Recently I attended a wedding. At our table, two of the four couples were widowers or widows who had re-married after the death of their first spouse. Since both widowers were former estate planning clients and only one had consulted with me about revisions to his Will in light of the second marriage, I wondered how often this occurs.

Second marriages, particularly when both spouses have children from their first marriage, presents unique and difficult challenges. Generally, both spouses want to make sure the survivor is adequately provided for during the remainder of their life. However, they also want to make sure their children receive any remainder. There are solutions to the problem, but they require a comprehensive estate plan.

The problems that arise from failing to get competent estate planning advice are illustrated by the recent decision in In Re: Estate of Harold E. Root, Deceased, No. 1684 MDA 2014, decided August 28, 2015 by the Pa Superior Court.

Mr. Root was married Twenty-Seven (27) years to his second wife. He had two (2) children from a previous marriage. He opened two investment accounts utilizing the “payable on death” options naming his children as the beneficiaries. After his death, his wife exercised her right to elect against the Will and wanted to include the investment accounts. His Will left the second wife nothing. The conventional wisdom in the legal and investment community is that the spousal right of election (which is one third of the estate) applies only to probate assets. The “payable on death” option makes the investment accounts non-probate.

The Decision does not provide any insight into why Mr. Root may have utilized the “payable on death” option, but it is fairly clear he wanted those accounts to pass to his children and not his wife.

Unfortunately for Mr. Root’s children, the Superior Court decided the investment accounts were subject to the surviving spouse’s right of election. Therefore, his second wife received one third of the account.

The Decision emphasizes the importance of not necessarily relying upon what appears to be a simple solution to a complex problem and making sure you know the impact of your choices.

9.1.15

As we become increasing dependent on digital assets to access banking and investment accounts, store personal, photographs and “communicate” via Facebook, Twitter and other online Media, it becomes important to consider our “digital assets” in our estate plans.

Your Will will generally indicate which of your heirs are to receive certain items of personal property. Your digital assets, i.e., email, online bank and investment account records, social media, electronic files and digital media (documents and photos), are less tangible and often overlooked.

A number of companies have begun to help individuals plan for the disposition of digital assets. Consumer Action, a non-profit educational organization, published a digital Estate Planning Guide (2015) that surveyed twenty (20) digital estate planning services. The survey reviews account features, post mortem (after death) procedures, security features and cost. The guide is available at http://www.consumer-action.org/downloads/English/Digital Estate Planning Guide.pdf.
June 23, 2015

For families fortunate enough to enjoy a Family Vacation Home, the emotional attachment engendered by memories of summers or holidays spent with their family members can make long term planning difficult. If the current owners truly want successive generations to have the same benefits they enjoyed prudent planning is required.

During my years of practice, I have assisted numerous families grapple with the thorny issues presented by their desire to insure the family vacation home is available to be shared and enjoyed by their children, grandchildren and successive generations.

The planning process begins with a discussion of the family vision. The current owners must determine how long they want the home to remain in the family. Obviously, the planning is more complicated for a multiple generation goal than a one or two generation goal.

The current owners need to consider a critical and objective analysis of the family dynamics. Sharing control is difficult in the best of circumstances. In dysfunctional families, it is impracticable.

A successful plan must include a realistic financial plan. When there are sufficient resources to endow the property, planning is much easier. If the property cannot be sufficiently endowed to make it self-sustaining it is particularly important that financial considerations be carefully considered in the event successive generations are likely to have very different abilities to contribute to the cost of maintenance and upkeep of a family vacation home.

A shared vacation home requires a well thought out written document that provides clear guidelines to determine who and how critical decisions will be made, including allocation of use and expenses. Particular care must be given to providing the successive generations the flexibility to adjust the written guidelines. What works well for one generation may not work well for later generations.

For many people blessed with a cherished family a vacation home, wrestling with the difficult issues surrounding the desire to preserve the property for successive generations is overwhelming. However, in the absence of prudent planning, it is more likely that not that their grandchildren and great-grandchildren will not have the opportunity to enjoy.

