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The Case for Estate Planning, Under Any Circumstance

Chris is single, 32 years old and has no children. Chris has three brothers and one younger sister. Chris’s brothers are doing well, but his sister struggles financially and has a newborn to care for. Chris’s mother is disabled; she receives assistance from the Commonwealth of Pennsylvania in the form of Medical Assistance and assistance from the federal government in the form of Supplemental Security Income (SSI). His father passed away many years ago.

Chris has been working for an accounting firm for five years and has contributed to the firm’s 401(K) plan for four years. Chris has a checking account worth $11,000.00. Chris heard about estate planning but thinks he is too young to be concerned over end-of-life affairs. Chris also believes he doesn’t own much, and attorneys are too expensive — at least that’s what watching movies about private practice law firms has taught him. Chris passes away in a car accident on the way home from work one evening.

After the services, Chris’s brother, Sam, decides he should look into settling Chris’s affairs. Sam contacts Chris’s landlord. Chris had been renting a small apartment and is now a month behind in rent. The landlord says he will send Sam the bill but adds that Sam should see a lawyer before paying it.

Sam tries to close out Chris’s bank account, thinking all the bank would need is a death certificate, but a bank teller tells Sam that he needs a “short certificate” from the courthouse. Sam goes to the courthouse to ask about a short certificate, and a clerk at the Register of Wills office asks Sam whether his brother had a Will. Sam says he looked through his brother’s apartment but isn’t sure if a Will existed. The clerk grabs a list from behind her desk; it is a list of law firms that practice estate planning. “I think you better see a lawyer,” she says, handing the list to Sam.

Sam stops by Chris’s apartment to collect his mail. In the mail is a pharmacy bill for $550 and a statement for Chris’s retirement account which Sam is surprised to learn has a value of $42,000. Sam calls the telephone number for the financial advisor whose contact information is listed on the retirement statement. The financial advisor tells Chris that he should probably see an attorney and that “it doesn’t look like your brother designated any beneficiaries on his retirement account, so the funds will be payable to his estate.” The financial advisor then asks, “Did your brother have a Will?”

Sam is fed up. His siblings keep calling asking who is in charge of settling Chris’s affairs. Sam has no idea. Sam meets with an estate planning attorney and learns the following:

• In the event Chris never signed a Will, under Pennsylvania law his sole beneficiary is his mother who is receiving Medicaid and SSI.

• The $42,000 retirement account is payable to Chris’s estate, which means after estate administration expenses, taxes, and legal fees are paid, funds will be used to pay Chris’s pharmacy bill and landlord for the past due rent. The remainder will again pass to Chris’s mother.

• In order to close out the retirement account and the checking account, Sam will need to apply to be the administrator of Chris’s estate by starting the court process known as “probate.” However, Pennsylvania law gives Chris’s mother the first right to serve as administrator. As a result, Sam is going to have to visit his mother (who happens to live two hours away and isn’t too keen on technology) and ask her to sign something called a renunciation so that he can be the administrator instead.

• After Sam’s mother renounces the right to serve as administrator of the estate, Sam must also gather signed, notarized renunciations from his siblings.

• Now that Sam must proceed through the probate process to settle Chris’s legal affairs, the estate must be advertised in two newspapers, a legal newspaper and a newspaper of general circulation. These ads are intended to notify creditors that they should bring any claims they have against the estate.

• The attorney advises Sam that debts must be paid in a particular order and not to pay anything immediately until all debts are known.

• Since Chris’s mother is the beneficiary of the estate, she will likely receive several thousand dollars after debts, taxes, and legal fees are paid. The amount Chris’s mother receives could reduce or eliminate her SSI benefits and could also cause an interruption in his mother’s Medical Assistance benefits. The attorney informs Sam that resolving these additional legal issues will take time.

Do not think of the above fact pattern as a hypothetical. Sadly, estate administrations like Chris’s happen all the time. Many individuals are reluctant to engage an attorney for estate planning because they do not want to face their own mortality, or because they believe they own too little, or because they think the attorney will charge too much. Here is what could have happened if Chris had hired an attorney to draft his estate planning documents:

Chris meets with an attorney to discuss his estate planning. Chris tells the attorney that he would really like to take care of his younger sister who is struggling and has a newborn. Chris makes up his mind that he wants to leave everything to his sister. Chris asks the attorney what would happen if he didn’t have a Will. After the attorney explains that, under Pennsylvania’s intestacy law, his surviving mother would receive his estate, Chris responds that his mother is much older, is receiving government benefits, and that she would want “the siblings to take care of each other.” After reviewing Chris’s assets, the attorney advises Chris that he should complete his beneficiary designations for his retirement account and, by doing so, the account can be paid to his sister directly. The attorney also asks Chris if he can register his bank account as a “Pay on Death” account so that his sister can efficiently receive that asset upon Chris’s passing. Chris is happy to later learn that his bank will name his sister as a “Pay on Death” beneficiary. Here is what results:

• Chris’s attorney tells him that he only needs to spend about two hours of time on his planning, and will charge a fee of $500. Chris asks if he can pay in two installments, and the attorney agrees. Two weeks later, Chris signs his Will and has taken the steps to name his sister as beneficiary on his retirement account and checking account.

• When Chris passes away, his retirement account and checking account are paid directly to his sister. These assets do not become a part of the probate process, meaning an additional fee otherwise payable to the local Register of Wills Office is eliminated, and Chris’s family saves thousands on other expenses that they would have otherwise incurred for an attorney to wade through the legal issues identified above.

• Chris’s mother experiences no interruption in her government benefits.

• Chris’s creditors do not pursue any collections of their invoices because no assets are a part of Chris’s estate.

• Chris’s sister is able to set up an inherited retirement account to keep much of Chris’s stock portfolio invested for herself; she uses the $11,000 to pay bills and provide much needed items for her baby.

• Chris had named Sam in the Will to serve as executor, so there is no confusion as to who would settle Chris’s estate.

It is always a good idea to have your estate planning in order, regardless of age, health, familial status, or wealth. Estate planning is like putting together the pieces of a puzzle. Without it, your family is left with just the pieces, in a variety of places, and will likely have great difficulty in putting the picture together. If not for yourself, get your estate planning in order for your loved ones. Our estate planning attorneys are here to help.

DISCLAIMER: The foregoing does not constitute legal advice and has been prepared for informational purposes only. Please contact us directly with questions about how this relates to your specific situation.

Prepared by GKH attorney Angelo J. Fiorentino, who practices in the areas of Estate Planning and Administration, Elder Law, Corporate Law and Business Succession Planning.