For most people, there are many uncertainties associated with the creation of a Will. Deciding if you need a Will and eventually preparing one can raise a lot of questions and if left unanswered, can also lead to problems in the future. Below are a few of the most common questions associated with creating a Will:

1.  Should I have a Will?  The simple answer is yes.  All persons over the age of majority should have a Will.  If you fail to have a Will at your death, the Commonwealth, according to statute, will determine who your beneficiaries are.

2.  What does a Will actually do?  A Will provides for the disposition of your property.  Your executor (the person named in your Will to handle the distribution of your property) should hire a seasoned lawyer to probate your Will.  Once creditors, taxes (if any) and estate administration expenses are paid, the remainder of your property is distributed to your beneficiaries pursuant to the terms of your Will.

3.  What is the best Will for me?  A Will drafted by an attorney experienced in estate planning.  While there are a number of programs available on the internet to assist you in drafting a Will, oftentimes they are not state specific and leave out key provisions.

4.  If I am married, does my spouse need a Will as well?  Yes, most married couples hold large property (like a house) jointly and, upon the first to die, the property remains with the surviving spouse.  However, upon the second death, all of the assets will be in the surviving spouse’s name alone and, therefore, it is important that each spouse have his or her own Will.

5.  Can I set up a trust under my Will?  Yes.  Many clients create a trust under their Will for the benefit of their spouse and their heirs (called a testamentary trust).  A trust can also be set up outside the Will, which will save court involvement and fees related to same.

6.  How much do Wills cost?  It depends on the complexity of the estate planning issues involved.  Often, attorneys will create basic estate planning documents including a Will, a healthcare directive and a power of attorney, for a reasonable fee.  As stated earlier, it is important that you have a trusted estate planning attorney prepare your estate planning documents as other methods, including the internet, are unreliable.

Most family-owned business owners put off their succession planning because they don’t want to think about their retirement, disability or death, however, business succession planning should be a priority in every family owned business. A family owned business owner’s decision to eventually retire is not as simple as no longer going to the office. Key questions need to be answered before the family owned business owner can “leave” the business: i) will he or she have enough money at retirement; ii) who is going to own and manage the business; iii) how will ownership and management be transferred to new owners; and iv) should the business be carried on or sold to a third party.

A proper business succession seeks to alleviate or lessen the above issues by setting up a smooth transition between the family owner business owner and the future owners of the business. Business succession planning can be broken down into three distinct categories: i) ownership; ii) management; and iii) tax savings. It is very important, at the outset, to recognize that ownership and management do not have to be combined. A small business owner may decide to transfer equal ownership in the business to all of his or her children, even though only one child is involved in and manages the business. The tax aspect of a proper succession plan tries to minimize estate taxes at the death of the family business owner.

What follows is a list of tips that may assist you in your own succession planning:

  1. It is never too early to start planning. Unforeseen events, such as death and disability, often cause a rapid transition of the family owned business. The time to begin a succession plan is now. The longer the succession plan is in place, the smoother the transition of the business will be.
  2. Involve your family in the succession planning process. Involving your family in the succession planning serves two purposes: 1) it cuts down family discord later, as each family member knows where he or she “stands” relative to the business; and 2) it allows you to determine the best successor for the business. You may find, in your discussions with your family, that not every family member desires to be involved in the business, as they may have their own businesses or careers they desire to pursue. Involving your family also gives you the opportunity to do an honest assessment of the persons desiring to succeed you. While it may have been your great desire to leave the business to your first son or daughter, that person may not have the managerial skills and other skills necessary to lead the business.
  3. Train your successor(s). Your succession plan should not be simply about transferring ownership; it should also be about training your successors to properly execute your succession plan. There are few things as devastating as watching a business fail that you worked so hard to build. In executing any succession plan, adequate time must be given to train those who are eventually going to run the business.
  4. Seek outside assistance. You should seek an attorney, accountant and other professional advisors knowledgeable in the succession planning field to assist you with your succession plan.

Putting off business succession planning is a mistake. A proper succession plan can help ensure that your retirement needs are met and that the business you worked so hard to build will continue to flourish for years. 

