Planning Overview

Estate Planning
Powers of Attorney
Wills
Trusts
Settling Estates
The Executor or Executrix
The Administrator or Administratrix
Duties and Responsibilities
Death Tax Returns
Post-Death Planning
Lifetime Gifting
Retirement Planning
Business Planning
Other Planning

Estate planning is the process whereby you take steps to assure that your heirs are provided for in the best possible manner. These steps may include lifetime planning such as gifting, preparation of the will, revocable trust, or other estate planning trusts. The process can also be accomplished through the proper structuring of your assets. Estate planning is carried out with legal documents and can be very complicated or simple, depending on the nature of your assets and your objectives.

However, every estate plan should start with a decision as to how you want to dispose of your assets. Estate planning is extremely important for anyone who has (a) minor children; (b) an exceptionally artistic or gifted family member; (c) an emotionally disturbed, mentally or physically handicapped, or drug or alcohol addicted child or other dependent; (d) a spouse who cannot or does not want to handle money or securities or a business interest; or (e) parents or other relatives who depend on you; and finally, estate planning is important if you are single.

Estate planning is also extremely important, to reduce the amount of death taxes that your beneficiaries might otherwise have to pay at your death. Death is inevitable, but taxes are not. You can reduce your tax burden, and many of us can legitimately avoid taxes altogether. However, a large part of your estate may be lost to taxes and other costs, and will not go to your family or other beneficiaries if you do not have a plan.

Our firm can assist you with the proper estate planning techniques to enable your beneficiaries to receive your assets in the best possible manner, and also reduce or eliminate the effect that death taxes can have on your estate.
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The first step in planning your estate is to make certain that you are protected in the event of a serious illness, and the inability to handle your funds yourself. In every instance where we are called upon to prepare an estate plan for our clients, we recommend that they have a financial power of attorney, and a durable power of attorney for health care which includes living will provisions. We feel that it is absolutely essential that an estate plan makes certain that the creators of their plans are protected in the event that they are unable to care for themselves.
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One of the primary tools to implement an estate plan is the preparation of a will. A will is a formal legal document which states how you want your assets to be distributed at the time of your death. It is important to understand that not all assets are governed by the provisions of the will, and it is important to make certain that your assets are properly coordinated with your overall estate plan. In addition to making a will, a person can designate successor owners by placing assets in joint names, naming a beneficiary to a retirement plan or life insurance contract, setting up an investment to be payable on death to a beneficiary, or preparing a living trust.

If you are married, both you and your spouse should have wills. Your wills should be coordinated. Your attorney should examine documents relating to all of your assets, including your life insurance policies, the deeds to real estate, bank accounts, retirement plans and group insurance benefits before your will is drafted. Your will should not be drawn in a vacuum and should consider and be tied to the values and ownership arrangement of your assets, your overall employee benefits program and your personal financial plans.

You should give great thought to the people who will administer your will, your executor (the person you designate to stand in your shoes at your death), guardians or trustees for your minor children, or for other beneficiaries, and trustees to handle the assets of any beneficiaries who are in financial difficulty, have marital problems, or have serious physical or mental disabilities that will affect their ability to handle assets.

After you die, your will is submitted to the court and a person is appointed to act on your behalf. This person is typically called the executor. In addition, the will may appoint a guardian for minor children, provide a statement of specific transfers (bequests), a statement as to who gets the balance of the estate, and instructions for the executor to follow. In addition, there may be a description of the control that you want over bequests to minors, such as a trust which would set forth the ages and circumstances in which distribution should be made. The person creating the will (the testator) must sign and date the will. It is preferable that there be two witnesses and an affidavit be attached to the document so that the witnesses will not need to appear at a later date. This affidavit should be signed before a notary.

