Articles

ESTATE PLANNING PROVIDES PROTECTION FOR BUSINESS OWNERS

By: Anthony S. Rachuba, IV, Esq.

Rachuba Law Offices, P.C.

     All business owners can benefit from some level of estate planning. Building protection into your business plan is one of the most important decisions you can make to safeguard your partners, your employees and your family. Here, we will discuss the four key components of estate planning to make sure you are well set up for success. The most fundamental estate planning tool is a will. A properly executed will, gives clear direction to your executor about how to manage or distribute your assets when you pass away.

     A somewhat more complex component of an estate plan is a revocable trust— this is a legal entity created to hold your assets while you're alive. Among the many benefits is that your appointed trustee can take over management of your assets if you're incapacitated. A revocable trust streamlines the transfer of your assets by helping avoid potentially lengthy legal proceedings and costly court fees. A trust may also provide creditor protection for the beneficiaries.

     Another critical document for your estate plan is a power of attorney. Naming a healthcare power of attorney means your representative can make crucial medical decisions on your behalf should you be unable to, while a financial power of attorney can pay your bills and manage your finances until you get back on your feet.

     Finally, a buy-sell agreement is a powerful estate planning tool. A buy-sell agreement is a way to help ensure a smooth transition of your business and ensure your family's financial goals are met after you're no longer around to take care of them. A buy-sell can also outline the terms of succession among the remaining partners, so that all terms are agreed upon in advance.

     Some basic estate planning may be done using self-guided online tools, but typically you should use a licensed and experienced attorney to help you draft and execute your plan. The best way to go about it is to make sure that your attorney, financial advisor, and insurance agent are working together on managing and planning your estate.

If you have questions or would like to discuss your estate planning, please contact Anthony at 267-895-1771 or anthony@rachubalaw.com .

 

EXECUTING A LAST WILL AND TESTAMENT

     Each state has formal requirements for preparing and executing a will. The person making the will is called the testator. Generally, the testator must declare that the document that is being signed is the testator's will. The signature must be witnessed by a minimum of two or three witnesses, who must also sign the will in the presence of the other witnesses. Each state has slightly different wording for the testator's and the witnesses' signatures.

Are There Other Types of Wills?

     A will that is handwritten and signed by the testator, but has not been witnessed, is called a holographic will. Few states recognize holographic wills and only where all statutory requirements are followed. Oral wills, also called noncupative wills, are only recognized in a few states and only under compelling situations such as when made by a soldier dying in wartime.

     A self-proving will is one that is witnessed and executed as required by the state's laws, and it is also signed and witnessed in the presence of a notary public. The benefit of a self-proving will is that it is not necessary to obtain statements from the witnesses at the time the will is probated. A self-proving will saves a great deal of time and effort where it turns out that one or more witnesses cannot be located or are themselves deceased.

Based upon its contents, a will may be categorized as one of the following:

  • A simple will
  • A tax-planned will
  • A pour-over will

A simple will leaves the entire estate (the testator's property covered by the will) to one or more named beneficiaries. No portion of the estate is left in trust.

     A trust is made when property is transferred to the management of one person (the trustee) for the benefit of others (trust beneficiaries). A tax-planned will generally disposes of all or a portion of the estate to one or more testamentary trusts, and not directly to the beneficiaries. A testamentary trust is created by the will and it comes into existence when the testator dies. The trusts are used to avoid or minimize death taxes. A pour-over will generally leaves assets to an inter vivos trust - a trust that was created by the testator during their lifetime.

     A living will is not used to dispose of property after death. Rather, it expresses your views on the use of artificial life support techniques and other life-sustaining medical procedures. A living will is needed when you are no longer competent to make these decisions and become terminally ill or permanently unconscious. A health care proxy gives another individual the right to make these decisions for you. Living wills and health care proxies are often signed at the same time that a will is executed.

Picking Your Executor

     An executor is the person responsible for carrying out the directions in your will. The same considerations that are important in choosing a trustee should be used when deciding upon the executor of your estate. First and foremost, you should choose an individual or institution that you trust.

