Why Does Probate Take So Long?

Probate can be easily avoided, but most estates are dragged through the process. Why? Many people fail to create an estate plan, so probate is required. And – others plan with just a Will, so probate is required. As a result, assets end up at the mercy of the court system, open to public scrutiny, and delayed passing to beneficiaries.

Frustratingly, probate can drag on for months – or even years. Here are some of the most common reasons why probate takes so long:

1. Many Beneficiaries. In general, estates with many beneficiaries take longer to probate than estates with just a few beneficiaries.

Why? It takes time to communicate with each and every beneficiary and, if documents need to be signed, there are always beneficiaries who fail to return their signed documents in a timely manner. Regardless of advances in modern technology and communications, it simply takes a long time to reach multiple beneficiaries, spread out across the United States or in a foreign country.

2. Estate & Inheritance Tax Returns. Estates are required to file an inheritance tax return in the Commonwealth of Pennsylvania. And, Estates required to file an estate tax return at the federal level are usually complicated. The personal representative can’t make a final asset distribution until she is absolutely sure that the state inheritance tax return and the federal estate tax return have been accepted and the inheritance/estate tax bill(s) has/have been paid in full. At the federal level, it can take up to a year before the IRS gets around to reviewing and accepting an estate tax return.

3. Angry Beneficiaries. Nothing can drag out the probate process like a family feud. When beneficiaries don’t get along or won’t speak to each other, the personal representative may be forced to go to court to get permission to do just about everything. That takes time.

4. Incompetent Personal Representative. A personal representative, who is not good with money, irresponsible, disorganized, or busy with his job or family, will drag probate on and on. Why? Because a personal representative must efficiently and effectively handle the responsibilities and duties that go along with serving. It’s a lot of work.

What Can Be Done to Speed Up Probate?
The best way to speed up probate is to avoid it altogether. Avoidance is the only way to eliminate probate delays. If properly drafted and funded, a Revocable Living Trust will avoid probate perils, stresses, and delays.

Aligning Insurance Products within a Planning Structure

We use a variety of insurance products to manage risk in different areas of our lives in order to protect our wealth from losses that can come from property damage, businesses we own, disability, retirement and death. Instead of considering these products as separate items, make them part of an integrated, overall risk management plan.

The Key Takeaways
• A variety of insurance products are used to help manage risk and protect wealth.
• The best results occur when separate insurance products are part of an integrated plan.

Different Kinds of Insurance for Different Risks
Most insurance can be grouped in these general categories.

Property: This would include insurance on automobiles and other vehicles; home, furnishings, jewelry and artwork, and personal liability insurance.

Business: Business owners need insurance on a building they own, office equipment and computers, as well as liability, worker compensation, errors and omissions insurance, and so on.

Health and Disability: Disability income insurance replaces part of your income for a certain length of time if you should become ill or injured and unable to work. Health insurance helps to pay for medical services received. Long-term care insurance helps to pay for extended care that is not covered by most health insurance or Medicare.

Retirement: Annuities and other insurance products can help replace income after retirement.

Estate Planning: Life insurance is often used to replace an earner’s income; to pay funeral expenses, debts and taxes; to fund family and charitable trusts; to fund a business buyout and compensate the surviving owner’s family; and to provide an inheritance to family members who do not work in a family business.

What You Need to Know
Remember, insurance is for risk management—to protect your wealth from potential areas of loss. If a risk is no longer there (the exposure ends or you are able to self-insure and cover the risk yourself), then the insurance coverage for that risk can be eliminated.

Actions to Consider
• Trying to coordinate your insurance and manage your risk yourself is a daunting task. Instead, work with a team of advisors who have the knowledge and experience to help you make sure your risks are covered at the appropriate levels, without duplication and unnecessary costs.
• An advisory team will usually include your financial investment advisor, estate planning attorney, and life, health and property/casualty insurance agent(s). Other members may be added to this team as needed. You will probably find that your advisors will welcome the opportunity to work on your team, because they want to provide you and your family with the best possible service and solutions.

How to Leave Assets to Minor Children

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents. But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child reaches the age of majority, the court must distribute the entire inheritance in one lump sum.

A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.

Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.

Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

A better option is to set up a children’s trust in a will. This would let you name someone to manage the inheritance instead of the court. You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because your will cannot go into effect until after you die.

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).

How to Leave Assets to Adult Children

When considering how to leave assets to adult children, the first step is to decide how much each one should receive. Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive equal shares of the estate. For example, it may be desirable to give more to a child who is a teacher than to one who has a successful business, or to compensate a child who has been a primary caregiver.

