Does Your Current Estate Plan Still Fit the Needs of Your Family?
by Alissa B. Gorman
Creating a Will is an extremely important facet of estate planning, as it governs how an individual would like his or her assets distributed at death. Once a Will is signed, it should periodically be reviewed to insure that no major changes are needed, and that it provides the best tax benefit to one’s estate under the current estate and gift tax laws. It is best to revisit a Will after a major life event such as a marriage, birth, or death of someone in the family, or upon the occurrence of any major change in the tax law. A change in residence from one state to another should also prompt the testator to have his Will reviewed by an attorney admitted in the new state of residence. Laws governing Wills and estate administration vary from state to state, and it is imperative that a Will be either amended or completely re-drafted to comply with the laws of the testator’s current residence. Out-of-state Wills are typically valid in any state; however, nuances contained in each state’s probate laws, if not complied with, could cause the probate and estate administration process to be more burdensome. Any Trusts created as part of an estate plan should also be reviewed for compliance with local state law.
Typical differences in state law governing Wills include the number of witnesses required to sign the Will, whether an interested person may sign as a witness to the Will, and whether a Self-Proving Affidavit may be affixed to the Will. In Pennsylvania and New Jersey, in order for a Will to be admitted to probate, two witnesses (who must be over age 18) must sign the Will after watching the testator sign his name to the Will. Some states do not allow an “interested person” to sign as a valid witness. An “interested person” is typically defined as an individual who would receive property from the testator’s estate pursuant to his Will. For instance, in Illinois, the general rule is that if a person who is entitled to inherit property from the testator’s estate signs the Will as a witness, the gift is void as to the interested person’s share. New Jersey’s law specifically states that the signature of an interested person as a witness does not invalidate the Will. Pennsylvania’s law merely states that two competent witnesses must sign the Will, thereby allowing an interested person as a witness. In general, best practice suggests that any person named in the Will should not sign the Will as a witness.
Most states allow the Will to include a Self-Proving Affidavit, which is a document signed by the testator and witnesses in front of a notary public. In the affidavit, the testator affirms that he signed the Will as a free and voluntary act for the purposes contained therein, and the witnesses affirm that they were present when the testator signed the Will and that, in their opinion, the testator was over age 18, of sound mind, and not subject to undue influence. A valid Self-Proving Affidavit allows the Will to be admitted to probate without requiring the appearance of the witnesses at the courthouse.
The necessity of various estate planning tools will also vary from state to state. For example, revocable living trusts are estate planning tools that are much more prevalent in jurisdictions that require a formal probate process with heavy court oversight. A revocable living trust is a trust created by the settlor, into which the settlor transfers all of his property, and also names the settlor as the trustee and lifetime beneficiary of the trust. Revocable trusts are referred to as a will substitute, as the settlor transfers all of his assets (including house, car, bank accounts, etc.) into the name of the trust, and at the death of the settlor, the property remaining in the trust passes to the remainder beneficiaries named in the trust document, thereby rendering probate unnecessary. No estate or gift tax benefits are achieved by creating this trust, as the assets remain under the control of the settlor. The main purpose of the Trust is to avoid opening a probate estate when the settlor dies. In jurisdictions such as Florida, revocable living trusts are commonly drafted as part of an estate plan due to Florida’s complicated and burdensome probate process. However, in Pennsylvania and New Jersey, the probate process is much less burdensome than in Florida, and therefore the need for a revocable living trust is less common.
Most importantly, upon a change of state residence, any Special Needs Trust (“SNT”) should be reviewed by an attorney with experience in special needs planning. SNTs are governed by the federal Social Security Administration statutes, and thus, the trust provisions complying with the Social Security laws need not be amended; however, SNTs must also conform to each state’s regulations pertaining to Medicaid, any many states have very specific, unique requirements that must be contained in an SNT to be valid in that state.
Self-Funded SNTs must contain a payback provision, which, after the death of the beneficiary, allows a state to recover for any Medical Assistance provided to the beneficiary during his lifetime. Therefore, the SNT should include language that allows for multiple states to receive a proportionate share of any monies remaining in the trust up to the extent of the Medical Assistance provided by each state. Many state Medicaid agencies approve Self-Funded SNTs, and may require that an individual trustee be bonded if the Self-Funded SNT contains more than $100,000.00, or if an out-of-state individual serves as trustee regardless of the amount of monies contained in the trust.
It may also be necessary to change the situs of the SNT, which determines which state’s laws govern the Trust. If an individual with special needs relocates from Florida to Pennsylvania and begins receiving public benefits in Pennsylvania, the Department of Public Welfare, which is the agency that administers Medical Assistance in Pennsylvania), may require that the Trust be governed by Pennsylvania’s laws rather than the laws of Florida. If you have recently moved to Pennsylvania or New Jersey, consider contacting our office to determine whether your estate plan best meets the needs of your family.