     An executor needs to gather assets, pay debts and expenses, and distribute assets to beneficiaries. The executor does not need to invest assets other than on a temporary basis. On the other hand, a major role of a trustee is to prudently invest the trust assets so as to be fair to all of the beneficiaries. The role of an executor is limited in duration while a trustee might serve for many generations.

Where to Keep Your Will

     A will should be kept in a safe place such as a bank safe deposit box or fireproof safe at home where it can be easily located after your death. If the will is kept in a safe deposit box, you must arrange for the executor to have access to the box after your death. Some states put a freeze on a safe deposit box at death, which makes it more difficult to retrieve the will.

Reviewing an Estate Plan

     There are a number of occasions that justify the review of the terms of your will and your estate plan in general:

  • When you get married or divorced
  • The birth or adoption of a child
  • The death of a family member or other beneficiary of your estate
  • When an individual named as executor, trustee or guardian dies or is unable to act as such
  • When you decide to name someone else as your executor, trustee or guardian

 Your will should be reviewed if:

  • The size of your estate changes significantly
  • You move to another state
  • There are changes in federal or state laws that could affect your estate

 Revising a Will

 A will may be revised in three ways:

  • Minor changes can be made to a will by preparing an amendment called a "codicil." A codicil needs to be executed with all the formalities required for signing a will but it need not restate all of the unchanged provisions in the will
  • A will may also be changed by preparing a new will revoking the prior will or by destroying the old will. Care must be taken when destroying a will to avoid intestacy (death without a will)
  • A will may also be changed by independent events such as divorce or adoption. In certain states, a divorce automatically revokes any bequest to the former spouse. In other states, laws provide that a divorce revokes the will entirely. A new will should be prepared in order to remove the spouse as a beneficiary and/or fiduciary. The beneficiary designations on life insurance policies and retirement benefits should also be reviewed

Questions for Your Attorney

  • How much will it cost for you to help me prepare a simple will?
  • What kind of tax-saving benefits could I achieve with a testamentary trust?
  • Are holographic wills valid in my state?

Please contact Rachuba Law Offices if you would like to discuss having a Will prepared. Phone number is

(267) 895-1771 or send email to anthony@rachubalaw.com.

 

If I am a Pennsylvania Resident and I Die Without a Will Does the State Take My Assets?

It is a common misconception that if you die in Pennsylvania without a will that everything will be left to the Commonwealth. Pennsylvania’s statutes, specifically its intestacy statutes, provides a scheme as to who is entitled to your assets if you die without a will; therefore, it is a rare occurrence that anything will be left to the Commonwealth.

The Commonwealth of Pennsylvania’s laws of Intestate Succession provide that a person who dies without a will in Pennsylvania is said to have died “intestate.” The laws of Intestate Succession govern the disposition of a person’s property if he or she dies without a will, or if all of his or her property is not disbursed pursuant to a will. The Pennsylvania laws of Intestate Succession are designed to protect both the surviving spouse and children (if any). In addition to providing for spouses and children, the Pennsylvania laws of Intestate Succession may also provide for a decedent’s (a person who dies) parents, siblings, aunts, uncles, and their children and grandchildren under certain conditions.

The starting point is if the spouse of the decedent survives the decedent, the amount of property that the spouse ultimately receives is dependent upon which other relatives survive the decedent. So, who takes property and other assets pursuant to the Pennsylvania law of Intestate Succession? The law can be summarized as follows:

No Surviving Children

If the decedent is survived by his or her spouse and has no surviving children or parents at the time of death, the surviving spouse receives the decedent’s entire estate. If the decedent is survived by his or her spouse and one or both parents, the surviving spouse is entitled to the first $30,000.00 of the estate, plus one-half of the remaining estate.

