Danyi Law, P.C.
MEMORANDUM TO ESTATE PLANNING CLIENTS
The purpose of this Memorandum is to provide you with information on what estate planning is, so that you can prepare for our meeting. Estate planning and administration is the main focus of our practice at Danyi Law. An informed and prepared client is essential to doing the job right. The questions and checklist items in this Memorandum will help us to get a clear picture of your financial situation.
ESTATE PLANNING IS NOT “WILL PLANNING”
While your will is certainly an important part of your estate plan, and may have been sufficient in the past, many of your assets may be in what are called “non-probate assets”. This means that these assets are not controlled by your will. These assets do not constitute part of your probate estate that will be controlled by your executor, although most of these assets are subject to inheritance tax and other taxes.
Typical examples of non-probate assets are Individual Retirement Accounts (IRAs), life insurance, annuities, joint assets, tenants by the entireties assets, POD or TOD accounts, and trusts.
We want to ensure that we have a complete picture of your financial situation so that every base is covered and your assets pass to the right people upon your death.
WHY SPEND TIME AND MONEY ON THIS?
Plainly stated, if you do not plan your estate, the government will plan it for you. The government also steps in if you are not able to manage your own affairs during your life. Nursing homes are quick to petition the court to have people declared legally incapacitated. Failure to take care of your affairs privately leads to direct control of your life by strangers appointed by a judge, not to mention potentially higher taxes, administration costs, as well as potentially serious financial problems and headaches for your loved ones.
Your long-term care (“LTC”) is another consideration. Medicare covers only part of the first 100 days of LTC. After that, unless you have specific LTC insurance, you are on your own and the average cost in 2017 of LTC in Pennsylvania is $12,000/month. Qualification for Medical Assistance/Medicaid requires meeting financial tests that allow for minimal assets and income. Transferring assets to relatives in order to qualify will result in disqualification and, in some cases, may be fraudulent.
Finally, while the federal estate tax exemption is presently over $5 million, there are other tax considerations, including inheritance tax and income tax, which may apply to your situation.
TO DO: GATHER &BRING DOCUMENTS
It is important to have actual, original documents (or copies of them). We call this the “original source rule” at our office. You may think that a document means something based upon your own conclusions or what someone else told you, but we need the original document to review it. We don’t guess about things like this.
Proper estate planning involves a detailed review of your assets and liabilities. You should review your ownership documents and bring them to my office. This includes things like:
- Any previous will you may have
- Previous powers of attorney
- Life insurance policies
- Brokerage account statements (the most recent)
- Annuity contracts
- Pension documents
- Deeds to real estate (your house, vacation properties, commercial real estate, time-shares, etc.)
- 401(k) statement
- IRA-related documents (such as a statement from the custodian of your IRA assets)
- Existing trusts or similar documents
- Documents showing beneficiary designations on life insurance, annuities, IRAs, etc.
SOME QUESTIONS TO THINK ABOUT AND ANSWER
- How are each of your assets titled?
- Are they in one name or joint with another person?
- Are you a joint tenant with right of survivorship (JTROS) with any person on any asset or is that person only an agent or POA on the account? This typically happens with bank accounts when an elderly person puts an adult child’s name on the account. This could cause it to be jointly owned or it may just be an internal bank power of attorney, meaning that the other person doesn’t have ownership rights but may write checks and manage the account for you.
- Are you on any accounts with your parents or your children? rights but may write checks and manage the account for you.
- Are you on any accounts with your parents or your children?
- What is the approximate fair market value of each asset you own? Do you have recent appraisals of your house or other documentary evidence on which you are basing your estimate of fair market value?
- Are there any mortgages, home equity loans, or other liens against your house? What is the balance due on these?
- Do you have any life insurance policies?
- Who is the “insured” (the person whose life the policy is based on)?
- Who are the "beneficiaries" (the person or persons who receive the death benefit money when you die)?
- Who is the “owner” of the policy? Note that the insured may or may not be the owner of the policy.
- What is the cash value of the policy, if any?
- How are you going to pay if you have to go into a nursing home or assisted living facility?
- What kind of retirement plan(s) do you have?
- What assets are IRA assets? An IRA is a tax designation, not an investment. You can have all sorts of assets in IRAs, including CDs, stocks, mutual funds, bonds, etc. (see additional questions, below).
- Are you named as a fiduciary (executor, agent, trustee, etc.) for someone else? Are you active in that role right now?
- Have you ever filed a Gift Tax Return (Form 709) with the IRS? If so, please bring a copy.
- Have you ever created a trust for anyone, including yourself?
- Have you or your parents changed the title on any assets or made any gifts? For example, have your parents put their house in your name for $1.00?
- How long has it been since your will has been updated? Bring your old will along with you.
- How long has it been since your Power of Attorney has been updated? If it is considered to be legally “stale” by banks and financial institutions, it may not be honored. The law most recently changed in Pennsylvania effective January 1, 2015.
- Which one of your children or relatives do you believe would be the most capable of handling your finances if you are unable to do so yourself?
- If you have assets in your own name and you become disabled or legally incapacitated, can your spouse or children use those assets for your care?
- Who will your executor be? The executor is the person who handles the settlement of your estate after you die.
- Who is your CPA (Certified Public Accountant)?
- Do you have any financial advisors, stockbrokers, insurance salesmen, or money managers?
- If you are parents of minor or disabled children, who do you want to take care of them personally and financially when you die?
- Are any of your children receiving government benefits for any special needs? An outright inheritance may cause the child to become ineligible for those benefits.
The status of these assets as non-probate does not render them free of taxation at death. While they may not be includable in the probate estate, most of them are includable in the taxable estate.
Careful planning is needed to ensure that these assets pass properly in the way that you want. If both spouses die simultaneously, provisions must be made for contingent beneficiaries, usually children. This often involves more than putting names on a small line on a financial company form. Beneficiary clauses on these documents are just as important as your will and may control more money than the probate estate.
These are some things that you should be thinking about prior to our meeting. I will do my best to answer your questions when we meet and can go as in-depth as you would like. There may be some issues that involve legal research or which bear further investigation and thought. We will then determine together the various legal documents that are necessary to meet your needs.
Typically, I draft a will, power of attorney, and a healthcare power of attorney/living will as part of every estate plan. These are the minimum legal documents that every person should have.
Legal fees are directly proportional to the complexity of your affairs and what you require. A deposit is always required prior to the commencement of legal work for you. All fees and costs will be discussed with you and agreed upon prior to the commencement of your project. We will send you drafts of your documents to review before you come in to formally execute those documents. If necessary, we can do house calls or nursing home visits.
We look forward to meeting you and going through this process as painlessly, cost-effectively, and quickly as possible. For additional information, please visit the “Library” section on our website.