5/26/15

Most clients like to focus on the big picture,  which in Estate Planning generally means their most valuable assets. Unfortunately, they frequently overlook or fail to address the division of their personal property which can include family heirlooms or other items with significant sentimental value. The division of these items has the potential for significant conflict and acrimony. Since these items are generally divided and distributed early in the estate administration process, dividing these items can result in hard feelings that last through the entire estate administration.

There are two (2) methods generally utilized to address the division of personal property.
Frequently the Will will provide an opportunity to create a supplemental document called a Personal Property Memorandum, that specifies the distribution of important items of personal property. This document does not need to be executed with the same formalities as the Will and permits the client to amend or change the Memorandum whenever necessary. Although this method could be ignored by a Court in the case of a dispute, in my experience they are generally accepted by Courts and given great deference.

The Second method is to formally incorporate the list indicating to whom personal property is distributed in the Will. This requires either a Specific Bequest as part of the Will itself or a list that exists when the Will is executed that is attached to and incorporated into the Will.

To the extent that you make the difficult decisions regarding who gets Grandma’s china or engagement ring, you will increase the chance that your children or heirs have a good relationship after you are gone.

4.16.2015

Frequently clients are reluctant to make institutions such as a bank with a trust department the Trustee of a Trust for their beneficiaries.

There are many sound reasons to consider an institutional trustee. First and foremost, they are professionals. This means that they have the experience and expertise to not only manage the trust assets, but to deal with beneficiaries who may think they are “entitled”, in the negative sense, and attempt to procure more from the Trust than you intended. This is not a situation you want a family member, particularly a family member who is also the guardian of a minor, to deal with on a regular basis. Second, there may be some reluctance because a fear or concern that the beneficiaries will be stuck with a Trustee that is not competent or sympathetic. Maybe the bank will be bought or merged and the beneficiaries encounter difficulties. There is also a feeling that a relative or individual will be more personally involved, and should therefore be at least co-Trustee.

When any of these concerns about an institutional trustee are raised, the client should consider a Trust Protector. A Trust Protector is an individual who can be given the power and authority to oversee the Trustee, including the power to remove and replace the Trustee if the Trust Protector feels it is necessary or prudent.

There are numerous other powers that can be given to the Trust Protector, including the ability to modify or amend the Trust due to changes in the law (including tax codes), and veto of discretionary distribution and investment decisions.

The Trust Protectors function will be defined by the language of the Trust and adds a layer of protection. Usually a person familiar with the Grantor’s long-term financial and personal goals is selected to serve as the Trust Protector. The Trustee Protector creates a balance of power between the Trustee and Beneficiaries to insure the Grantor’s intent is realized.

4.8.15

People frequently create POD  (Payable On Death) Bank  Accounts   for a variety of reasons.

A POD  Bank Account remains the property of the individual who creates the account. They have complete control over the account during their life. In theory, upon their death the balance in the account becomes the property of the named beneficiary.

This type of account is particularly popular for people who, for whatever reason, want to avoid probate.

Attorneys in Pennsylvania who are members of the Pennsylvania Bar Association Probate, Estates and Real Property Law Section have the opportunity to participate in a listserv where attorneys may post questions or comments and get responses from other attorneys who practice in the same area of law.

Recent posts regarding POD Accounts highlighted the misconception among many experienced attorneys regarding POD Accounts.

The conventional wisdom is that administration expenses and debts are payable from probate assets only. Probate assets are assets which are controlled by the Personal Representative during the administration of an estate. Therefore non-probate assets such as POD Accounts should pass free and clear of claims for administration expenses, debts or spousal claims.

One frequent commentator on the listserv pointed out the decision in In Re Estate of Stevenson, 436 Pa.Super.Ct576, 648 A.2d 559 (1994) which held that “In Trust” Accounts like POD Accounts are subject to the claims of creditors and for administrative expenses if the probate assets were insufficient to satisfy such claims.

This situation emphasizes the need to thoroughly review all your assets and make sure that probate and non-probate assets are coordinated so your testamentary plan is achieved.

(2/17/15)

Recently I had the opportunity to attend a seminar given by Jeffrey Levine that was sponsored by Bruton Financial Partners (www.brutonfinancial.com/).

Jeffrey Levin, CPA, is an Ed Slott and Company IRA Technical Consultant (https://www.irahelp.com/about-us/our-team/ira-technical-experts) . If you are not familiar with Ed Slott (https://www.irahelp.com/aboutEdSlott.php)  he is a nationally renowned expert on IRA’s.

