneys & Counsellors At Law

300 West State St, Suite 300

Media, PA 19063-2639

[email protected]

phone: 610-565-3701 ext 273

Joseph E. Lastowka, Jr. is a lawyer who is of counsel with the law firm of Eckell Sparks, Media, Pennsylvania. He is a fellow of the American College of Trust and Estate Counsel and a member of the National Academy of Elder Law Attorneys. He has been identified in Philadelphia Magazine and other publications as a Super Lawyer™ in the fields of Estate Planning, Trusts and Estates, and also has been included in the listings of Best Lawyers in America™ in those areas of legal practice.