Although I am not sure who coined the phrase “we don’t plan to fail, we fail to plan”, it is certainly a truism applicable to everything that we do. The other colloquialism which comes to mind is “pay yourself first”. Why are these significant words and how do they relate to the title of this article? Well you may be surprised but it deals with estate planning.

Whether you realize it or not, over your lifetime you will accumulate a great deal of assets, both in the form of real estate and other tangible property or in liquid assets such as cash or freely traded securities, mutual funds, stocks, etc.

If you fail to plan your estate by creating a will, a relatively easy and painless task, you will needlessly waste those assets you have worked so hard to accumulate.  You will also cause both you and your family a great deal of difficulty in the following areas:

  • Your assets will pass to people you may not want to receive them or who are not ready to receive them (such as minor children). If your plan would be to have your spouse inherit your entire probate estate and have the survivor of the two of you pass the estate down to the children, this plan can be frustrated without a will because the children have a right to inherit from each parent.   Accordingly, children can sometimes inherit a portion of the estate of the first to die to the frustration of the surviving spouse.
  • If you have minor children you will need to have a guardian appointed for the share of your estate they may be entitled to inherit or for which they are named as beneficiaries. In many cases your spouse will not be authorized under the law to serve as this guardian and another person will have to be found to fill this role.  Such guardian will be required to report to the Orphans’ Court every year and render an accounting as to how, why and where he/she spent money for the care of the children.
  • Your children will have the absolute right to demand and receive a complete accounting from the guardian of all of his/her financial actions with their money as soon as they reach age 18.
  • At age 18 your children will have the unbridled right to withdraw and spend the portion of the estate they will inherit from you. The children can then spend that money however they want to spend it, which at 18 usually is on some frivolity.
  • Should your spouse remarry, his/her second spouse shall be entitled to at least 2 of everything your spouse owns including, that which he/she inherited as a result of your death. This is particularly problematic where your spouse dies after having remarried.  In that case, there is no requirement that your children receive what you left to their mother or father (as the case may be).  Without planning that property will pass outside of your family to the second spouse as the survivor.  In addition, if you have minor children and they need support, the second spouse is not obligated to contribute anything to their support even if he/she ends up with your property.
  • Should your spouse pre-decease you and you die while your children are minors, unless you designate otherwise in your estate plan, the court will have to appoint a guardian of the person for your minor children and may not choose the person you would have preferred.
  • Should you or your spouse become incapacitated due to an accident or illness the other spouse is not legally empowered to transact business for the incapacitated person. In such a case, another guardianship proceeding would be necessary.  This could be avoided by a power of attorney.
  • By failing to plan your estate, you abandon the legitimate tax laws available to reduce inheritance and death taxes which will be thrust upon your family members upon your death.

All of these deficiencies can easily be avoided if you simply invest 2 hours of your time with a skilled estate planning practitioner.  For example, there are numerous ways to avoid estate taxation whether it is through joint accounts, giving of gifts and/or the establishment of trusts.  It is likewise easy to establish a trust for your minor children in the event you should die while they remain minors.  It is bordering on child abuse if you do not create such a trust and appoint a trustee and guardian to take care of those children should you die before them.

If you are like me you spend most of your time thinking about your clients/customers, and not your own personal situation.  You probably have accumulated substantial value in your estate which, if you do not plan for your death and passage of that value, could result in a huge tax liability.  The Commonwealth of Pennsylvania imposes an inheritance tax of 4.5% for lineal descendants and 15% for non lineal descendants.  The federal government estate tax begins at 18% and ranges up to 40%.  There are easy ways to reduce these taxes.  Just with the methods described above, you can avoid a substantial amount of those taxes however, you must invest the time to do it.

Estate planning is not just for older people.  It is important to do no matter what your age and no matter what assets you own.  It is something that once it is drafted or planned can last an extremely long time giving you the security to know that if something should happen to you, those you designate will be taken care of.

Accordingly, for once be a little selfish and think about your own situation and pay yourself and family first, plan instead of failing to plan.

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