A Power of Attorney allows you to designate another person to act on your behalf to handle financial, medical, or legal matters in the event that you are unable to do so, or unavailable. The person that is so designated is referred to as your “attorney-in-fact”.   There are different types of powers of attorney: a general power of attorney, a limited power of attorney, a durable power of attorney, a durable power of attorney for healthcare and a springing power of attorney. 

General Power of Attorney. A General Power of Attorney allows you to designate an individual to conduct transactions on your behalf, including banking transactions, transactions related to real estate, entering contracts and disposing of or otherwise exercising rights related to stock.

Limited Power of Attorney. A Limited Power of Attorney allows an individual to act in your place only for a specific situation. A Limited Power of Attorney is often used in real estate transactions when one of the parties is unavailable.

Durable Power of Attorney.  A durable power of attorney allows your attorney-in-fact to open bank accounts in your name, sign checks for you, make gifts on your behalf, run the daily affairs of your business, and make other very important decisions on your behalf.  A durable power of attorney is nearly identical to a regular power of attorney, with one big difference: a durable power of attorney remains effective even after you suffer a disability. A regular power of attorney ceases to be effective if you become disabled.

Durable Power of Attorney for Healthcare. A Durable Power of Attorney for Healthcare grants your attorney-in-fact the right to make decisions regarding your medical care in the event that you are unable to do so due to unconsciousness or mental incapacity.  (The Durable Power of Attorney for Healthcare can be incorporated with the Durable Power of Attorney (for financial and legal matters) if you desire to use the same attorney-in-fact for both, or can be two separate powers of attorney if you desire to have separate attorneys-in- fact).  

Springing Power of Attorney. A Springing Power of Attorney allows you to designate a time in the future (most often on disability) when the Power of Attorney will become effective. A Springing Power of Attorney is often used in the event that an individual does not feel comfortable with immediately having someone able to act on his or her behalf as attorney-in-fact. 

A Durable Power of Attorney is preferred. A properly drafted Durable Power of Attorney will help protect you in the event that you suffer an accident, injury or illness that leaves you unable to handle your personal, legal, medical or financial affairs. In the event that you suffer an accident, injury or illness that leaves you unable to handle your affairs, and you do not have a properly drafted Durable Power of Attorney in place, it is likely that your loved ones will need to go to court to have a guardian appointed for you, which can be very expensive.

There are three principal types of tenancies related to the ownership of real estate. Perhaps the most popular, and most familiar, is the joint tenancy. If two persons own a property as joint tenants, upon one person’s death, the other person automatically owns all of the interest in the property. There is no limit on the number of persons that can hold property as joint tenants. If a husband and wife own a property together and add their child to the deed, each will own a one-third interest in the property. Upon one of their deaths, the two surviving persons will each own a one-half interest in the property.

In the event that a joint tenancy owner is sued, and a judgment is entered against that owner, the owner’s interest in the property is subject to attachment by the creditor. In addition, any co-owners can bring an action to divide the interest in the property, and attempt to force the other owners to sell their interest.

A tenancy in common is where each owner of the property has an undivided interest in the whole of the property. However, upon the death of any owner, his or her share will pass to his or her decedents by will or by intestacy. Unlike a joint tenancy where each owner owns an equal portion of the property, tenancies in common do not require equal ownership. For example, in a tenancy in common, there could be three owners with one owing 50%, one owning 30% and one owning 20%.

A form of ownership allowed in many states is the tenancy by the entirety. In this type of ownership, only a husband and wife may own the property. The advantage of a tenancy by the entirety is that, in the event that either the husband or wife is sued (individually), a creditor may not take action against the property while it is held jointly by the husband and wife. In addition, neither the husband nor the wife may divide the ownership by deeding his or her interest to another person. Further, in order for a mortgage to be placed on the property, both the husband and wife must sign the loan documentation.

In some states, if there is no tenancy stated, there is a presumption that the owners are tenants in common, and if one person dies, then his or her interest in the property will need to be probated, even if the decedent desired for the property to pass to the surviving co-owner (including the spouse).

As you can see from the above, tenancy should not be taken lightly. We recommend a careful review of all property deeds on a regular basis to ensure that the properties are properly held in accordance with your desires.

