Estate Planning from A to Z
The Essentials for Drafting a Will, Trust, or Other Estate Documents.
Originally presented and prepared by Charles Hadad, Partner of the Estates and Trusts Practice Group in a Continuing Legal Education for the National Business Institute on March 28, 2023.
Create a Plan that Allows for Growth and Change
When writing a Last Will and Testament (“Will”), there is an important thing to be aware of: making sure that your Will is able to grow and change with you to allow for all of life’s possibilities. When you and your attorney draft a Will, it is impossible to predict what may happen in the future — but it is not impossible to plan for that future.
Often, after individuals finalize their estate planning documents, that individual’s life circumstances can change — welcoming a new child into the family, divorce, or death of a loved one being some of the most common. If your Will does not have the proper provisions in place that allow for the circumstances of a life, then the details of your Estate will be left up to the finer points of Pennsylvania law.
Many people assume that when a person dies without a Will (or without a complete Will), that all of the assets go directly to any surviving spouse. However, in the Commonwealth of Pennsylvania, the laws are a bit more complex. Intestate statutes take into consideration and assign priority of asset division based on whether the deceased was survived by a spouse, children (with the surviving spouse or from a previous marriage), parents, and other familial connections.
In order to ensure that your estate is divided according to your wishes, be sure that your counsel considers these things:
- Possibility of Divorce – if a couple gets divorced, any assets that were originally set to be distributed to the spouse will not go to them, unless explicitly stated that divorce does not affect the terms of the Will.
- Possibility of Future Marriages – if you marry after creating a Will, your new spouse is entitled to some assets as determined by PA statutes – even if they are not spelled out in the Will.
- Possibility of Future Children – in a similar vein as the future marriages, any future children will be considered in the distribution of assets, even if they were not explicitly named in the Will.
The Key Elements of a Last Will and Testament
While all of these items are not required for a Last Will and Testament to be valid, they are considered best practices and should be considered by the attorney building such documents.
- Signed and Dated at the End of Testamentary Writing;
- Residue Clause;
- Testamentary Trust;
- Residue Clause;
- Executor Clause;
- Young Beneficiary Clause or Planning;
- Executor Powers; and
- Rules of Interpretation; Waiver of Bond; Tax Clause.
Trusts – Revocable vs. Irrevocable
The Advantages, Limitations, and Essential Provisions
A trust is an estate planning tool that allows a third-party or entity to hold assets on behalf of a beneficiary. While they are most often used for individuals with advanced estate planning needs and diversified asset alignment needs, they have recently grown in popularity as a preferred organizational tool of estate planning professionals. When building an estate plan, there are two types of trusts to consider – revocable and irrevocable.
A revocable trust, also known as a living trust, is created to manage assets while you are still alive. These are especially useful because they allow you, the grantor, to make changes to the trust if needed without having to dissolve the entity. This type of construction also simplifies tax issues since it is meant to be administered during the lifetime of the grantor.
Irrevocable trusts on the other hand are often used to insulate assets from tax liabilities or other financial benefits. This is possible because once formed, the trust becomes the holder of those assets, allowing you, the grantor to provide for a family member or loved one, without worrying about creditors.
Which is Right for You?
Broadly speaking, when it comes to trusts, a revocable trust is useful when:
- You have various types of assets such as stocks and other securities. A revocable trust can make the transfer of those assets easier and avoid significant paperwork backlogs.
- You are concerned about being incapacitated. Revocable trusts have the advantage of being a tool that allows trustees to make changes to all financial assets held by the trust.
- You are looking to avoid probate. This should not be the primary reason for looking at a revocable trust because the probate process in Pennsylvania is not overly burdensome.
- You are concerned about the privacy of your assets. Unlike a Will, a Revocable Trust is not required to be filed as public record. This does not mean that a Revocable Trust is private – a copy of the trust agreement must be shared with the local inheritance tax office and is still accessible, but you have to know where to look,
- You are nervous about surrendering control of your assets during your lifetime.
However, an irrevocable trust may be a better fit if you are looking to:
- Minimize the estate tax and other financial burdens that the trustees may incur.
- Protect your assets from creditors by holding the property as a separate third party.
Ultimately, the decision of which type of estate planning documents you need are a conversation between you and your attorney. If you would like to talk to one of our attorneys on which option is best for you, please call the Partner and Chair of the Estates and Trusts Practice Group, Charles Hadad at (724)-776-8000.
