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What is the Worst-Case Scenario if I Don’t Plan?

What is the worst-case scenario if I don’t plan?  

This is a question that was raised to me several years ago by a client, and I answered her question by walking her through what would happen if she did not have a plan, and she became incapacitated from a financial perspective as well as from a medical perspective.  I also answered the question about what would happen if she died.  My client was married with three children.  Her husband had two children of his own, and she certainly loved them and treated them like her own for all intents and purposes.  

Unfortunately, she did not see the need to do planning ahead of time, and the worst-case scenarios that I set forth to her are exactly what happened.  She became incapacitated a few years later and had a stroke. While she was in the hospital, her children and her husband were disagreeing about the healthcare decisions that should be made on her behalf.  To further complicate things, the stepchildren showed up at the hospital also arguing that they should be involved in the decision process. 

There is a healthcare statue in the Commonwealth of Pennsylvania that does provide the next of kin and who would make healthcare decisions, but, ultimately, the hospital did not want the husband and his children along with the stepchildren to be fighting in the hospital, so they asked them to go to a guardianship hearing and have a judge adjudicate who would be the guardian of her healthcare decisions.  There were a decent amount of assets in her name alone, and, unfortunately, the husband was not able to access them because she did not have a financial power of attorney in place.  

He went to the bank trying to explain the situation but, ultimately, was told that he had to obtain a guardianship Order from the Court in order to be able to make decisions on behalf of his wife.  The husband ended up in court fighting with his children that he had with his wife along with his children to another relationship, fighting over who should be granted guardianship of her.  He ultimately won after having to hire an attorney and spent thousands of dollars in legal fees.  

She passed away and did not have a Will in place.  I think everybody, including her and him, incorrectly believed that the husband would get 100% of the assets.  I did explain to her the worst-case scenario under the Pennsylvania Intestate Succession Statute that the husband would be forced to get the first $30,000 and then have to split the remainder with the children that he had with his wife.  Because of all of the strained relationships that occurred under the fighting that they had in the hospital and in the Courtroom, tensions were high, and they did not get along.  The husband was devastated to learn that he only got the first $30,000 and one-half of the remainder.  He asked his kids to please gift the money back so that he could have it to live the rest of his life, and they laughed in his face and kept the money that they were entitled to under the statute.  

Unfortunately, this scenario is far too common.  As an estate planning and elder law attorney, I tend to live in the worst-case scenario world because that is what typically happens.  If you plan, you avoid all of these circumstances and situations from arising.  If you do not plan and you allow yourself to be subject to the government or the state’s rulebook, it may not go the way that you want it or the way that your family wants it.  
I think often about that day where I met with her and discussed the worst-case scenario.  Clearly, I didn’t scare her enough or do enough to make her realize how devastating that could be for her family.  I am saddened over the tension in the relationship now with the entire family and know that I could’ve easily eliminated all of those fights and arguments and the need to go to Court and spend thousands of dollars of money.  My goal now is to show the worst-case scenario and hope that it hits home with at least one person who will get their planning in place ahead of time so that this does not happen to them.  

If you would like to learn more about how you can plan properly to avoid these and many other complications, please give our office a call at 717-845-5390.

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Having “The Conversation” or “The Talk” With Your Adult Children About Their Inheritance

It is very rare for us to assist a family with their estate planning that we are not asked from the parents whether or not they should talk to their adult children about their estate planning and about the inheritance.  For years, I always recommended to clients that they have the conversation up front early and often with their kids.  I always believe in full transparency and no surprises.  Particularly in a situation where you may be providing for charities, other outside individuals, or maybe are not providing for your children equally.  

I would always recommend to the parents that they try to let the children know that they plan to have the conversation and when.  Giving the children a chance to come to grips with the fact the mom and dad are going to be talking to them about death and potentially the future.  I always recommended that they do it around the period when there is not a lot going on in the children’s lives such as buying a new home, having a new child, or some major life event.

For years I would hear from clients who were so glad that they did have the talk with their kids and maybe even had several conversations.  Although kids are typically skittish about talking about death, once you have the conversation they’re grateful to have an insight into your thoughts, ideas, and where you are headed.  I have very rarely found children who didn’t want to carry out the wishes that mom and dad intended.  Typically, the problem that we run into is if mom and dad did not tell the children clearly about what they intended the children end up fighting over the intent of the parent.  Having the conversation ahead of time typically eliminates the issue with fighting about intent later. 

I recently had several clients come back to me and tell me that the conversation did not go well and that the children and their relationship changed because of it.  I tried in several of the conversations to dig a little deeper to figure out exactly what happened and where things went wrong, but unfortunately I was unable to get enough detailed information to ascertain where the issue arose, what the issue was actually all about, and why it has changed the relationship. 

Due to the fact that I was unable to truly dig to find out what happened in the context of the conversation, I am hesitant to still not recommend having an open and honest conversation. My one client specifically said that he wished he would not have had the conversation ahead of time and it would’ve been better just to allow the documents to speak for themselves and allow him to die. I understand where he is coming from, especially since he believes that having the conversation changed the relationship.

I still believe that it is better to know that up front, and to be open and honest and know where you stand. The bottom line is that it is your estate planning, and you do not need permission from anybody, including your children, about doing it. Having the talk with them is more to make their lives easier after you are gone, and honestly is about them and assisting them moving forward, and also making mom and dad feel good. I do feel bad that a couple of the conversations didn’t go as planned, but maybe it opened up other issues that were there anyway, that were going to come up and maybe now better than later. 