Some parents worry about leaving too much money to their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive. So, instead of giving everything to their children, some parents leave more to grandchildren and future generations through a trust, and/or make a generous charitable contribution.

When deciding how or when adult children are to receive their inheritances, consider these options.

Option 1: Give Some Now

Those who can afford to give their children or grandchildren some of their inheritance now will experience the joy of seeing the results. Money given now can help a child buy a house, start a business, be a stay-at-home parent, or send the grandchildren to college—milestones that may not have happened without this help. It also provides insight into how a child might handle a larger inheritance.

Option 2: Lump Sum

If the children are responsible adults, a lump sum distribution may seem like a good choice—especially if they are older and may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse can have access to assets that are placed in a joint account or if the recipient adds the spouse as a co-owner. For parents who are concerned that a son-or daughter-in law could end up with their assets, or that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Option 3: Installments

Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around. Installments can be made at certain intervals (say, one-third upon the parent’s death, one-third five years later, and the final third five years after that) or when the heir reaches certain ages (say, age 25, age 30 and age 35). In either case, it is important to review the instructions from time to time and make changes as needed. For example, if the parent lives a very long time, the children might not live long enough to receive the full inheritance—or, they may have passed the distribution ages and, by default, will receive the entire inheritance in a lump sum.

Option 4: Keep Assets in a Trust

Assets can be kept in a trust and provide for children and grandchildren, but not actually be given to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses. The trust can provide for a special needs dependent, or a child who might become incapacitated later, without jeopardizing valuable government benefits. If a child needs some incentive to earn a living, the trust can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If a child is financially secure, assets can be kept in a trust for grandchildren and future generations, yet still provide a safety net should this child’s financial situation change.

Long-Term Care Planning, Part 2 – Your Funding Options

The first part of planning for long-term care is realizing that, a) most of us will need this kind of care for at least some time before we die and b) the cost of this care can be financially devastating for a family if it is not planned for in advance. This was covered in Long-Term Care Planning, Part 1.

The next part is determining how you will pay for long-term care that may be needed for you, your spouse or another family member.

The Key Takeaways
• Long-term care is not covered by health insurance, disability insurance or Medicare.
• You have limited options when considering how these expenses could be paid.
• The best way to plan for the possible expense of long-term care is to accept it as a central requirement in your overall financial planning and seek professional assistance.

Who Pays for Long-Term Care?
Many people are surprised to learn that long-term care is not covered by health insurance, disability income insurance or Medicare. Health insurance plans cover nursing home expenses only for a short period of time while you are recovering from an illness or injury. Disability income insurance will replace part of your income if you are not able to work after a specified time, but does not pay for long-term care. Medicare, which covers most people over age 65, provides limited coverage for skilled care for up to 100 days immediately following hospitalization. After that, you’re on your own.

How Will You Pay for Long-Term Care if Needed?
1. Use your own assets. This is called self-insuring. If you need long-term care, you will pay for it from your own assets. If you don’t need the care, then you will not have spent money on insurance premiums. You can set aside a certain amount of your assets for this specific purpose or have the expenses paid from a general investment fund. Your financial advisor will be able to help you make that decision, determine how much you might need, and help you attain your goal through investments.

2. Buy long-term care insurance. This has traditionally been a good option, especially if you have assets and income you want to protect, you want to avoid being a financial burden on others, and you want to have some choice in the care you receive. Most policies give you the option of receiving care in your own home or in a private-pay facility. As with any insurance, the premiums are lower when you are younger and in good health; if you wait too long, the cost could be prohibitive and you might not qualify. In recent years, the premiums have gone up on these policies because the insurance companies under-estimated the actual costs. Your insurance advisor will be able to help you evaluate current policies and determine if one is right for you.

3. Purchase life insurance and annuities with long-term care benefits. Some life insurance policies have accelerated death benefits that will pay benefits if the insured has a care issue, as do some annuity products. The premiums for these will be higher, but they may be worth exploring. Your insurance advisor will be able to help you evaluate these options.

4. Qualify for Medicaid. Medicaid pays the bills for a large number of people in nursing homes today. But because the program is designed to provide services for those who cannot support themselves (children, the disabled, the poor), you will have to “spend down” your assets and be practically penniless in order to qualify for benefits. Your spouse will also be limited to the amount of assets and income he or she can have, and you will only be able to receive care from a facility that accepts Medicaid. (Most people would prefer to receive care at home or in a private-pay facility.)

If you have minimal assets, this may be an option for you. However, before you do anything, speak with a local elder law attorney who has experience with Medicaid planning. Medicaid, while a federal program, is administered by the states, so the rules vary from state to state. An innocent error could disqualify you from receiving benefits for many months.