Surviving Children

If the decedent is survived by his or her spouse and has surviving children, all of whom are also the surviving spouse’s children, the surviving spouse receives the first $30,000.00 of the estate, plus one-half of the remaining estate. However, if the decedent is survived by his or her spouse, and at least one of the decedent’s surviving children is not also the surviving spouse’s child, the surviving spouse is limited to one-half of the estate. The reason that the surviving spouse receives less if one of the surviving children is not also a child of the surviving spouse is because the law presumes that a surviving spouse will care for his or her own children, but not necessarily those of the decedent.

No Surviving Spouse

What happens if the decedent is not survived by his or her spouse or the surviving spouse is not entitled to take everything in the estate?Pennsylvania’s Intestate Succession law provides for distribution of the estate in the following order: 1) children; 2) parents; 3) brothers, sisters and their children; 4) grandparents; 5) uncles, aunts and their children and grandchildren; and 6) the Commonwealth.

It is important to note that will substitutes such as joint tenancy property, life insurance payable to specific persons, bank accounts with specific beneficiaries and the like will pass in accordance with their terms and will not be a part of the decedent’s estate to be distributed pursuant to the laws of Intestate Succession.

It goes without saying, that the best way to plan for the future and adequately provide for your loved ones is to have a will and other estate documents prepared by a trusted professional. Contact Rachuba Law Offices at (267) 895-1771 if you wish to discuss having a will prepared.

 

What Is a Revocable Living Trust?

A revocable living trust is a written agreement designating someone to be responsible for managing your property. It is called “living” because it is established while you are still alive. It is called “revocable” because the creator can change or dissolve the trust at any time for any reason, as long as the creator remains mentally competent. A revocable living trust becomes irrevocable as soon as you die.

In effect, a revocable living trust acts as a “holding bin” for your assets. Everything that you own is transferred to the trust. The person who creates and funds a trust is called the grantor. Married couples can do this jointly. The person who manages the assets in a trust is called the trustee. The beneficiary is the person that receives the income or principal from the trust. This can be the grantor during his or her life and the grantor’s heirs after death.

Who Controls a Revocable Living Trust?

In a revocable living trust, the grantor usually also functions as the trustee, retaining complete control of all the assets in life. You can sell the assets, buy additional assets, exchange assets and invest assets. When the grantor dies or becomes incapacitated, another person or a corporate trust company becomes successor trustee. Assets can be passed on immediately, or be portioned out over time.

Benefits of a Revocable Living Trust

If an estate is large enough, a traditional will must go through the probate process, in which assets are collected and debts paid before any assets are distributed to heirs. The more complex the estate, the longer this takes. A properly constructed revocable living trust bypasses probate and allows for immediate distribution of the assets.

In addition, a revocable living trust keeps all documents private after your death - unlike a will, which becomes public. It provides for continuity of management of your assets (rather than freezing them, like the probate process). It is much less likely to be successfully contested by a disgruntled heir.

Shortcomings of a Revocable Living Trust

By itself, a revocable living trust does not avoid income, estate or gift taxes. If your primary goal is to avoid taxes, it is not the most efficient tool. You can use an irrevocable trust to minimize taxes, but you sacrifice the ability to make any changes to the trust once it is created.

One of the main disadvantages of a revocable living trust is that the trust property is still owned by you and not protected from creditors or lawsuits, like in bankruptcy or divorce, as long as you are alive and the trust is revocable.

A revocable living trust is usually more expensive and time-consuming to set up, but the cost and time may be saved when it comes time for distribution. If a bank or trust company becomes successor trustee after your death or incapacity, there will be a fee for that service.

 

IRS Announces 2018 Federal Estate and Gift Tax Figures

By: Anthony S. Rachuba, IV

Rachuba Law Offices, P.C.

