Wills and Estate Plans

Many people equate estate planning with a Will (more formally, a Last Will and Testament). However, for a typical client of Houston Harbaugh, an estate plan includes not only a Will but also one or more trusts that are coordinated to weave together the client's desires concerning the disposition of his or her assets after death with aspects of income tax planning, death tax planning and asset protection. Frequently, the client's estate plan also includes a health care power of attorney.

Black's Law Dictionary defines a Will as the legal expression of an individual's wishes about the disposition of his or her property after death or a document by which a person directs his or her estate to be distributed upon death. This definition is much better than that provided under Pennsylvania's statute that governs Wills, which simply states that a Will is a testamentary writing (the statute does not bother to define the term "testamentary").

Possibly the best way to understand a Will is to learn what happens if someone dies without a Will. In that case, the law of the State in which the decedent was domiciled governs the decedent's estate. Pennsylvania's statute is a rather typical statute, and it provides that the decedent's assets, net of his or her debts and the costs of administration, are divided among the decedent's spouse (if any), descendants and other blood relatives in shares which are rigidly assigned, difficult to calculate and potentially forfeitable due to certain conduct by the potential recipients. Any share allocated to a person who has attained the age of 18 will be distributed outright to such person, while any share allocated to a minor will be sequestered until such person attains the age of 18. The statute contains provisions which determine who is given the power to administer the decedent's estate, as well as who will have custody of the decedent's minor children, which determinations are not based upon merit or ability.

A typical Will involves all of the following:

  • Designation of the person who will administer the decedent's estate;
  • Designation of the person who will have custody of the decedent's minor children;
  • Direction as to how taxes owed following death will be satisfied;
  • Direction as to the recipients of the decedent's net assets, including whether those assets are immediately payable to the recipients or otherwise held by a third party to delay the payment to the recipients (i.e., a trust);
  • Provisions designed to reduce or eliminate income tax and death tax consequences;
  • Protection of the decedent's assets from the creditors of the intended recipients of those assets; and
  • Clearly defined terms and conditions designed to reduce or eliminate confusion and disagreements between the beneficiaries of the decedent's estate.

The Will of almost every client of Houston Harbaugh contains one or more trusts (i.e., testamentary trusts). These trusts can be designed to exist for as brief as a few years following the client's death or as long as the lifetime of the intended recipient of the applicable property. In almost all cases, a third party owns and manages the applicable property during the term of the trust for the benefit of the intended recipient. The reasons that trusts are used vary, but a trust is virtually required when the intended recipient is a minor. In addition, many clients believe that the intended recipients of their property are not mature enough to effectively manage that property. Moreover, a trust can protect the applicable assets from the creditors of the intended recipient; therefore, many clients choose to use a trust for this reason alone. Finally, in certain situations the use of a trust can reduce, eliminate or defer the imposition of death taxes (including generation skipping transfer tax).

Other clients create one or more trusts during their lifetime as an alternative to a Will (i.e., revocable trusts or living trusts). The content of, and the reasons for, these trusts are similar to testamentary trusts. However, a client who forms this type of trust and transfers assets of significant value into the trust during his or her lifetime can both reduce the fees paid to the local government after his or her death as well as simplify the administration process applicable to his or her estate.

Trusts can also be created during a client's lifetime to administer gifts of property, although these trusts must be irrevocable in nature and the client must be willing to give up the benefits of the property contributed to the trust. Frequently these trusts are funded with life insurance policies, real estate or business assets.

The law of most States empowers each of its citizens to create a health care power of attorney to allow him or her to appoint an agent to decide medical treatment issues when he or she is unable to make, understand or communicate such decisions. Pennsylvania's law permits the designation of such agents by each of its citizens as well as making advance directives as to the withholding of life prolonging procedures after he or she has been diagnosed with a medical condition that will soon result in death or is otherwise deemed to be intolerable (i.e., a living will).

Below is a list of estate planning questions frequently, or most recently, asked by our clients. Our short and succinct answers will give you an understanding of the subject, but we invite you to speak to any of our estates and trust attorneys for additional information.

If my grandchildren are my beneficiaries, will my estate be subject to a larger transfer tax when I die?
Answered by: David G. Henry

What are special needs trusts?
Answered by: Heidi Rai Stewart

Who Gets What When You Have "Yours, Mine and Ours"?
Answered by: John M Hartzell, Jr.

What is the gift tax annual exclusion?
Answered by: Shannon L. Crew

How does an irrevocable life insurance trust reduce estate tax?
Answered by: Rebecca A. Winge

When must I begin to take distributions from my retirement assets?
Answered by: David G. Henry

Is a family owned businesses exempt from PA Inheritance Tax?
Answered by: Shannon L. Crew

What are the benefits of a family limited partnership (FLP) to a landowner who also holds the Marcellus Shale oil/gas rights?
Answered by: John M. Hartzell, Jr.

Will the beneficiaries named in my Last Will and Testament receive all of my assets?
Answered by: Rebecca A. Winge

Should I add my child as a joint owner of assets?
Answered by: Shannon L. Crew

Should I make provisions for my pet in my Will?
Answered by: David G. Henry

Can a child be held responsible for a parent's medical expenses?
Answered by: Heidi Rai Stewart

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