As an Estate practitioner, I have found that lately I am spending more time listening to my clients tell me about what they think the law is when it comes to Estate planning and Estate Administration from what they heard from friends, family and of course, what people try to use as a replacement for a licensed attorney: the Internet.
Therefore, I think it would be helpful to shed light on what’s true and what is not on some of the most common myths I am hearing. Here they are:
- If I put my assets into a revocable living trust, my beneficiaries won’t have to pay inheritance tax. False. So long as the settlor (the person who creates the trust) has access to both principal and income in the trust, then it’s going to be subject to Pennsylvania Inheritance tax. Since the trust is revocable, the settlor has full access to the principal and the trust income. The only way a trust can insulate an asset from Pennsylvania Inheritance Tax is if someone puts his assets into an irrevocable trust and cannot access that asset during his or her lifetime. Practically speaking, this is not a viable option for most people, as having access to your money and investments during retirement is what people work for their whole lives. It’s your money. Enjoy it!
- If Mom or Dad go into a nursing home, the nursing home will take the house. False. Nursing homes are not in the real estate business. What actually may happen is if a person has to go into a long term care facility and that person does not have enough money to pay for his or her care, then Medicaid will pay for that person’s care. However, because Medicaid is a means tested benefit (in other words, welfare) the person’s assets will have to be spent down and the house may have to be sold to pay for the care received at the nursing home. If the house is not sold during the person’s lifetime, after his or her death, the Department of Human Services may make a claim against that person’s estate to recover the monies it paid on behalf of the individual. So, it is not the nursing homes themselves that are looking to take or sell the house, it’s the government trying to recoup taxpayer dollars.
- HELP -Mom or Dad is in a nursing home, and there’s no Power of Attorney. My neighbor said that I can just stop in an Attorney’s office and sign one so I can make decisions for Mom/Dad. False. The only person who can appoint an agent through a Power of Attorney document is the “principal” (in other words, Mom or Dad), so only Mom or Dad can grant that authority. If the situation has reached this point, however, the question usually is whether Mom or Dad have the mental capacity to sign a power of attorney. In Pennsylvania, having the requisite mental capacity to sign a Power of Attorney document is a relatively low standard. Basically, the principal needs to have the ability to consent to and understand the power they are giving to another person. So, as long as Mom or Dad understands that a POA allows their adult child to pay their bills and make decisions for them, and they are fine with that, they can sign a Power of Attorney document.
- If I don’t have a Will, everything I own will wind up going to the State. False. If someone dies without leaving a Will in the Commonwealth of Pennsylvania, there are statutes that dictate what happens with your estate. They are known as the laws of Intestacy. These laws set forth an order of priority in which people inherit from those who die without a Will. Here is an overview: If you die with children, but no spouse, the children inherit everything. If you die having a spouse, but no children or parents then the spouse inherits everything. If you die having a spouse and children from that same spouse, then the spouse inherits the first $30,000 of your intestate estate plus ½ the balance and your children inherit the remainder. If you die having a spouse, and you have children from another relationship, then the spouse inherits ½ of your intestate estate and the children inherit everything else. If you die having a spouse and parents who survived you, then the spouse inherits the first $30,000 of your intestate estate plus ½ the balance and your parents inherit the remainder. If you die with parents but no spouse, then your parents inherit everything. If you die without parents, a spouse or children, then your siblings inherit everything. It keeps going all the way to second cousins. Only if you don’t have so much as a second cousin who survives you, then your estate will “escheat” which is just a fancy way of saying that it will go to the Commonwealth.
These are the most common misconceptions that I have fielded in my practice. My advice is if at any time a question arises about Estate planning or Estate administration, it is best to speak directly to a licensed attorney. Otherwise, the few dollars you save by doing an internet search or asking your neighbor (unless you live next door to a lawyer) may cost you or your loved ones thousands later.