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  • Writer's pictureJose Roman

6 Essential Items Your Estate Plan Needs in Pennsylvania

Updated: May 9, 2023

By: Jose Roman

6 Essential Items for Your Estate Plan

On today's post I want to go over the 6 essential items your estate plan needs if you live in Pennsylvania. If you live outside of Pennsylvania these items may also be essential to your estate plan as well, but please check your local laws and speak with a local attorney when handling your estate plan. These 6 items are important because they can protect your family and your assets throughout all stages of your life, as a proper estate plan should, and can reduce or eliminate the need for your family to go to court if you become sick, disabled, or pass away.

 

What happens if you don't have an estate plan?

Before we jump into the 6 essential items you need, we need to discuss what happens if you don't have an estate plan in place.

Let's say I have a moderate amount of wealth, nothing too crazy just a house with a mortgage, two vehicles with outstanding loans, a couple of bank accounts, and a life insurance policy. In this example I have not been following my own advice and have no estate plan in place. I don't have a will or trust, I don't have a power of attorney, a healthcare power of attorney or a living will and I have not designated a beneficiary for my life insurance. Also, my bank accounts are in my name only so no other person has access them. On my way home from work one day I get into a terrible car accident and am in a coma for six months. During those six months my mortgage is not being paid, my car loans are not being paid and no one has access to my bank account to make those payments. My house goes into foreclosure, my vehicles have been repossessed, and my family has had a difficult time working with the doctors who are providing me with medical care because they are unclear who can make medical decisions on my behalf.

After six months I recover fully, but I have nothing to return to, no house, no cars, my credit is ruined and my family no longer gets along because of all of the arguments they had over the type of treatment I should have received. I have worked so hard to get where I am in life only to see it fall apart because of an accident. If I had passed away during those six months the life insurance would not have helped anyone either because no beneficiary was designated and there would be a significant delay in my family receiving that money. My lack of a will also would have meant that I never got to decide who benefited from my estate, or lack thereof, after everything was repossessed. What little I had remaining was tied up in probate, the court supervised administration of my estate.

There is a solution to this scenario should you or your family find yourself in it. It's not the fastest solution and it sure isn't the cheapest solution, but it is a solution. Your family can petition a court to appoint a guardian. A guardian is someone appointed by a court to oversee and manage your finances and if needed your personal care as well. Since it is a court process there are court fees that will be incurred, lawyer's fees that will need to be paid and valuable time that will be spent until a guardian is appointed, and that's if things go smoothly. If someone challenges the appointment, then expect more time and money to be spent.

So how do we avoid this situation in a way that is cost effective, time saving and provides clarity during those times that are the most disruptive during our lives and our family's lives? Read on to find out a better ending to our story. Without further ado, here are the 6 essential items your estate plan needs in Pennsylvania.


#1 - Power of Attorney

A Power of Attorney, or POA, allows you to name someone else to act on your behalf and make financial decisions for you. In a POA you are referred to as the Principal and the person you name to act for you is called the Agent or Attorney-in-Fact. A POA can give the agent broad powers, allowing them to do anything you could do with your own property, or it can be limited to just one type of financial transaction, for example they could only sell your house. If your POA is "durable" then your agent can act on your behalf even if you are disabled or otherwise unable to do so on your own.

Since you give your agent a lot of authority in your POA it is important to carefully consider who you name as your agent and review what it is that they can and cannot do, and if necessary limit some of their authority. Having a POA is one of the easiest ways to avoid the need for a guardianship, however if for whatever reason a guardianship is still needed you can name your preference for a guardian in your POA. It is also a good idea to name a successor agent or agents should your first preference be unable to act on your behalf, otherwise without an Agent that can act, your POA is useless.


# 2 - Healthcare Power of Attorney

A Healthcare Power of Attorney, or HPOA, is similar to a Power of Attorney, however the agent is limited to only making medical decisions for you. It is important to note that the Agent can only make medical decisions on your behalf if you are unable to do so yourself, otherwise doctors and other medical staff will continue to ask you how you want to be treated.

When naming a healthcare agent it is a good practice to name someone who lives close to you so that can they can easily be available to make medical decisions for you, whereas with a financial POA that need is not as urgent, especially in today's internet age where most of those transactions can be handled remotely. Similar to a POA you want to name successor agents in the event your first choice is unavailable. After you create an HPOA it is also a good idea to have it placed in your file with your primary doctor, so if the need arises there is no delay. Your HPOA can be presented to other doctors and medical facilities as the need arises.


#3 - Living Will

A living will allows you to document your end of life wishes in the event that you are in an irreversible coma or have been diagnosed with a terminal illness and are unable to communicate those wishes yourself. With a living will you can make known which treatments you would like to receive and which treatments you would like to decline should you have no hope of recovery. For example you may wish to have treatment focused on easing your pain and suffering, while refusing CPR, breathing and feeding tubes and hydration.

A living will also allows you the opportunity to state whether or not you want to be an organ donor. For many of us our driver's license indicates whether we are an organ donor, but it is always a good idea to mention it in your living will as well. You driver's license designation covers what we traditionally refer to as organs, kidneys, lungs, heart, liver, etc.

Modern advances in medicine also allow you to donate facial tissue, hands, limbs and other "vascularized composite allografts." Since these types of organ donations could affect your burial arrangements and may require your body to be on life support, even after your death, these types of organ donations must be in writing at the time of your death. A living will is where you can make these types of donations.