Explore a Medicaid Trust. When properly prepared, these irrevocable trusts can help some people qualify for Medicaid without impoverishing the well spouse or spending the children’s inheritance. Five years must pass between the time assets are transferred to the trust and when the person is deemed eligible for Medicaid. This is known as the “look-back period.” Long-term care insurance is often used to cover the look-back period if care is needed before qualifying for Medicaid. Assistance from a local elder law attorney who has extensive experience with these trusts is absolutely essential.

What You Need to Know: The benefit of planning for the possible costs of long-term care is the peace of mind that comes from knowing that this care can be provided if needed without destroying the financial well-being of the entire family.

Actions to Consider
• Find out the costs for long-term care in your area. Your professional advisors (financial, attorney, insurance) will be able to give you some parameters.
• Talk with your spouse about the kind of long-term care you would each like to receive if that time comes. Do you want to stay in your home? Do you want to be in an assisted-living facility together for as long as possible?
• Talk with your advisors (financial, attorney, insurance) about your options and make an educated decision that is right for you.
• Let other family members know about your decisions and your plans. This will let them know your wishes, what they will need to do, and whom to contact. It will also give them peace of mind.

Long-Term Care Planning, Part 1 – A Central Requirement

Health care has been the topic of discussion lately, but the greatest threat to your financial health is long-term care. This is the kind of care you need if you are not able to perform normal daily activities (such as eating, dressing, bathing and toileting) without help, and it is expected that you will need this help for an extended period of time, often for the rest of your life.

Long-term care is often needed due to aging, chronic illness or injury, and with people living longer, most of us will need it for at least some time before we die. But it is not just for the elderly—a good number of younger, working-age adults are currently receiving long-term care due to accident, illness or injury.

The Key Takeaways
• The cost of long-term care is the greatest threat to your financial health.
• Most of us will need long-term care for at least some time before we die.
• It is better to assume you will need long-term care and plan for it than to just hope it doesn’t happen to you or a family member.

The Expense of Long-Term Care
Long-term care can be provided in your home, in an assisted living facility or in a nursing home. All can become very expensive over time.

For example, home health care can easily run over $20,000 per year—that’s at $16 per hour for just 25 hours per week. Depending on the skill required, number of hours needed and where you live, it can cost considerably more.

Assisted living facilities can cost more than $25,000 per year. Here, everything is a la carte—the more services you need, the higher the cost. Nursing home facilities, with round-the-clock care, are $50,000 or more a year.

Costs for long-term care are hard to estimate. The average stay in a nursing home is three years; patients with Alzheimer’s usually need care longer, often in specialized facilities. Again, the actual costs will depend on the kind of care you need, how long you require it and where you live. Expect these costs to increase as the cost of medical care, in general, continues to rise.

What You Need to Know: Long-term care expenses are not covered by health insurance, disability income insurance or Medicare. If you do not plan for these costs, and you or another family member requires long-term care, the results can be financially devastating for your family.

Actions to Consider
• Find out what costs are for long-term care in your area. Your financial and/or insurance advisor will be able to give you some parameters. You can also ask friends and neighbors; you probably know someone who has a family member receiving care at home or in a facility.
• Have an honest discussion with your spouse (and possibly other family members) about these costs and your desires about long-term care, should you need it. Most people want to stay in their homes. Find out what it would cost to make that happen—renovations to your home, home health care, etc.
• The next step is to start planning how to handle these costs, which will be addressed in Part 2.

The recent decision striking down PA’s ban on same-sex marriage gives same-sex married couples new estate planning opportunities.

Pennsylvania now recognizes same-sex marriages.  This is a game changer.

Until now, same-sex married couples were not afforded the same favorable estate planning opportunities as hetero-sexual couples when it comes to state inheritance tax.

The rates for Pennsylvania inheritance tax are as follows:

  • 0 percent on transfers to a surviving spouse or to a parent from a child aged 21 or younger;
  • 4.5 percent on transfers to direct descendants and lineal heirs;
  • 12 percent on transfers to siblings; and
  • 15 percent on transfers to other heirs, except charitable organizations, exempt institutions and government entities exempt from tax.

While hetero couples could plan around a 0% tax rate, same-sex couples, although married (in another state) and living their entire lives in PA as a married couple, were taxed at the 15% rate enacted for “other heirs.”  This was patently unfair, but until the recent decision, it was the law.

Now, thanks to the landmark decision in Whitewood v. Wolf, same-sex couples have the same planning opportunities as hetero couples regarding PA’s inheritance tax.

