Legal Question in Wills and Trusts in Pennsylvania

Re: Can we avoid Estate Tax & still aviod Probate?

The following is based on the facts provided.

An estate plan would be necessary in this case to save the children from paying estate tax.

Every individual is able to make tax fee gifts during their lifetime including money passing under their estate in the amount of $675,000. This is known as the unifed credit.

In order to take advantage of the credit an estate plan should be set up prior to the death of the first spouse. Gifts between spouses do not count in the $675,000, they pass tax free.

The following hypothetical will illustrate:

Spouse A dies living everything they have to Spouse B with the assumption that Spouse B upon their death will leave everything to the children. Spouse B pays no tax on what passed into her estate at Spouse A's death. Now when Spouse B dies she is taxed on the amount in her estate over $675,000. If the total estate is 1.5 million this will result in estate tax owing on almost a million dollars.

In order to prevent this we need to take advantage of the Spouse A's unified credit. This will require the assets of the spouses to be shifted in appropriate ways and to set up trusts to hold some of the assets.

Our firm is very capable of handling this matter and can discuss the various options avaliable to you. In addition wills, power of attroney and living wills should be considered.

Please contact me if I can be of assistance.

Patrick W. Carothers

Sherrard, German & Kelly

35th Floor, FreeMarkets Center

Pittsburgh, PA 15222

(412) 355-0200

[email protected]

Re: Can we avoid Estate Tax & still aviod Probate?

Possibly. You have two questions here so I will answer each individually. Basically to avoid probate you can either give the money away now or set up the money into some sort of trust. (You usually hear about living trusts to avoid probate.) I can�t tell you which one is best because it really depends on why you want to avoid probate.

As for the estate tax, you could shelter most of it from federal estate tax with the proper planning. Currently you can shelter 1.35 million and by 2002 you can effectively shelter 2 million. This is best accomplish by using A-B trusts, but A-B trust don�t avoid probate. There are other ways to avoid probate and shelter the money, but you need to talk with an estate planning attorney for more details. It really depends on your needs.

You should also keep in mind that any life insurance proceeds you have will be included in your gross estate. So if you have 1.5 million in assets and 1 million in life insurance you have an estate of 2.5 million, not 1.5 million. Removing life insurance from federal taxation is easily but you have to do it three years before you die.

If you want to call me and discuss this further I can be reached at (610) 635-5555.

Re: Can we avoid Estate Tax & still aviod Probate?

There is no Pa. estate tax. There is a Pa. inheritance tax, however. And there is a federal estate tax, but for a husband and wife with an estate valued at 1.5 million, there should be no trouble avoiding the federal estate tax completely. It will, of course, require some planning. Probate is not a problem in Pa. It is very inexpensive, and uncomplicated. Our firm has 4 lawyers who have masters degrees in law in taxation who do virtually no other work than estate planning. We could be of considerable help to you in planning your estate and giving you peace of mind with respect to both tax issues and probate issues. Please call me if you are further interested. M. Eckell 610 565-3700 x242