# 4 - Will

A will is the document that most people are already familiar with and the one most people tend to focus the most attention on. Simply put a will only goes into effect after your passing. In it you name who your beneficiaries of your estate are and which property of yours they will receive. You will also name who your executor or executrix is, the person responsible for handling your estate after your passing, and detail what they can and cannot do with regards to your estate.

A will also allows you the opportunity to name any guardians of your minor children, should you and your spouse both pass away prior to them becoming adults. A will can also contain one or more trusts, referred to as testamentary trusts. If you already have a trust, your will can be used to move your assets from your estate into the already existing trust. This type of will is called a pour-over will. A will together with a trust can be very versatile and allow you to put in writing exactly how you want your estate handled after your passing.


# 5 Trust

A trust is an agreement between the creator of a trust and a trustee. The creator of the trust is called the Settlor or Grantor of the trust and the trustee is the person or company who manages the property of the trust. The trust document details the purpose of the trust, the property of the trust, who is to benefit from the trust and how the trustee is to manage the trust.

When you create a trust the property that becomes a part of the trust must be transferred from you to the trustee. So for example, if you want your house to be a part of your trust you must create a new deed that transfers ownership of your house from you to the trustee. The trustee will now be the legal owner of your house and will own it for the benefit of your beneficiaries of your trust. This process would be the same for other assets like bank accounts, vehicles, stocks, brokerage accounts and any other property and is referred to as funding your trust.

As mentioned above a trust contained in a will is referred to as a testamentary trust. A trust that you create during your lifetime is referred to as an inter vivos trust. Trusts are a very versatile tool when it comes to estate planning and can be used for such things as tax planning, asset protection, managing property for beneficiaries who are minors, managing property for people who have special needs, charitable giving and so much more.

It is important to note that if you create a trust you can also be a trustee as well as a beneficiary of the trust in many instances, with the only limit being that you cannot be the only trustee and the only beneficiary of the trust. A common example of a trust that the creator is both a trustee and beneficiary of the trust is a Revocable Living Trust. Even if you are the trustee of your trust, you still must transfer ownership of the property from yourself as an individual to yourself as a trustee in order for your trust to be effective.

Trusts can be either revocable or irrevocable. A revocable trust can be modified by the creator of the trust up until their death, while an irrevocable trust cannot be modified after its creation, except in very limited circumstances. In Pennsylvania by default all trusts are revocable unless they state they are irrevocable, in many other states the reverse is true. Their are pros and cons to each form of trust and many reasons why you would want to pick one form over the other. If you are looking to create your own trust, make sure you understand which form of trust you need and understand the benefits and drawbacks to each as a poorly written trust can be worse than having no trust at all.


#6 Beneficiary Designations

Some of the property you own allows you to designate a beneficiary of the property that automatically transfers to that person after you pass away. There is no need to mention this property in your will so long as you take to time to properly designate who the beneficiary is. As an added bonus if you have a trust you can designate the trust as the beneficiary of that property and it will be distributed according to the terms of the trust.

Examples of property that allow you to designate a beneficiary include life insurance policies, retirement accounts such as a 401(k) or IRA, bank accounts that have a payable on death (POD) or transfer on death (TOD) designation and stocks that are designated as POD or TOD. It is important to note that if you have a designated beneficiary on one of these accounts or benefits that the designation will override any mention of the property in your will or trust in the case of a conflict between the two.

When it comes to beneficiary designations the important thing to remember is to make sure you have them, and if necessary update them if your circumstances change. How do you change a beneficiary designation? Simple. Contact the company that has issued the policy, who administers your retirement account or your bank and let them know you would like to update your beneficiaries. They will guide you through their process for doing so. In many cases, its just a simple update on their website. Check out Fidelity's website and their video on beneficiary designations as an example.


A Better Ending


Let's revisit my example from above and see how things would have been different had I followed my own advice and planned ahead prior to my car accident.

If I had a POA my agent would have been able to present the document to my bank to gain access to my bank accounts. They would have been able speak to my mortgage company and the banks who held my car loans and made arrangements during my hospital stay or used the money from my bank to pay those debts. If needed they could have sold my house and cars to pay for my care. Any financial decision I could make on my own they would have been able to do on my behalf.

The relationship between my family would be better, because I had a Healthcare POA. My Healthcare agent would present the HPOA to the doctors and they would know who was in charge of making medical decisions for me. More importantly my family would have known who was in charge as well. I would have also discussed with my agent how I would like to be treated should something like this happen to me and therefore my care could be discussed with doctors without delay.

If I had ended up passing away from the accident and had at the very least a will, my wishes would have been known on how I wanted my estate to be distributed and who should benefit from it, instead of the state determining who inherited from me and in what amounts. Also, by designating a beneficiary on my life insurance the proceeds could have be paid immediately to my family to pay for funeral arrangements and other expenses.

A little bit of time and expense can go a long way to protect you, your family and your assets if you take proactive steps to avoid what could be a tragic result. Realize that you can control outcomes even if the cause was out of your hands.


Conclusion

These 6 essential items you need for your estate plan in Pennsylvania can go a long way to protecting you, your family and your assets throughout your lifetime. It is important to realize that each of these items require care and knowledge about the law when drafting so please consider working with an attorney prior to creating them. I would not recommend treating this as a DIY project, but if you do at the very least ask an attorney to look at them beforehand as they may catch something you missed. A poorly prepared estate plan is in many respects worse than not having one at all.


If you have any questions about this post or any other topic related to estate planning feel free to e-mail me at jose.roman@romanestatelaw.com and I would be happy to assist you. If you would like to request a consultation you can do so at https://www.romanestatelaw.com/book-online


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