Tuesday, November 28, 2017

10 Questions About Being an Executor

[The following article was written by Elizabeth White, a Certified Elder Law Attorney* with Marshall, Parker andWeber. It is reprinted here with her permission.]
Your loved one lets you know that you are named as the Executor in their Will. Now what? Until the person that named you passes away, rest assured there is nothing that needs to be done with the Will. However, it is understandable, especially if you are a planner like me, that you would want some background on what the position entails.
Let’s review ten common questions that those who are named as Executor often ask about the position.
1.    If I am named Executor in the Will, do I have to serve? Serving as Executor of an estate is not an easy task. While you may be honored that someone has named you, there are various reasons that you may not wish to or simply cannot serve. You are not required to accept the position of Executor. If there is a successor Executor named, you may step down (renounce) and allow that person to serve. If no successor is named, there is a law in Pennsylvania that provides who has the right to serve in the position. If you already know during your loved one’s lifetime that you do not want the position, you should tell them. Your loved one could then choose someone else to name in their Will as Executor.
2.    I am named as a Co-Executor with my siblings. Can I start the estate process without them? Co-Executors in Pennsylvania must serve jointly. Do not be surprised if you call an attorney when a loved one passes to try to start an estate, only be told that the other Co-Executors must be present.
3.    Can I administer the estate without going to the courthouse and opening an estate? There are certain assets that require probate, or the opening of an estate in Pennsylvania. This is completed at the Register of Wills. Upon filing a petition and after being administered an oath, you will receive official paperwork (letters testamentary) proving you are the Executor of the Estate and can manage the estate assets. There can be instances where the type of assets or the titling of assets do not require a probate estate. An attorney can review assets to advise if there is no probate estate is necessary.
4.    What paperwork do I need? At minimum, you will need the original Will and an original death certificate. Any paperwork related to your loved one’s assets and beneficiaries addresses helps the process along. If your loved one worked with an attorney, the Will and other information may already be in the attorney’s file.
5.     Are there taxes the estate will have to pay? There are taxes associated with most estates. These may include a Pennsylvania inheritance tax to the Department of Revenue, federal and state income taxes, and in situations of high net-worth individuals, Federal Estate Tax. An attorney and accountant can advise you as to what taxes apply to the estate and assist in completing and filing the appropriate forms and payments.
6.    Can I take a fee for serving as an Executor? Serving as an Executor is work. You are able to be compensated for your service and the fee is income taxable to you. In order to be compensated, you should keep track of the work and time you have put into administering the estate. This fee is generally allowable even if you have hired an attorney to assist with the administration.
7.    Am I personally responsible for outstanding debts? If there are any valid outstanding bills owed, these debts are brought by the creditors to the estate. in Pennsylvania there is a specific priority for which debts get paid from an estate. If the Executor properly manages the assets and pays the debts in the correct order, there should not be liability to the Executor personally for the debts. However, if certain requirements are not met, such as advertising the estate or paying debts in the right priority, there can be liability to the Executor.
8.    Can the estate be completed in a couple of months? Generally, no. Estates usually are open between one to two years, sometimes longer. That does not mean work needs to be done on the estate every day, but the process takes time. There are certain documents, such as an inheritance tax return, that the Department of Revenue must review and accept before an estate can be closed. This review can take up to 6 months from the date of filing the return.
9.    I think my brother got more from my mom than me during her lifetime. I want to subtract that from his inheritance, but the Will says everything goes equally. Do I have to pay the estate assets to the persons listed in the Will in that proportion? Yes. You must notify interested parties, including the beneficiaries in the Will of the estate. As Executor you must follow the terms of the Will. You cannot change the distributions based on your preferences or ideas of what your loved one would have wanted.
10. Am I required to hire an attorney to administer the estate? No, but it is a really good idea. If you do not administer the estate according to the laws, you put yourself in a position of personal liability. Additionally, administering an estate, even with advisors, is time consuming. It is better to leave it to the professionals to ensure that everything is completed properly and in a timely matter.

*Certified as an Elder Law Attorney by the National Elder Law Foundation as authorized by the Pennsylvania Supreme Court. 