Our attorneys will be pleased to review your personal situation and advise you as to how to maximize benefits for your family under your will.
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Trusts are excellent solutions to many different kinds of problems. Trusts can protect against many of the legal and financial problems of disability and old age; protect people from the financial consequences of bad marriages, bad business decisions, or other legal problems; provide for children (or grandchildren) until they are mature enough to handle their own affairs; avoid estate and inheritance taxes; provide professional investment and asset management; prevent family assets like businesses from being unnecessarily divided or sold; and make sure that benefits go to the right people, at the right times, for the right purposes, and in the right amounts.

Instead of using a will for the disposition of their estate, many people establish a revocable living trust. If all of your assets are either titled to your revocable trust, or will pass automatically to your beneficiaries because of the way they are titled, or because of the fact that they will be paid to another person or persons at your death, your estate can avoid probate and can often be administered more efficiently and at less cost. Revocable living trusts can also be helpful for a person who may become incapacitated or disabled at a later date, at which time a successor trustee can step in to manage the assets. A living trust can also be used to eliminate ancillary probate where a decedent owns property in a state other than his or her domicile.

Properly structured, a trust can be one of the most beneficial methods of holding and transferring property. There are almost unlimited uses for trusts in today’s complex society. We therefore believe that anyone who is old enough to plan for the future must consider the many ways that a trust can benefit the people and institutions that are important to him or her.

A trust is a separate legal entity that controls the assets that you place into it. Trusts can either be created during lifetime or at death in the will. The person who creates the trust during their lifetime is the grantor/settlor/trustor. The grantor decides who gets the income and/or principal distributions from the trust. The individuals receiving the distributions are known as beneficiaries. The person or persons who administers the trust and follows the provisions set forth in the document are the trustees. If the trust is created in the will, it is called a testamentary trust, and if it is created during lifetime it is an “inter-vivos” trust. An inter-vivos trust simply means a trust created “among the living.” An inter-vivos trust can either be revocable or irrevocable depending on the objectives the grantor is trying to satisfy. Additionally, it may be beneficial to establish a trust to continue for the benefit of children and grandchildren, in which case it is important to maximize planning for the federal generation skipping transfer tax, which is in addition to the federal estate tax.

We will be pleased to review your situation to determine whether your plan should include the creation of one or more trusts to accomplish your planning goals.
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Another of the areas in which our firm can be of valuable assistance is in the area of settling the estates of deceased persons.

In most instances, when a person dies owning property of any real value, it is necessary to appoint someone to administer the estate. That person (it could be one or several persons, a bank or trust company, or both) who acts for, or “stands in the shoes of,” the deceased is called the personal representative. The duties and responsibilities of the personal representative, and even the title of the personal representative, may change depending on the state laws and circumstances involved. Consider, for example, the following situation:

Tom and Irene Anderson were a married couple in their early forties with two children – Ted, age 21, and Sally, 19. Tom had a small consulting business, and Irene was a high school teacher. One night Tom was killed in an automobile accident.

As a result of his death, Tom’s company did not open for work. Yet someone had to be available to handle or terminate the work in progress, pay the outstanding bills and salaries, collect the outstanding obligations, and make the larger decision about what ultimately would happen to the business.

Tom had other outstanding obligations apart from his business interests. Someone had to settle these accounts, as well as to collect any outstanding debts owed to Tom personally.

There can be other issues for the personal representative to handle aside from those involving financial considerations. For example, Tom might have had a child from a previous marriage for whom he was paying support. There could have been an outstanding agreement under which Tom, or Tom and Irene, were to purchase real estate, with the settlement or closing date after Tom’s death.

Even if Tom’s affairs were precisely in order and there were no outstanding personal or business debts, a personal representative might have been necessary to distribute Tom’s assets among Irene and the children. If Tom had any property in his name alone, in all likelihood a personal representative would have had to transfer the property from Tom to his wife and/or children. A bank account in Tom’s name, for example, could not, in most circumstances, be closed out by anyone except the duly appointed personal representative of Tom’s estate.

