Assuming you have listened to the many presentations voicing the idea you should avoid probate, you might have decided to jointly title all of your assets or make all your accounts payable on death or transfer on death believing that these actions avoid all complications. You anticipate you will avoid inheritance taxes. As a spoiler alert, this is not necessarily true.
Probate means simply that your executor or personal representative records your will with the Register of Wills and distributes assets and pays bills as directed in the will. There is a process she follows that, depending on the circumstances, may or may not be complicated.
You might have even spoken to a customer service representative at your bank who advised you should add one of your children to the title of all of your accounts. You might be shopping for a revocable living trust also to avoid probate or maybe to handle a more complicated estate where there may be children by a prior marriage.
All of these actions have consequences; some positive, some not so much, depending on the circumstances. As with almost all legal questions, the answer is ‚Äúit depends‚ÄĚ and this is where the conversation begins.
The first thing you should know is that avoiding probate does not necessarily mean you will avoid Pennsylvania inheritance taxes. If your beneficiary is someone other than your spouse and the assets are something other than life insurance, chances are inheritance tax will be owed even if your assets do not pass by will. Your probate estate and your taxable estate are not the same thing. Some assets like life insurance could go to your probate estate and not be taxed. Others like payable on death accounts could go directly to beneficiaries and still be taxed.
Think about that. Your beneficiary might receive an asset and then learn inheritance tax is still due. There is such a designation as ‚ÄúInheritance Tax only‚ÄĚ or ‚ÄúJoint Property only‚ÄĚ with the Register of Wills even without probate.
Living trusts are another matter. I was asked recently, ‚ÄúThere is a living trust and there is also a will. How does that happen? I thought that living trusts avoid wills.‚ÄĚ The will that is typically drafted along with a living trust is called a ‚Äúpour-over will‚ÄĚ and pours over into the living trust assets that are titled in individual name. A living trust may be appropriate in a given case.
So what is the answer? As in so many areas, the answer is unique to you and to your estate. If you have followed the typical route, you may have proudly completed your will, financial power of attorney, health care power of attorney and living will or advance health care directive and feel that everything has been taken care of. On the other hand you may have opted for a living trust. In either case you might believe you have completed everything necessary to establish your estate plan.
Having completed your estate documents, you might believe that is enough. Still, you have one very significant step to take. You need to coordinate your estate plan ‚ÄĒ both the probate assets and the non-probate assets and see how that sorts out. You should have an elder law or estate attorney who asks you the ‚Äúwhat if‚ÄĚ questions: What if there is not enough money in your probate estate to handle the inheritance tax? What if inheritance goes to someone who is not prepared to handle it?
You must examine your assets to see how they are titled and also examine your beneficiary designations for life insurance and retirement funds ‚ÄĒ IRA‚Äôs, 401(k)‚Äôs, 403(b)‚Äôs. If you have not considered these, your estate plan is incomplete and your assets may be directed in a very different manner than you expected on your death.
The property owner should know ‚ÄĒ ‚ÄúWhy am I doing this?‚ÄĚ and ‚ÄúWhat are the results both during my lifetime and when I die?‚ÄĚ
When considering your estate plan it is best to play out all the possibilities with all the assets including those that pass by the will and those that do not pass by the will and get expert help if the questions cannot be easily answered.