We wish you nothing but the best in having the conversation with your kids about the inheritance and your estate planning. It is always a good idea to have your attorney have the conversation with them as well to have a third party providing the information. We often have this conversation at no additional charge for our clients to help guide the conversation.

Please contact our office if you would like to discuss your estate planning or have us assist you in discussing these issues with your children.  For any questions or help having this difficult conversation with your family, contact us at (717) 845-5390.

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Details about Wills

There’s no escaping death. It’s a fact of life. But having your affairs in order helps eliminate some of the stress and anxiety during a very traumatic time.

The South Coast Register from down under has some worthwhile suggestions in its article, “Dying to Know Day: Wills and won’ts of estate planning.”

A will is a legal document that lets you choose the relatives, friends, and charities who you want to inherit your assets when you die.

Meter-512181_640If you die without a will, your assets will be distributed to relatives by the state laws of intestacy, which may not be according to your wishes.

If you don’t have any relatives, or they can’t be found, your estate will be paid to the state.

You can make your own will, or you can hire an experienced estate planning attorney to assure that every detail is addressed.

If you decided to draft your own will, proceed at your own risk. Make sure that you consider the likely value of your estate, all of your potential beneficiaries, any special gifts or bequests, the disposal of any remaining assets and the appointment of an executor. Consider having an estate planning attorney from your state review it, because unless you are familiar with the laws of your state, the entire will could be invalid, if there are too many mistakes.

You want to be sure your will is written correctly, because challenges can be expensive and time consuming. It will also cause unwanted pain and stress to your family and friends.

Make sure that your will is properly witnessed and that you’ve named a trusted executor. Be sure to tell him or her that they have been appointed and make sure they are willing to take on the task. This is important because it will be their job to execute the provisions of your will.

 

We can help with your estate and elder law needs.  If you want to take the first step in the estate planning process, join us for any one of our FREE workshopsJust click here now to reserve your seat.

Jeffrey Bellomo, Esq.

 

 

Reference: South Coast Register (August 9, 2017) “Dying to Know Day: Wills and won’ts of estate planning.”

 

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Texting Your Will

In the U.S., laws about what constitutes a valid legal will have not changed very much since the Declaration of Independence. Most states still follow the old English law that a valid will must be signed by the testator in front of two witnesses, who must also sign the document.

If this procedure is not followed precisely, then a document is not a valid will that can be considered by a court.

Office-620822_640However, the United Kingdom's official government legal advisors, The Law Commission, are now suggesting changes to that old way of doing things, as The Telegraph reports in "Could a text become your will? The plans to revolutionise 'outdated' legacy system."

If the changes become effective, judges in the U.K. could look at other evidence to determine what a deceased person intended to do with his or her estate. For example, if the deceased left behind a voice mail or text message concerning the estate, then the judge could take that into consideration and use it in making a judgment.

The purpose of the old rules was mainly fraud prevention.

Judges who did not know the deceased, could rely on the testimony of witnesses to establish whether the will was legitimate.

What was the thinking behind the recommended changes? With digital technology, judges can more adequately make a determination of legitimacy without the need for witnesses.

If you want to discover all you need to know about estate planning, we have a FREE workshop.  You can RSVP and grab a seat by clicking here today.

Jeff Bellomo

 

Reference: The Telegraph (July 13, 2017) "Could a text become your will? The plans to revolutionise 'outdated' legacy system."

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Tax Issues on the Family Home for Loved Ones

HouseNJ.com’s recent article, “Complex inheritance taxes on a home,” explains the valuation of a home based on its fair market value (FMV) on the date of death, when considering estate and inheritance taxes.

If you have a home valued at over $1 million, it may sell close to that amount. Let’s say that you’re single and are 80 years old. You live with your widowed sister. Your will instructs that your sister should have life ownership, when you pass and then it is left in trust for nieces and nephews. What would their tax bill be?

The home's value is generally determined through an appraisal that would establish the home's fair market value.

Fair market value, in these circumstances, is typically defined as "the amount at which the property would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts."

The transfer of a life estate to the sister, followed by placing the home in a trust for the nieces and nephews, would mean they’d have an inheritance tax liability in New Jersey. The sister is a Class "C" beneficiary under the state’s inheritance tax laws, and the nieces and nephews are deemed to be Class "D" beneficiaries.

Generally, Class "C" beneficiaries have a $25,000 exemption and anything over that exemption is taxed at 11% on the next $1.075 million. The rates then go higher as the amount increases. Transfers to Class "D" beneficiaries are taxed at 15% on the first $700,000 and 16% on amounts exceeding $700,000.

This is unlike the situation where a beneficiary receives a readily determinable amount at death. In such cases, the tax can be calculated easily by reference to the beneficiary classes and applicable tax rates. But in this scenario, the value of the interests the beneficiaries will ultimately receive is uncertain.

However, state law provides a solution for this situation: the estate and the New Jersey Division of Taxation may use the "Compromise Tax" procedures to agree upon an inheritance tax liability. The calculation of the compromise tax is based upon actuarial factors according to the life expectancy of the current beneficiary, his or her beneficiary class and the relative probability of assets passing to the remainder beneficiaries and their respective beneficiary classes. In most cases, the taxpayer offers a proposed compromise on the inheritance tax return for consideration by the Division, based on the taxpayer's assessment of the most probable outcome.

Talk to an experienced estate planning attorney to make sure you understand and plan accordingly.

Reference: NJ.com (June 19, 2017) “Complex inheritance taxes on a home”

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