     The Internal Revenue Service (“IRS”) has announced the 2018 Federal Estate and Gift Tax Exemption Amounts.  The Federal Estate and Gift Tax exemption for 2018 is $5,600,000 (up from $5,490,000 in 2017). The exemptions are increased for inflation each year. A married couple can pass a combined $11,200,000 without paying any Federal Estate or Gift Tax (up from $10,980,000 in 2017). The total value of assets a decedent owns at death which exceeds his or her exemption amount is taxed at a 40% rate. Therefore, the $220,000 increase for a married couple from 2017 to 2018 will save a married couple $88,000 ($220,000 x 40%).

     The annual gift exclusion amount has been increased for the first time since 2013. Beginning in 2018, a U.S. citizen can gift $15,000 to as many persons as desired without having to report the gifts to the IRS on a Federal Gift Tax Return. From 2013 through 2017, the annual gift exclusion was $14,000. This exclusion is per calendar year, which means the same gifts can be made again in 2019 and each year thereafter. A married couple can gift up to $30,000 to as many persons as they wish without having to report the gifts as taxable gifts.

     It is important for a surviving spouse to understand that he or she does not automatically have the right to use a deceased spouse’s exemption. In order to use a deceased spouse’s exemption, the surviving spouse (or the executor of the deceased spouse’s estate, if the surviving spouse is not the executor) must file a Federal Estate Tax Return (Form 706) within 9 months after the death of his or her spouse. Failing to file the Return by the 9-month deadline could possibly cause the surviving spouse to lose the ability to use the deceased spouse’s exemption amount.

 

The average monthly cost of a private room in a nursing home in Pennsylvania is currently $10,007.

The average monthly cost of a private room in a nursing home in Pennsylvania is currently $10,007.

  • The projected average monthly cost in 2027 is $13,449.
  • The projected average monthly cost in 2037 is $18,074.
  • The projected average monthly cost in 2047 is $24,290!

Planning now for the possibility you or a loved one will require nursing home services could potentially save hundreds of thousands of dollars! Planning must be done far in advance as the government has established rules which typically prevent planning within five years of entering a nursing home.

Contact Anthony at (267) 895-1771 if you wish to discuss how you or a family member can plan now to reduce the potential high costs associated with staying in a nursing home.

 

ESTATE PLANNING IS MORE THAN HAVING A WILL

 

By Anthony S. Rachuba, 

Esq. Rachuba Law Offices, P.C.

 

While a Will disposes of assets a person owns in his/her sole name, it comes as a surprise to most people that most assets they own will not pass via their Will.

To better understand what assets pass according to a Will, it helps to identify he assets that do not pass pursuant to a Will. The assets that do not pass via a Will include assets held jointly with another person and assets which contain a beneficiary designation. For example, assets such as a 401(k) plan account, an IRA and a life insurance policy all include a beneficiary designation form. A beneficiary designation form is typically completed when the retirement account is established or the life insurance policy is purchased. It provides to whom the account or policy proceeds should be paid upon the owner's death. The only time a Will does provide to whom such assets shall pass is when there is no beneficiary designation form on file or the persons named on the beneficiary designation form are all deceased.

 

Another example of an asset which does not pass according to a will is an asset which is jointly held with another person(s). Assets held jointly with another person typically pass to the surviving joint owner(s) upon the death of an owner.  This transfer happens automatically and does not require any action on the part of the surviving owner(s).  The only time the share of a deceased joint owner passes according to a Will is when the asset is held by more than one person as “tenants in common” and not "with rights of survivorship".

 

When engaging in estate planning, it is important to consider all assets and understand how and to whom such assets will pass at death. It is important to understand that a Will does not control the disposition of all assets at death and certain assets will pass according to a beneficiary designation form or automatically by right of survivorship.

 

Please contact Anthony at (245) 870-8843 or via the website atwww.rachubalaw.com

 

PARENTS OF A DISABLED CHILD MUST DETERMINE HOW THEY WILL CONTINUE TO MAKE DECISIONS FOR THEIR CHILD UPON HIS OR HER 18TH BIRTHDAY

Parents of a minor child who has a disability (such as autism, mental retardation, etc.) act for their minor  child by making financial and health care decisions.  All parents who have a disabled child eventually must   determine how they will continue to make such decisions when the child attains 18 years of age, and is considered  an adult. Absent a ruling by a court that the child is legally incapacitated, the child can make his or her own financial and health care decisions and the parents can no longer legally make such  decisions.