There are, in fact, few situations in which property of a decedent can be transferred at death without the appointment of a personal representative.
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The title of the personal representative depends on the method by which he or she (or it, in the case of a bank or trust company) was selected or appointed. If a deceased specifically names a person or institution to act for him or her in his or her will, the named personal representative is usually known as the executor (male) or executrix (female). In cases when more than one individual or an individual and an institution are appointed to act, the joint designation is usually executors. Corporate entities (banks and trust companies) are also called executors.
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If the deceased left no valid will and therefore has failed to designate his or her personal representative, a personal representative (called an administrator) is appointed by the Probate Office or the Register of Wills Office having jurisdiction over the decedent’s estate. This usually takes place in the state and county of the decedent’s domicile. In most instances, state statutes stipulate the person who is entitled to be the administrator.

Usually, the order of preference is similar to the order in which an estate passes to the family of someone who dies without a will. In other words, the spouse or adult children are usually named administrators. It is possible, however, that a more distant family member could be named, or even creditors or other strangers to the estate and to the decedent. If the decedent failed to take advantage of his right to name a personal representative in a will, and if no persons with close relationship are available, the court, in its discretion, might appoint someone unknown to the decedent and unfamiliar with his affairs. This is often the case when the court is concerned about the possible conflicts of interest or the rights of creditors or other beneficiaries.
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When a person dies, his or her property must be collected. After debts, taxes and expenses are paid, the remaining assets are distributed to the decedent’s beneficiaries. Distribution is determined by the person’s will, or the intestacy laws (laws that govern the distribution of your estate if you die without a valid will) of the state in which the decedent was living at the time of death. It is the executor’s or the administrator’s responsibility to collect and distribute the assets and to pay the death taxes and expenses of the decedent.

While many executors and administrators perform these designated tasks in an expeditious and prudent manner, this is not always the case. Moreover, the law usually holds the personal representative to the standard of care of a “reasonable, prudent individual” under all circumstances. What is reasonable and prudent to the executor when performing his tasks, however, is not always so to the beneficiaries, especially retrospectively.

The various decisions to be made by the personal representative – for example, whether to sell or hold certain real property or securities, what rate of return to seek on investments, and whether to carry on or sell the decedent’s business – can often cause complaints by the beneficiaries. Sometimes complaints escalate into lawsuits against the executor(s).

If the court feels that the personal representative has not acted reasonably and in the best interests of the estate and beneficiaries, the executor or administrator can be surcharged, which means that the executor is personally liable for undue mistakes made in the administration of the decedent’s estate.
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When clients pass away, the estate may have to file both a federal estate tax return and state inheritance tax return. The federal estate tax return is due within nine months from the date of death. Pennsylvania’s inheritance tax return is due nine months from the date of death as well. However, in New Jersey, two returns may be required. The New Jersey inheritance tax return is due eight months from the date of death and the New Jersey estate tax return is due at the same time as the federal return. For federal purposes, estates below a certain amount are exempt from having to file these returns. For 2009, the exemption amount is $3,500,000. However, it is scheduled to change over the next several years. To the extent that the estate is subject to federal estate tax, the tax will be assessed at 45% of the amount in excess of the exemption amount.

Our firm has the experience and expertise to assist executors in preparing and filing these returns. We assist the client in determining the fair market value of the assets as well as the appropriate strategies which should be implemented to help reduce these tax obligations. We also take advantage of techniques to minimize or eliminate the federal generation skipping transfer tax on bequests to or for the benefit of grandchildren and other future generations. We also have experience in responding to audits by state or federal taxing authorities. Our firm is able to work with you in all these areas.
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Another of the areas in which an experienced attorney can be of great help to the executor and to the beneficiaries is post-death estate planning. It is possible through the use of devices such as “disclaimers,” to do valuable tax planning even after the decedent’s death, but there are certain time limitations and other restrictions that require the expertise and experience of a qualified advisor. We can be of considerable help to the executor and beneficiaries in those situations where the use of a disclaimer can save taxes for future generations.
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Gifting assets during lifetime can be an important estate planning tool because of its potential for income tax as well as estate tax savings. If you have an asset which is likely to appreciate in value in the future, a lifetime gift may save estate taxes by removing the potential growth from your estate. This can be especially important for transferring an interest in a business or real property to family members, often at a substantial discount. Additionally, by giving away income-producing property, the person making the gift, called the donor, can shift the income to the lower income tax bracket of the recipient, or donee.