For same-sex couples, the time to update your estate plans is right now.

Celebrity Wills – Jerry Garcia

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Jerry Garcia had 5 custom guitars made by Doug Erwin. This is what Jerry’s will stated regarding those instruments:

FIFTH GUITARS
I give all my guitars made by DOUGLAS ERWIN, to DOUGLAS ERWIN, or to his estate if he predeceases me. livingtrustnetwork.com

After Jerry’s death in 1995 this bequest was the subject of a legal battle between the remaining Grateful Dead band members and Erwin. The band claimed the guitars were the band’s property and therefore not part of Garcia’s probate estate. The suit was settled with Erwin getting 2 of the guitars, which he sold at auction for about $1.75 million. Wikipedia

Wills for Heroes – Free Wills Program Through PA Bar for First Responders

Police, firefighters, paramedics, and other first responders can get free basic estate planning documents through a program called Wills for Heroes co-sponsored by the PA Bar Association.  Click here for an explanation of how this program works.

Lawyer volunteers staff events in many PA counties to meet with and produce estate planning documents for first responders in about an hour.

Here’s a list of the upcoming events for 2013:

Upcoming W4H County Events

  • Sept, 14, 2013, Radnor Twp. Police & Fire, Radnor, Montgomery County. Click here for invitation.
  • Sept. 21, 2013, Clarks Summit Fire Company, Lackawanna County. Click here for invitation.
  • Sept. 28, 2013, Middletown Fire Company, Media, Delaware County. Click here for invitation.
  • Oct. 5, 2013, Pennsylvania State Police – Troop T, King of Prussia, Montgomery County
  • Oct. 12, 2013, Lancaster County Public Safety Training Center, Manheim
  • Oct. 19, 2013, Polk Township Volunteer Fire Company, Monroe County
  • Oct. 26, 2013, Central Bucks Ambulance & Rescue Unit, Doylestown, Bucks County. Click here for invitation.
  • Oct. 26, 2013, Cumberland County 911 Call Center, Cumberland County
  • Nov. 2, 2013, Quentin Volunteer Fire Company, Lebanon County
  • Nov. 9, 2013, Dubois Area United Way, Dubois, Clearfield County
  • December 14, 2013, Lancaster County Public Safety Training Center, Manheim
  • Oct. 26, 2013, Central Bucks Ambulance & Rescue Unit, Doylestown, Bucks County. Click herefor invitation.
  • Oct. 26, 2013, Cumberland County 911 Call Center, Cumberland County
  • Nov. 2, 2013, Quentin Volunteer Fire Company, Lebanon County
  • Nov. 9, 2013, Dubois Area United Way, Dubois, Clearfield County
  • December 14, 2013, Lancaster County Public Safety Training Center, Manheim

First responders are asked to fill out a basic Questionnaire in advance of their meeting with the volunteer lawyer.   Click here to download that form.

If you are a first responder, or are reading this and know a first responder, please feel free to get in touch with me if you have any questions about making a will or filling out the questionnaire for this program.  I am not currently involved with this program.  I just read about it and wanted to pass the info along to those who might not have seen it.

If you’re a first responder and you missed or cannot attend the event in your area, get in touch with me and I will help you.

If a relative or family friend cares for your children while you’re at work, out of town, or otherwise unavailable, then you should sign a Medical Consent Authorization.

I recently worked on some estate planning with a couple that had a two year old daughter.  Towards the end of the final meeting when we all gathered together to sign the documents we had prepared, they posed a question to me.  We are going out of town for four days for a friend’s wedding. Our daughter is staying with one of our parents and she has a doctor’s appointment one of those days.  Do we need to do anything for that?

Yes, you need a Medical Consent Authorization.

I now include this document in every estate plan where the client(s) have minor children.

The Pennsylvania Medical Consent Act generally allows a parent (or legal guardian) to make a Medical Consent to give a relative or family friend the power to consent to medical, surgical, dental, developmental, mental health, or other treatment for the child in the parent or guardian’s absence.  There are specific state requirements that must be met in order for a Medical Consent to be valid.

This form, when properly prepared and executed will be honored by all physicians, nurses, school nurses, mental health professionals, dentists, other health care professionals, hospitals, medical facilities, mental health facilities, and insurance providers.

These documents can remain in effect until otherwise revoked in writing, or they can be limited to a certain period of time.

So, if a relative or family friend watches your kids while you’re at work, out of town, or otherwise unavailable, get a Medical Consent prepared.

Please feel free to Contact Me to discuss whether a Medical Consent is something that might help you.