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When Avoiding Probate Wasn’t Necessary Or The Right Answer

We recently did a blog that talked about how national companies and mainstream media often talk about avoiding probate at all costs and the advantages with it.  I warned in that article that probate is not a bad thing in the Commonwealth of Pennsylvania.  In fact, the process itself is very straightforward and fairly inexpensive.  Many of our national companies and spokespeople come from states where the rules are very difficult and expensive, and make it sound like every state follows the same process when, in reality, each state has different rules, and overall, Pennsylvania is a very easy state to go through probate and is overall fairly inexpensive.  

Several people have asked us to provide more in-depth answers as to what are the tools to avoid probate.  In the previous article, I avoided getting into that conversation because I simply wanted to address the fact that we don’t necessarily need to do that in the state of Pennsylvania and that we recommend that you seek counsel to advise you on the pros and cons of such decisions.  I will take a minute in this blog to discuss some of those options briefly but still recommend that you speak to an attorney to discuss whether it is applicable for you in your specific particular situation.

Here are a few options or ways that people can avoid probate:

Create a trust.

Joint ownership.

Outright gifts.

Beneficiary designated accounts.  

Trusts are certainly very viable options and can provide a lot of benefits.  Some of these benefits can include avoiding probate in several different states, as well as potentially asset protection.  In some rare instances, some people need advanced tax planning, in which case a trust can serve as a way to reduce the federal taxable estate to avoid paying higher taxes to the government.  Each particular trust certainly has pros and cons and the rules are different for each one.  Depending on whether you are doing a trust simply for probate avoidance, for asset protection, or for tax planning, each trust will have its own rules and will be governed by a different set of restrictions and limitations.  Fully understanding the restrictions and limitations and weighing that with whether or not the benefits outweigh the negatives is something that each person should do individually and should do with an experienced trust planning attorney. 

Joint ownership.  It is very easy to encourage people to add family members as joint owners on their accounts.  Oftentimes, people will say that they’re doing this for “convenience.”  I believe that it is important to understand some of the negatives that can come out of joint ownership – property ownership, such as if the child were to die first, there would be tax implications in the Commonwealth of Pennsylvania to the parent for adding their child at a 4.5% tax rate.  It is a very difficult conversation to be the person who calls the parent who lost a loved one who has to tell them that they are very sorry for their loss and to remind them that they’re going to have to pay inheritance tax on the joint owned account when it was the parents’ money in the first place, and why do they have to pay tax on their own money?  Once you add a joint owner to an account, there are implications of that transfer that very few people discuss or are aware of.

If you would like to learn more about estate planning and elder law, please give our office a call at 717-845-5390.

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