• Misinformation, Misunderstandings, and Mistakes
  • November 4, 2008 | Author: John B. Whalen
  • Law Firm: Whalen, John B., Jr. - Wayne Office
  • The Documents

    • There are four primary documents that tend to form the foundation of most good estate plans. These documents are a Power of Attorney, an Advance Directive for Health Care (often referred to as a Living Will), a Will, and a Trust. Although each document has a different purpose, each document designates someone who is responsible for carrying out the wishes set forth in the document. I refer to these people - those in charge - as "The Bosses. The Bosses Each document has a boss who is in charge of carrying out the terms of that particular document. Under Pennsylvania law, the proper terms for the bosses are an Agent (under a Power of Attorney), a Surrogate (under an Advance Directive for Health Care), an Executor (under a Will), and a Trustee (under a Trust). Although a technical knowledge of these terms can be useful, it is not the point of this article. The focus is to illustrate that an Agent, a Surrogate, an Executor, and a Trustee are just the bosses of that respective document.

    The Powers

    • Each boss has powers, and these powers can be summarized very simply. An Agent (under a Power of Attorney) can help manage all of your affairs; a Surrogate (under an Advance Directive for Health Care) can execute your end of life decisions; an Executor (under a Will) can administer your Estate; and a Trustee (under a Trust) can monitor and manage your Trust. Again, and although a technical knowledge of the parameters of these various powers can be useful, it is not the point of this article. The focus is to illustrate that an Agent, a Surrogate, an Executor, and a Trustee can generally possess broad powers to act for you under that respective document.

    The Traits

    • Although all four of the documents require bosses that possess certain traits or characteristics in order for that document to be as effective as possible, I have experienced that two traits should be inherent in all of the bosses of all four of the documents: ability and willingness. Although the bosses of each of the documents should also possess additional traits for that particular document to be effective (all of which shall be addressed later), unless your boss is able and willing to act on your behalf, your desires and wishes may not be followed.

    The Documents

    • There are four primary documents that tend to form the foundation of most good estate plans. A succinct review of each, and the misunderstandings of each, follows.
    • A Power of Attorney can grant your boss (Agent) the ability to control all of your affairs. It is a very powerful document; it can permit your Agent the broadest of powers to do anything which you could have done (i.e., give all your money away), but yet, inherent in these broad powers, is the reality that you Agent may actually do anything which you could have done (i.e., give all your money away). A Power of Attorney can be durable (effective after you are incapacitated), current (effective now), or springing (effective upon the happening of a future event (i.e., the decision by your treating physician that you can no longer act for yourself). A common misconception is that a Power of Attorney eliminates your ability to act for yourself. Quite to the contrary, and until you are deemed incapacitated, a Power of Attorney should properly be viewed as a shared authority - you still retain all of the powers and decision making ability that you possessed before you executed the Power of Attorney. With respect to additional traits that your boss should possess (in addition to being able and willing), I have found that your boss (Agent) should also be levelheaded and familiar with your affairs.
    • An Advance Directive for Health Care can grant your boss (Surrogate) the ability to execute your end of life decisions and decide whether life-sustaining measures should be used. The common misconception of this document is when it will become operative. There are two triggers that must occur before your Surrogate is even given the option of acting: the first is that you must be unable to communicate your own decisions, and the second is that you must have been diagnosed with a terminal condition or as being permanently unconscious. With respect to additional traits that your boss should possess (in addition to being able and willing), I have found that your boss (Surrogate) should also be stoic and strong.
    • A Will can grant your boss (Executor) the ability to administer your Estate. The most common misconception that surrounds a Will is the process called probate and the seemingly universal theme that it should be avoided at all costs. Again, and virtually to the contrary, the word probate is merely the Latin infinitive verb that means to prove, and, although some states do have onerous probate procedures (where the avoidance of probate may be a prudent strategy), Pennsylvania is not one of those states. In fact, probating a Will in Pennsylvania is very simple. Also very important is the fact that a Will only disposes of the assets (1) that you own in your individual name alone and (2) that possess no beneficiary designations (i.e., no tags). Consequently, items owned jointly with another are controlled by property law (not Will law) and will pass to the joint owner(s) at your death, and items that have beneficiary designations will be controlled by contract law (not Will law) and pass to the designated beneficiaries at your death. With respect to additional traits that your boss should possess (in addition to being able and willing), I have found that your boss (Executor) should also be honest and diplomatic.
    • A Trust can grant your boss (Trustee) the ability to monitor and manage your Trust. The types of Trusts can be viewed simply as being either (1) revocable (which are created during your life and which become irrevocable upon your death), (2) irrevocable (which are created during your life and become irrevocable upon their creation), and (3) and testamentary (which are created under your Will and which become irrevocable upon your death. Vital is the fact that they can be extremely useful for individuals with Special Needs (i.e., autism, addictions, minors, etc). With respect to additional traits that your boss should possess (in addition to being able and willing), I have found that your boss (Trustee) should also be attentive and decisive.

    The Taxes

    • Another area of misconception in the estate planning area is the taxes that are imposed on value of your assets on the date of your death. Basically, two death taxes can be imposed on Pennsylvania residents: the Federal Estate Tax and the Pennsylvania Inheritance Tax. Unlike the income tax, which is very descriptive in its title as it is imposed upon your income, the phrases Estate Tax and Inheritance Tax are misnomers that may tend to belie the actual fact that these are taxes imposed by virtue of your death. The Federal Estate Tax begins at a wealth threshold. If you possess less than the wealth threshold at your death, the federal estate tax will not be applicable. If it is applicable, the tax is imposed on a percentage scale according to the amount of wealth (i.e., potentially 47% of the value of your assets above the current $1,500,000. 00 wealth threshold). This threshold has been, is, and is scheduled to continue to increase. In 2005, the threshold is $1,500,000. 00; in 2006, 2007, and 2008, the threshold is $2,000,000. 00; in 2009, the threshold is $3,500,000.00; in 2010, the Federal Estate Tax is scheduled to be eliminated; but in 2011, the Federal Estate Tax is scheduled to return with a threshold of $1,000,000.00. The Pennsylvania Inheritance Tax has no wealth threshold and starts immediately. It is imposed on a percentage based on the relationship of the beneficiary. Spouses and Charities are taxed at a 00.00% tax rate, lineal descendants are taxed at a 4.50%, brothers and sisters (but not brothers-in-law nor sisters-in-law) are taxed at a 12.00% tax rate, and everyone else is taxed at a 15.00% tax rate.

    The Pointers

    • In conclusion, there are four basic pointers for all who are faced with estate planning.  First - title you assets with the utmost care (i.e., joint ownership, beneficiary designations, etc.).  Second - with respect to transferring your assets (i.e., re-titling, gifting, etc) during your lifetime, get advice before you do so (before the bombs go off).  Third - always have your estate planning documents up-to-date because laws, taxes, and people change.  Fourth - and most importantly - pick your bosses very carefully.