For 2009, there is a $1 million gift tax exemption, which allows each person to transfer assets valued up to that amount to remove future appreciation from his or her estate. Any lifetime gifting, however, will reduce the available federal estate tax exemption, which is for 2009 $3.5 million. A donor can also take advantage of making tax-free gifts up to $13,000 a year to an unlimited number of donees. And between spouses, there is an unlimited marital deduction, which can be used to equalize the size of their estates for estate tax purposes. Spouses can also agree to “gift split,” which allows them to treat a gift made entirely by one spouse as though it had been made one half by each, thereby maximizing gifting opportunities.

Gifting has nontax advantages as well. During his or her lifetime, the donor has the enjoyment of seeing the recipient use the gift and develop financial and property management skills. And by making lifetime gifts to charity, the donor can fulfill his or her charitable intentions, while benefitting from income and estate tax advantages.

There are some disadvantages to gifting, such as giving up control and loss of favorable capital gain treatment, so it is important to evaluate all of the pros and cons. We can help you decide whether lifetime gifting is something that makes sense for you and your family in view of your assets and planning objectives.
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Most individuals participate in some type of retirement plan. The IRS has issued regulations relating to how the funds from these plans are distributed. These rules are generally described as the “minimum distribution rules,” and require owners of IRA’s and other tax-deferred retirement accounts to begin a systematic plan of withdrawal beginning when the individual reaches the age of 70½. Failure to satisfy these minimum distribution rules will result in a penalty of 50% of the amount that should have been distributed.

Our firm can assist you in determining the amount which must be distributed. In addition, we can work with you in properly coordinating how to maximize the deferral of these distributions. Sometimes it is beneficial to have retirement assets paid to a trust for the benefit of an individual; however, there are complex rules associated with having retirement assets paid to a trust. In addition, it is important to name both a primary and a contingent beneficiary of these retirement accounts. The rules relating to distributions from retirement accounts are confusing and complex since you must satisfy both income tax obligations and estate tax laws. Our firm will assist you in navigating these complex issues and helping you to make an appropriate decision.
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There are many important decisions that go into the starting and operating of a business. One of the most fundamental decisions relates to the best type of entity which should be used. There are number of choices that you have when confronted with this decision. For example, you may wish to form a corporation, an S-corporation, a C-corporation or a limited liability company.

Our firm can work with you in determining the appropriate structure for your business venture. After the formation of the business entity, we can also work with you in preparing the necessary documents to facilitate the operation of these entities.

At death, no asset tends to deteriorate as quickly and thoroughly as a business. Therefore, for owners of closely-held businesses, we can assist in coordinating the transfer of these business interests with your overall estate plan. Properly drawn documents can reduce or eliminate the economic hardships caused by federal estate taxes, state death taxes, funeral costs and administrative expenses. They may even prevent the forced sale of your business.

We will be pleased to work with you, your accountant, and other advisors to make certain that your business plan will provide maximum protection for you and your heirs.
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Many people have concerns about long term care planning or planning for beneficiaries with special needs or problems. As part of your overall planning, our attorneys can discuss how you can best address these and other difficult issues for you and your family.

Some of the material in this article is included in the following books co-authored by Mr. Plotnick:

“The New New Book of Trusts,” by Stephan R. Leimberg, Esq., Charles K. Plotnick, Esq., Russell E. Miller and Daniel B. Evans, Esq. published by Leimberg Associates, Inc., Havertown, PA 19083.
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