A Will is more than an estate planning document used to distribute property. One of the most important reasons to have a Will is to appoint guardians for your minor children. So often parents delay their estate planning because they cannot decide which persons will be the best guardian for their minor children. If the parents should die without a Will appointing guardians for their minor children, a judge may have to make the decision as to the guardian (this should be avoided!).

Guardianship lasts until the age of majority (eighteen). Guardians are entrusted with the care and protection of the minor children, and oversee the childrens’ daily affairs (much like a parent). Guardians are also entrusted with medical decisions and other important decisions, including those related to education and finances.

Guardianship of children is separate and apart from the guardianship of one’s assets.  In fact, often parents desire to divide the responsibility of guardianship of the assets, with guardianship of the children. The guardian of the assets makes the decisions relative to investments, distribution of assets, etc. In more complex cases, a bank or other financial institution may be appointed as guardian of the assets, or, at the very least, co-guardian.

In determining the most appropriate persons to act as guardians for your minor children, it is important to discuss the most important issues with the proposed guardians prior to their appointment. Upon discussion, you may find that the proposed guardians do not desire to be placed in such a role due to age, health, or difficulties in their own lives that would make it difficult for them to do so. It is equally important that the persons you select to be guardians for your minor children continue to desire to do so long after your Will is drafted. In the event the guardians do not desire to serve on your death, a court will most likely have to decide the guardianship. For this reason, and also the potential that the appointed guardians may be unable to serve due to death, disability, or otherwise, it is always best practice to name backup or contingent guardians in the event that the first named guardians are unable to serve.

Clients often ask what happens if they die without a will. It is a common misconception that if you die in Pennsylvania without a will that everything will be left to the Commonwealth. Because of the statutory scheme that Pennsylvania has in place, it is a rare occurrence that anything will be left to the Commonwealth. 

The Commonwealth of Pennsylvania has developed what is commonly referred to as the laws of Intestate Succession. A person who dies without a will in Pennsylvania is said to have died “intestate.” The laws of Intestate Succession govern the disposition of a person’s property if he or she dies without a will, or if all of his or her property is not disbursed pursuant to a will. The Pennsylvania laws of Intestate Succession are designed to protect both the surviving spouse and children (if any). In addition to providing for spouses and children, the Pennsylvania laws of Intestate Succession may also provide for a decedent’s (a person who dies) parents, siblings, aunts, uncles, and their children and grandchildren under certain conditions.

The starting point is if the spouse of the decedent survives the decedent, the amount of property that the spouse ultimately receives is dependent upon which other relatives survive the decedent. So, who takes property and other assets pursuant to the Pennsylvania law of Intestate Succession?  The law can be summarized as follows:

No Surviving Children
 If the decedent is survived by his or her spouse and has no surviving children or parents at the time of death, the surviving spouse receives the decedent’s entire estate. If the decedent is survived by his or her spouse and one or both parents, the surviving spouse is entitled to the first $30,000.00 of the estate, plus one-half of the remaining estate.

Surviving Children 
If the decedent is survived by his or her spouse and has surviving children, all of whom are also the surviving spouse’s children, the surviving spouse receives the first $30,000.00 of the estate, plus one-half of the remaining estate. However, if the decedent is survived by his or her spouse, and at least one of the decedent’s surviving children is not also the surviving spouse’s child, the surviving spouse is limited to one-half of the estate. The reason that the surviving spouse receives less if one of the surviving children is not also a child of the surviving spouse is because the law presumes that a surviving spouse will care for his or her own children, but not necessarily those of the decedent. 

No Surviving Spouse
What happens if the decedent is not survived by his or her spouse or the surviving spouse is not entitled to take everything in the estate? Pennsylvania’s Intestate Succession law provides for distribution of the estate in the following order:  1) children; 2) parents; 3) brothers, sisters and their children; 4) grandparents; 5) uncles, aunts and their children and grandchildren; and 6) the Commonwealth. 

It is important to note that will substitutes such as joint tenancy property, life insurance payable to specific persons, bank accounts with specific beneficiaries and the like will pass in accordance with their terms and will not be a part of the decedent’s estate to be distributed pursuant to the laws of Intestate Succession.

