ESTATE PLANNING • ELDER CARE & DISABILITY PLANNING

The inheritance tax in Pennsylvania is not levied on the gross value of the testator’s estate. When preparing the tax return, the testator’s executor or administrator will be able to deduct any debts owed, funeral expenses, and any other costs involved in settling the estate. Another deduction that may be available is a family exemption in the amount of $3,500. In addition, certain kinds of property are entirely exempt from the tax.

For example, there is an exemption for property that is owned jointly by a husband and wife. Thus, if both spouses own all of their property jointly, after the death of the first spouse, the property will not be subject to inheritance tax. There is also an exemption for life insurance proceeds and benefits from several retirement plans.

In Pennsylvania, a living trust is a legal agreement in which the testator’s assets, including bank accounts, home, securities, etc., can be transferred and handled by an individual, including the testator, or corporation, such as a trust or bank. The person or company managing the trust is called a trustee. The trustee manages the trust according to the written directions outlined in a trust document.

The need for a revocable living trust is dependent on the testator’s family circumstances, financial status and objectives. In Pennsylvania, the advantage of establishing a living trust only to avoid probate is questionable because in Pennsylvania, the cost of probate is reasonable and less time-consuming than in several other states. Additionally, in Pennsylvania, a revocable living trust does not help reduce taxes. The Pennsylvania Inheritance Tax and Federal Estate Tax are identical, regardless of whether assets are managed through a revocable living trust or under a will. Moreover, estate planning methods created to lower taxes are accessible under wills to the same degree that they are accessible under revocable living trusts.

Under the Pennsylvania Estate Law, which is also called the Decedents, Estates, and Fiduciaries Code, a surviving parent can nominate a “guardian of the person” of a child. Guardianship of the person refers to the individual who has custody of the child, who makes decisions regarding where the child will reside, the religion to which the child will be exposed, the kind of medical treatment the child will receive, and other issues that parents normally resolve. A “guardian of the estate” of a child can also be nominated to manage financial decision making for the minor. These nominations are made in the parents’ wills.

For real or personal property or property bequeathed to a minor under the terms of a parent’s or grandparent’s will, the will should include a testamentary trust providing for the management of the inherited property for the benefit of the minor. The trust should specify who will act as trustee. This can be a family member. It should also outline how the trust should be used, such as for health, education, maintenance and support, and should specify the age at which the child can receive the inheritance outright. It is critically important that beneficiary designations on life insurances, annuities and retirement accounts be coordinated so that these accounts will be distributed to the trust.