The parents of the disabled child must decide how they will continue to make decisions for their child.  If   the child has the requisite level of capacity, he or she can sign a Durable General Power of Attorney and a Durable Health Care Power of Attorney. These documents allow the child to name the persons who shall have the authority  to make financial and health care decisions for him or her. In the event the child does not have the capacity to sign power of attorney documents, the parents must file a petition for guardianship with the appropriate court (in Pennsylvania, the local Orphans’ Court). The petition seeks a determination by the court that the child is in fact incapable of making his or her own decisions and the parents should be appointed as the guardians of the child. To prove the child is incapable of making his or her own decisions, the parents must present the testimony of the   child’s physician (typically by written interrogatories). The court relies heavily on the testimony of the physician in making its decision.

If you are a parent of a disabled child who will be turning 18 years of age in the near future, you should consult an attorney who routinely represents families where one of the members of the family is disabled. Please contact Rachuba Law Offices at Call 215-870-8843 or via the website at www.rachubalaw.com if you wish to discuss your options with respect to a child or other family member who is disabled.

 

New Law, New Benefits : Pennsylvania’s Recognition of Same-Sex Marriages Impacts Estate Planning for Same-Sex Couples

 

By: Anthony S. Rachuba

Rachuba Law Offices, P.C.

Now that same-sex married couples in the Commonwealth of Pennsylvania (PA) can enjoy the tax benefits that have long been available for opposite-sex married couples*, there are a few considerations to make regarding estate planning.

Previously, same-sex couples living in PA were negatively impacted at death from an inheritance tax standpoint. PA imposes an inheritance tax on the assets of an individual resident upon said individual’s death. In addition, for non-residents, PA also imposes its inheritance tax on real property (and tangible personal property located at such real property). The rate of the inheritance tax imposed is determined by the nature of the relationship of the beneficiary receiving the property and the decedent. For example, if the assets of the decedent pass entirely to the children of the decedent, the rate of inheritance tax imposed is 4.5 percent. If all of the decedent’s assets pass to a sibling, the rate is 12 percent, and for assets passing to anyone else (other than a spouse or charitable organization) the rate is 15 percent.

 

For opposite-sex married couples, there is no inheritance tax imposed at a spouse’s death when all of the assets pass to the surviving spouse, but same-sex couples were subject to the highest PA inheritance tax rate of 15 percent. In the eyes of the Commonwealth, they were considered unrelated parties. Same-sex couples can now potentially save significant amounts of inheritance taxes that otherwise would have been paid to the Commonwealth. For a decedent (a deceased person) who leaves a $500,000 estate to his/her same-sex spouse, the inheritance taxes saved is

$75,000.

The recognition of same-sex marriages also impacts what happens if one same-sex spouse dies without leaving a Will. In the event a PA resident dies without leaving a Will, that resident’s probate estate passes according to PA’s intestacy statutes. The intestacy law attempts to leave the decedent’s assets to his/her closest living family members. If a decedent is survived by his/her spouse and children, the surviving spouse receives approximately 50 percent of the decedent’s estate while the other 50 percent passes equally to the decedent’s children. Previously, for same-sex couples, when one of the spouses died without a Will, the surviving spouse of the decedent would receive nothing. In fact, if no living relatives of the decedent could be found, the assets would pass to the Commonwealth. The strike down of the ban on same-sex marriages gives a surviving spouse of a same-sex marriage the right to receive an intestate share.