It goes without saying, that the best way to plan for the future and adequately provide for your loved ones is to have a will and other estate documents prepared by a trusted professional.

Melvin Simon, together with his brother and business associate Herbert Simon, built a business empire upon the then novel concept of the shopping mall.  The company that he and his brother founded – Simon Property Group, Inc. – is now the largest mall owner on the United States with over 300 shopping malls in its property portfolio.  Predictably, building a business empire of this magnitude made Melvin Simon a very wealthy man, and at the time of his death, his estate was valued at approximately $1 billion.  It is what occurred just prior to and after Melvin’s death that draws attention to common fodder for Will contests for estates of all sizes.

Seven months prior to his death and suffering from cancer, Melvin Simon altered a Will that was then in effect, granting a greater portion of his estate to his wife, Bren Simon,  diminishing the share of his estate that would be distributed to his adult children from a previous marriage.  When Melvin Simon made these final changes to his Will, he was in the company of his wife, an attorney, and a long-time financial advisor.  In Melvin’s weakened state, he required the aid of his financial advisor to guide his pen and sign his name on his revised testamentary document.

Not surprisingly, after Melvin’s death, a faction of his family consisting of his adult children viewed Melvin’s late change to his Will with suspicion, and through Deborah Simon, Melvin’s eldest daughter, sought to contest Melvin’s last Will in a legal contest.  Citing the help given to Melvin by his financial advisor in signing his name, Deborah Simon claimed that her father lacked the capacity to make a Will and was the victim of duress, presumably perpetrated by her step-mother and Melvin’s financial advisor.

Will contests very often arise from situations, like the one involved in Melvin Simon’s estate, where a family becomes factionalized by events before a decedent’s passing.  This factionalization, and the resulting desire to claim a greater share of an inheritance or deprive members of opposing family factions of their inheritance can often motivate scrutiny of a decedent’s Will and result in legal proceedings to contest a Will or series of Wills.

In Pennsylvania, those challenging a Will bear a significant burden in order to have a Will adjudicated invalid.  First, the contestant must establish standing to contest the Will – meaning that the party seeking to invalidate the Will must show that his or her interest in the decedent’s Estate would be affected by probate of that Will in place of a prior Will or intestate distribution.  Next, the contesting party must prove – by the standard of clear and convincing evidence – that the decedent lacked testamentary capacity when the challenged Will was made, that the decedent was the victim of undue influence, or both.  Note that adequate testamentary capacity may be found even if the decedent suffered from a debilitating disease or would not have the capacity to enter a contract at law – the decedent need only have had an intelligent knowledge of the property he possessed and intelligent knowledge of how he desired to dispose of his property upon death.  Undue influence is in the nature of fraud, and a contestant must show that the decedent’s Will was the product of coercive behavior and a level of control by another person that destroyed the decedent’s free agency. 

Proving lack of testamentary capacity or undue influence by clear and convincing evidence is a very difficult task.  Had the Melvin Simon Will contest been subject to Pennsylvania Law, the act of guiding the decedent’s hand at the Will signing – without more – would not constitute sufficient evidence to invalidate Melvin’s Will.

As many people are now aware, Congress has (at least for now!) let the federal estate tax die. The federal estate tax is scheduled to come back in 2011 and in future years after that. In future years, estates worth as little as $1 million dollars are scheduled to be taxed (compared to estates worth more than $3.5 million dollars in 2009). It is still believed that at some point this year Congress is going to reinstate the federal estate tax, perhaps retroactively (there is speculation that the $3.5 million dollar exemption from 2009 will continue; of course most people thought Congress would never let the federal estate tax expire in the first place). Due to the current repeal of the federal estate tax, there are two issues that you may have in your current will that you should review with your trusted estate planning advisor:

Issue 1: Your Estate Plan is Written to Leave Too Much to Your Children and Nothing to Your Spouse.
Some estate plans have been written to leave as many assets as possible to the testator’s (a person who makes a will) children (or to a trust for the benefit of the testator’s children) without triggering a federal estate tax, with the remainder going to the testator’s spouse. If a testator died in 2009, $3.5 million dollars would have passed (estate tax free) to the testator’s children (or the trust), with the balance going to the testator’s spouse. As of today, the current federal estate tax exemption is unlimited, therefore, a testator dying today would leave his or her entire estate to his or her children (or the trust), leaving nothing to his or her spouse; this is clearly an unintended consequence of the expiration of the federal estate tax for many people.