Bruton Financial Partners is a locally based financial planner located in Downingtown who is a member of the Ed Slott Master Elite IRA Advisor Group (https://www.irahelp.com/EliteGroup).

Mr. Levin stops in the area twice a year to update attorneys and CPA’s on current developments in the IRA area. He will generally review recent cases and IRS rulings.

It is remarkable how many people suffer unintended consequences from what should be simple transactions.

What I take away from each of Mr. Levine’s presentations (I have attended several) is the importance consulting with a qualified individual BEFORE taking any action with respect to your IRA’s, Roth IRA’s, 401-K, 403-B or any other similar qualified retirement plan. When dealing with such plans, it is generally not a “that cannot be done” issue, it is more likely a “this is the way you have to do it” situation.

Mr. Levine emphasized what I learned many years ago when I took tax courses in law school, tax laws are not always logical.

It is generally recommended tat you seek the assistance of your attorney whenever there is a significant change in your personal circumstances. Retiring or making a change to your retirement investments would warrant a review of the proposed changes.

(2.10.15)

On July 2, 2014, then Governor Corbett signed into law Act 95 of 2014. This law made significant changes to the statutes that govern Powers of Attorney in Pennsylvania. The majority of the new statutory provisions were effective January 1, 2015.

The first question many people ask is whether Powers of Attorney signed before January 1, 2015 are still valid. Act 95 included a specific provision “grandfathering” all existing Powers of Attorney. However, that is not the end of the discussions. First, an older “grandfathered” POA may be valid but not give your Agent the full authority to act you would like the Agent to possess, particularly with respect to gifting.

Secondly, as institutions like banks and brokerage firms become familiar with POA’s meeting the requirements of Act 95, they are going to become reluctant to accept older POA’s. Eventually you will be successful in convincing them to accept the older POA, but the frustration, aggravation and delay of doing so at a time when you urgently need to accomplish something is not worth saving a few dollars by relying upon an outdated POA.

This type of change in the law is one of the reasons I recommend that you review your Last Will and Testament, Living Will (Advanced Directive) and Power of Attorney at a minimum every five (5) years.

(2/4/2015)

Frequently people will use non-probate mechanisms, like beneficiary designations, to direct non-probate assets to specific heirs. This a very popular technique for people who are in second or subsequent marriages and have children from the first marriage when they want their children instead of their spouse to inherit some portion of their estate.

The Orphan’s Court in Berks County was recently asked to determine whether a POD (payable on death) account, which was directed to the children of a prior marriage, was subject to the second spouse’s right of election under Section 2203(a) of the Probate, Estates and Fiduciary Code.

In Pennsylvania, a spouse has the right to an Elective Share, which is one third (1/3) of any “property conveyed by the decedent during his lifetime to the extent that the decedent at the time of his death had a power to revoke the conveyance or consume, invade or dispose of the principal for his own benefit” during his lifetime.

The purpose of this provision is to prevent a spouse from being disinherited.

The Court concluded that the POD accounts are subject to the spouse’s right of election. Therefore, unless the spouse has executed a Prenuptial or Post-nuptial Agreement, waiving the right to an Elective Share, the designation of individuals other that the spouse could be partially defeated by the surviving spouse.

Of course, I hear “my spouse would never do that” all the time when this principle is explained to clients. But it may not be the spouse. If your spouse becomes incapacitated it may be their Agent (if they have a durable power of attorney) or guardian that exercises the right to the Elective Share, particularly if the Agent is a step-child that is not happy about sharing the total estate with children from the previous marriage.

The case emphasizes the importance of thorough and complete analysis of a couple’s particular circumstances, assets and goals in the estate planning process.

The case in question is Rood Estate, (O.C. Div. Berks), 5 Fiduc. Rep. 3d 15 (2014).

(1/28/2015)

Sopranos star James Gandolfini died quite young recently while in Italy.  There are several significant issues regarding his Last Will and Testament that will serve as points of discussion between estate planning attorneys and their clients in the future.  For a brief discussion, go to America Academy of Estate Planning Attorneys to learn more.