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Why Now is a Good Time to Plan Your Estate

Why Now is a Good Time to Plan Your Estate

Why Now is a Good Time to Plan Your Estate

Why Now is a Good Time to Plan Your Estate

Many of us are tired of quarantining and keeping a safe social distance. But we know we must continue to do so for our own good health and for the benefit of society in general, despite the financial and emotional toll it is taking. One silver lining for many has been the increased time spent with family and the chance to slow down and smell the flowers, coffee grounds and fresher air around us.

Nonetheless, it is a scary time for most, wondering if they might catch the Covid-19 virus and how it will impact their futures. This makes it all the more important to take the time to think about your estate. Whom do you want to leave your assets to? Do you own a house? Do you have retirement funds? Do you own and/or operate a business? Do you have investments – real estate, stock, other ownership interests? A vacation home? There are many more questions to ask yourself. But, if you do not create a plan for how to pass on such property to your beneficiaries – spouse, children, grandchildren, siblings, friends, charities, etc. – the property will be distributed according to state law. There is a good chance that state law will not match your wishes.

Without an estate plan, you are also opening the door to potential litigation over assets because your beneficiaries may disagree as to your wishes, convinced, perhaps, that you meant to leave something to them. Finally, you may be losing out on significant tax savings by not planning ahead. In some states, including Pennsylvania, estate assets are taxed. The amount and percentage of tax depends, in large part, on who is the beneficiary and how ownership of your assets are structured. The IRS also taxes inheritances over a certain sum. Though the amount is large, some individuals will be subject to it. Estate planning is all the more important under such circumstances.

At a minimum, every adult should have a will or trust in place. The simple fact is that you will die. It’s only a question of when. Because you do not know when that will happen, it is best to do so while you are (relatively) healthy and competent. One common problem arises when a business owner is too busy running the business to think about who will take over if something happens to her. Perhaps one child is intimately involved in the business, while the others have no involvement. Mom has made it clear in numerous conversations with her son that she wants him to take over the business if something happens to her, but she never drafted a will to put her wishes in writing. Suddenly and without warning, mom becomes a victim of a drunk driver.

After her funeral, all three of her children go to the register of wills to administer her estate. Because mom did not execute a will, no executor was named. As a result, all three children must now administer the estate together, which is a recipe for disaster because they must all agree on each step of the process. Mom’s other two children expect to receive one-third of the value of the business. The youngest child, the one that worked with mom all those years at the family business protests. He tells his siblings that mom wanted him to have the business. “Say what?” decry the others. There is nothing in writing and mom never mentioned it to her other children.

The sad fact is that the youngest son’s words are not worth the paper they are not written on. According to state law, the children inherit mom’s assets in equal shares (dad predeceased mom). Because mom did not leave a will or trust, the business must be divided into three equal portions.

Let’s suppose the other two siblings are willing to sell their shares to the youngest sibling. But the youngest son does not have sufficient funds to purchase the business. He needs to get a loan, but his poor credit (he missed multiple student loan payments over the last 5 years) prohibits him from obtaining one. While there might be other ways of paying his siblings, they will depend primarily on the siblings’ generosity and flexibility. The problems are clear.

Without an executed estate plan, the potential for problems arising post-mortem is significantly higher. The courts are full of other examples and disputes between potential beneficiaries. Planning your estate will go a long way towards preventing such problems in the first place.

To begin a discussion about your estate plan and available options, feel free to contact Moretsky Law for a confidential consultation at 215-344-8343.