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Frequently Asked Questions in Estate Planning

Frequently Asked Questions in Estate Planning

Many estate planning clients have similar questions about how to plan their estate and how the law works. Below are answers to a number of frequently asked questions.

Q. If I have no Will, would all of my estate go to the state? A. Only if you do not have relatives who survive you; if you have living relatives, then the people who are your nearest class or group (i.e. children, siblings, or cousins) will receive your property. The Commonwealth would receive your estate, by “escheat,” but only if you have no close living relatives.

Q. What is probate? A. Probate is the process of filing your Will, having an Executor appointed to administer your estate assets, and paying your bills for a period of about one year after death.

Q. Can I change my Will? A. Yes. Your Will is prepared so that it is ready for use, but it has no legal effect until you die. You may change it as often as you like; a simple change can be done by “Codicil,” an amending document, or the Will can easily be rewritten. You should review your Will frequently to see if changes are needed. Because you may change your Will repeatedly, the Will is not filed at the Courthouse until after death, when it has become permanent.

Q. Can I write my own Will? A. Yes, but the advice of a professional is crucial as there are many pitfalls; attempts to do this on your own will endanger your plan, just as trying to self-treat a serious illness can jeopardize your life. Home-drawn or self-made Wills are often litigated and cause considerable expense to the beneficiaries.

Q. Do I have to leave something to my spouse and children? A. Your spouse has a legal right to a fixed share of your estate, even if your Will leaves him or her no share. You can avoid leaving an inheritance to your spouse only if you have a Prenuptial Agreement or other binding contract where your spouse has waived this right. However, you can disinherit any of your children as you see fit. It is advisable to mention the disinherited child in order to prevent a possible challenge to your Will. However, you should not specify explicit personal information or use the Will to take revenge, as the Will becomes public when it is probated.

Q. Can my Will be challenged? A. Yes, but the challenger must be a direct heir who will benefit if successful, and must show grounds why your Will should be invalidated. Common grounds are that you were under undue influence of another when you were in a weakened state, or that you lacked the mental capacity to understand your actions. The presence of witnesses and a notary at the time you sign you Will strengthens the validity and makes challenge difficult.

Q. What will happen to my young children if I die? A. Your Will should provide two things for your young children – a guardian of their persons who will take custody and raise them, and a guardian of their property or trustee who can manage their money and property. These roles can be filled by two separate people or by the same person, depending upon your preference and the character of the person or people involved. If the estate is large, a financial institution may be useful as trustee; although a bank will assess a fee, its management skills and its permanency can provide benefits. You should discuss these matters with the people you wish to name.

Q. How do taxes on an estate work? A. The Pennsylvania Inheritance Tax is four and a half percent (4.5%) of the net value of your estate on property passing to your children, grandchildren, or parents. Brothers’ and sisters’ shares are taxed at 12%, and nieces, nephews, more distant relatives, and friends receiving a share are subject to 15% tax. If your estate is valued in excess of a statutory threshold, there will be Federal Estate tax consequences, in a graduated bracket system, depending on this value. Gifts to your spouse or to charity are excluded from tax.

Q. Will my life insurance be part of my estate? A. This depends upon the terms of the policy and how you name the beneficiary. If you name a person who is living, the proceeds will likely go to that person and will not be part of your estate. You may name your estate as beneficiary and this will bring your policy proceeds into the Will plan, which can be beneficial if your estate needs the money to pay bills and/or taxes, or if your Will establishes a trust for young children or disabled persons. If you name one beneficiary who dies before you, the policy will likely pass to your estate; however, some policies have an automatic “default” to your nearest degree of relatives. You should renew your beneficiary description frequently and ask for written verification from the life insurance carrier. These matters should be reviewed by your attorney and insurance agent.

Q. What is an Executor? A. An Executor is the person named in your Will to handle your property and pay your debts immediately after your death. The Executor has duties, imposed by law, to conserve and protect your assets and to carry out your instructions set forth in your Will. If you do not have a Will, an Administrator will be appointed by the Courts from among your nearest relatives, and the Administrator is bound by law only and does not have the Will to instruct him or her. An Executor or Administrator is entitled to a fee for serving, unless your Will prohibits the taking of the fee. An Administrator may be required to post a bond which can be costly.

Q. Is my IRA a part of my Estate or Will? A. An IRA should have a named beneficiary and an alternate or contingent beneficiary. When an IRA is named to a living person, that person can continue to hold the IRA in retirement status, with continued deferral of income tax. If an IRA has no living beneficiary, or if it is named to the Estate, it will cease to be a retirement account and income tax will be due as if the entire account had been withdrawn.

Q. What is a Trust and do I need one? A. A Trust is a separate entity created by an agreement or Will. Most people do not need to create a Trust during life, although a Trust can be useful for certain tax planning for wealthy people, or in the case of a disabled or underage beneficiary. There are salesmen who will sell a “package trust” for $2,000 to $4,000 by misrepresenting its advantages and using scare tactics. Consult a local attorney before buying any such costly “trusts”. See this article for more information on Trust scams.

By Lisa Pepicelli Youngs, Esq.