The recognition of same-sex marriages also allows a same-sex couple to hold real estate as “tenants by the entirety.” This is a term afforded to married couples owning real estate together and provides that upon the death of one spouse the property automatically passes to the surviving spouse. The more significant benefit of holding title to real property as tenants by the entirety is the creditor protection it provides. In the event a spouse has creditors who are attempting to attach liens to the assets of the debtor spouse, the real estate that is held as tenants by the entirety is protected. However, if both spouses are liable for the debt, the real property would not be protected.Same-sex married couples residing in PA can now plan their estates in the same fashion as opposite-sex married couples. The unlimited marital deduction can be utilized to avoid any federal estate tax taxes at the death of the first spouse and the surviving spouse can preserve the unused federal estate tax exemption of the deceased spouse (the federal estate tax exemption is $5,340,000 for decedents dying in 2014). Estate planning for same-sex couples previously consisted of having life insurance to provide for a surviving “spouse” because PA does not impose its inheritance tax on life insurance regardless of who receives the proceeds. This strategy is no longer necessary as there is no inheritance tax on all assets passing to the surviving same-sex spouse.

 

In addition to having Wills prepared, same-sex couples should also have Durable General Powers of Attorney and Health Care Powers of Attorney. These documents appoint a person(s) to act as agent(s) for an individual with respect to financial and health care decisions. In the absence of a health care power of attorney, or other document appointing a health care surrogate, a same-sex couple did not have the statutory right to make health care decisions for each other. While the change in the law gives the same-sex couple the right to act for each other when there is no health care power of attorney document, it is still necessary for same-sex couples to have durable general powers of attorney as there is no statute which gives a spouse the right to act for the other spouse without a durable general power of attorney document appointing the spouse.

 

Same-sex couples in PA should consult with an attorney to discuss their estate planning and the planning opportunities in light of the allowance of same-sex marriages.

 

Anthony S. Rachuba is an attorney at the Doylestown and Center Valley law firm of Rachuba Law Offices, PC. Rachuba Law Offices, PC counsels clients on estate planning and represents executors in settling the estates of the deceased.  

 

* In the May 2014 case of Whitehead v. Wolf, the U.S. District Court for the Middle District of PA struck down the state’s ban on same-sex marriages. The ruling provides that PA must recognize out-of-state same-sex marriages and allow for same-sex couples to marry within the state.

IRS PROVIDES A SIMPLIFIED METHOD TO OBTAIN PERMISSION FOR AND EXTENSION OF TIME TO ELECT PORTABILTY

By: Anthony S. Rachuba

Rachuba Law Offices, P.C

On June 9, 2017, the Internal Revenue Service issued Revenue Procedure 2017-34 which provides for a simplified process of obtaining a late portability election without the necessity of applying for a private letter ruling.  The cost to obtain a private letter ruling is typically $20,000 to $25,000 (this includes a user fee payable to the IRS and legal fees paid to taxpayer’s attorney); therefore, such relief is a welcome sight.

A portability election allows a surviving spouse to preserve his or her deceased spouse’s unused federal estate/gift tax exemption.  For decedent’s dying in 2017, the maximum exemption is $5.49 million. A surviving spouse would then have approximately $11 million of exemption to utilize during life or at death.

This simplified procedure set forth in Revenue Procedure 2017-34 is only available if certain criteria are met. The taxpayer must be the executor of the estate of a decedent who: (1) was survived by a spouse; (2) died after December 31, 2010; and (3) was a U.S. citizen or resident at his or her death. The estate must not otherwise be required to file a federal estate tax return, meaning that the total value of the decedent’s estate must be under the exemption amount.

The executor must file a complete and proper federal estate tax return by the later of January 2, 2018, or the second anniversary of the decedent’s date of death. At the top of the estate tax return it must state “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER §2010(c)(5)(A).”

Revenue Procedure 2017-34 will provide relief to those surviving spouses who have missed the deadline for electing portability without the requirement of having to seek a costly private letter ruling. It will also reduce the number of private letter ruling requests which have placed a significant burden on the IRS.

 

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Greater Philadelphia Region
196 W. Ashland St. Suite 110
Doylestown, PA 18901

Lehigh Valley Region
3477 Corporate Parkway
Center Valley, PA 18034

  267.895.1771
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