Issue 2: Your Estate Plan is Written to Leave too Little to Your Children
This issue is not as serious as the one above, but may still concern some people. If your estate plan was written in a specific year to leave the then current federal estate tax exemption to your children (i.e. you had your will drafted in 2009 to leave $3.5 million dollars to your children), it was a good plan while the federal estate tax was in place, as you could leave the specified federal estate tax exemption amount to your children, with the balance going to your spouse. Now, with no federal estate tax, you may desire to leave even more to your children, so it may be time to review your will.
Even if you do not have the above issues in your current will, it is important to have it reviewed by an estate planning professional. Estate planning done over the years often considered the then current federal estate tax. If Congress does not act this year, the federal estate tax will be $1 million dollars in 2011, an amount that will require additional estate planning for many people.

As it is unclear what Congress will do, if anything, about the expiration of the federal estate tax, please check back often for further updates as we move forward in 2010.

In order to have an effective estate plan and properly provide for your heirs, it is vital that you avoid the following estate planning mistakes:

  1. Not Having a Will. Without, at the very least, a basic will, your assets will pass to your heirs according to the Commonwealth’s laws of intestacy, which effectively means that your personal desires with respect to your assets may not be followed upon your death.
  2. Not Planning for Incapacity. As we continue to live longer due, to among other things, better medical care, we may reach a point where we lack the capacity to make important health and financial decisions. It is vital that you have a power of attorney in place allowing your appointee to make health and financial decisions on your behalf.
  3. Failing to Plan for Children with Special Needs. If a child with special needs is not planned for properly, the child risks being disqualified from receiving Social Security benefits, which means that his or her care will have to be funded by other means; in this instance a special needs trust may be appropriate.
  4. Failing to Business Succession Plan. With a well drafted business succession plan, you can ensure that your business is in the control of those you choose upon your death, disability, or some other life altering event, increasing the likelihood that the business will prosper for many years to come.
  5. Failing to Prepare for Minor Children. If you have minor children, you should amend your will or have one prepared that nominates personal guardians for your children in the event that you and your spouse die before your children reach the age of 18. In the event that you fail to make a will that designates personal guardians for your minor children, the court will decide who the personal guardians of the children will be.
  6. Making Improper Beneficiary Designations. As discussed in one of my prior articles, in Pennsylvania, beneficiary designations found on bank accounts, life insurance policies, IRAs and other investment accounts control over your desires for the disposition of the assets found in your will. It is imperative that you check your beneficiary designations on these accounts on a regular basis to confirm that they coincide with your estate planning desires.
  7. Not Reviewing Your Estate Plan. As previously discussed, it is recommended that you review your estate plan after all life changing events and, at the very least, once a year.
  8. Creating You Own Estate Planning Documents. While it is very possible that the estate planning documents you prepare on your own or find on the internet may be enforceable, nothing can replace the advice of a competent legal professional in assisting you with your estate planning, as estate planning is often more complex than you may think.  

The Internal Revenue Service announced in late October that the annual gift tax exclusion for 2010 will be $13,000, the same as in 2009. The annual exclusion allows every individual to give $13,000 to each family member or other beneficiary without any transfer tax implications. If only one spouse makes a gift to an individual, the donor and his or her spouse can elect to treat a gift to an individual as though each spouse made one-half of the gift to the individual, effectively allowing a married individual to double the benefit of the annual exclusion to $26,000 if the non-donor spouse makes no annual exclusion gifts to the done in the same calendar year.

Given the above, the potential estate tax savings offered by the annual gift tax exclusion can be substantial. For example, suppose a mother and father with a large estate have two married children and four grandchildren. Mother and father could transfer $26,000 to each child and grandchild ($156,000 annually) without gift taxes. After five years, the gifting will have reduced mother and father’s combined estate by $780,000.