Thursday, November 2, 2017

How I Chose my Medigap Policy

Recently I received a letter from Highmark Blue Cross Blue Shield telling my that they were canceling the Medicare Supplement (Medigap) Plan I had been using. The letter informed me that I needed to acquire a new plan, or suffer permanent negative consequences.
So, I was faced with the unenviable prospect of having to find a new plan for myself and my wife. Here is how I went about choosing. 
First I outlined the steps I needed to take:
-        Step 1: Choose between staying with Original Medicare or switching to a  Medicare Advantage Plan.  
-        Step 2: Once I choose to stay with Original Medicare, find out what Medigap plans are available to me
-        Step 3: Chooe the best plan for me from amongst the array of available Medigap plans.
-        Step 4: Determine which insurance companies offer the best prices on the  Medigap plan I have chosen.
-        Step 5: Fill out and send in the application forms for the plan I chose.
Step1: Choosing between Original Medicare and Medicare Advantage
The first step was to decide wheter I wanted to get my basic Medicare through Original Medicare or through a Medicare Advanatge Plan. Each has its pros and cons. I decided to stay with Original Medicare for reasons that I have discussed in another article: Why I chose Original Medicare over a Medicare Advantage Plan
If you choose to go with Original Medicare (Parts A and B) you are going to run into “gaps” such as  deductibles and co-payments. A Medigap policy is private health insurance that helps supplement your Original Medicare coverage and fill some of those gaps. (Note that you don’t need a Medigap Supplement policy if you have gone the Medicare Advantage plan route. You only need a Medigap policy if you choose Original Medicare.)
The extent to which a Medigap policy will fill the gaps depends upon the policy you choose. Most consumers get to chose from a number of policies that are identified by letters A through N. Policies with the same letter offer the same cstandarized overage. A Medigap Plan G policy from one insurance company  will offer the same benefits as a Medigap Plan G policy from any other company. The policies do differ – but ony by pricing.
Note that Medigap policies typically do NOT cover many potentially significant health related expenses. These uncovered costs include long-term care, vision,  dental care, hearing aids, and eyeglasses. You will need other insurance if you want to cover those risks. You will also want to consider obtaining a Medicare Part D policy to provide coverage for prescription drugs. 
Step 2: Finding Which Medigap Plans are Available to you.
Medicare makes it relatively easy to find out which Medigap plans are being offered in your geographic area. Visit the Medigap Policy Search page on the Medicare website, here. Put in your zip code to be taken to a page where you can see a list of the standardized policies being offered in your zip code along with a range of prices.  
The listing of policy choices and companies can be pretty overwhelming. You can narrow down the choices by deciding which of the standardized plans you want to consider. When you know which plan you want click on “View Companies that offer Medigap Policy ___” for the plan of your choice. You will be taken to a list of the insurance companies offer ng that plan in your region. Unfortunately, the Medicare website does not list specific prices for the plans offered by the various companies.
Step 3: Choosing a Standardized Plan

Choosing between the numbered plans offered in your zip code can be  difficult. Each of the separately lettered plans offers a standardized list of benefits but to choose between the lettered plans, you need look at the benefits they offer and try to predict which benefits you will need in the future.

You also need to consider price (rate) stability – how much will the costs rise as you age. Plans can use 3 different pricing structures:
1.              Community-rated (also called “no-age-rated”, and “area rated”) – the same premium is charged to everyone in your area regardless of age;
2.              Issue-age-rated (also called “entry-age-rated”) – premiums are based on the age at which you purchased the policy.
3.              Attained-age-rated  - the premium is lower when you are younger and rises as you age.
More information on these pricing structures (ratings) is available in the Medicare brochure Choosing a Medigap Policy
Standard Plan F is the most comprehensive and is the most popular choice. 66% of Medigap purchasers choose Plan F according to Banrate.com (See, Medigap Plan F the most costly, yet popular). If you need help choosing between plans you can call your State Health Insurance Assistance Program (SHIP). These programs are available in every state. The telephone numbers are available here. The telephone number for the Pennsylvania program is 1-800-783-7067. This assistance is free and confidential. The state SHIP may refer you to a local branch of its operations.
I wanted comprehensive coverage so I considered Plans C, G and F. I ended up deciding that I wanted a community (area) rated Plan F. It has the broadest coverage and I felt that the added cost was worth it given my health and circumstances.
Plan G also has broad benefits although (unlike Plans C and F) it does not cover the Part B deductible. Plan C has broad coverage does not cover Medicare “excess charges” that some doctors legally charge in excess of the Medicare-approved amount. While my current doctors accept the Medicare approved amount as payment in full I’m not too sure about the future. (Note that a Medigap Plan C policy is very different from Medicare Part C – Medicare Advantage Plans).   
Step 4 Getting Prices - Contacting the Insurance Companies
The next step can be laborious. But it can save you a lot of money. The Medicare website does not list prices for specific Medigap policies. This means you need to contact the insurance companies that are offering the Plan you want and see what they are charging for it in your area.
As noted above you can find a list of insurance companies offering plans in your area on the Medicare website. Knowing the plan you want (and the rating structure you prefer) may help you narrow the field of competitors you need to consider. For example, you may decide that you want the most comprehensive coverage available by obtaining a Plan F Medicap policy. You can then narrow your calls to only those companies that offer Plan F policies in your locality. If you limit your choice to companies which offer a community rated Plan F, you can narrow the list of candidates even more.
You really should take the time to compare prices. The plans are standardized but the prices are not. There can be big differences in the prices offered by different companies for  the same standardized plan.
The Medicare website advises consumers to call the insurance companies to compare prices. That is certainly a reasonable way to proceed especially if only a few companies are offering plans that meet your requirements.
On the other hand, there may be a dozen or more companies offering the Plan you desire. Here is a possible work-around that might allow you to compare prices without calling each company separately. Your State Health Insurance Program (SHIP) or its local program may have a list of the prices being offered on policies in your region. Contact them for pricing information.  The SHIP telephone numbers are available here
Step 5: Signing Up
Now that you have chosen the plan and company you want, you need to follow through and sign up. Call the insurance company to find out what you need to do. You may be able to sign up online, or have a company representative assist you, or get the application forms by mail. Fortunately, filling out the paperwork is fairly simple and straightforward.
Don’t wait too long. If you miss your open enrollment perior or guaranteed renewal period, the policy may cost you substantially more, year after year.
A Final Word
Although Medigap polices are standardized, getting a policy is still pretty complicated. Don’t be shy about seeking help from the experts. Call your State Health Insurance program. You also can seek help from a reputable local insurance broker who sells Medigap policies. If you do, you may want to choose a broker who can offer policies from many companies rather than a captive agent whose choices may be limited. 
I’m not sure that I made the absolutely best possible choice in Medigap polcies. But I think I made a good choice. I hope this article will help you make a good choice too.
Other Resources:
Medicare has a helpful free publication on Choosing a Medigap Policy

Wednesday, November 1, 2017

Tips for Understanding the Gift Tax

People are often confused about the laws that apply when they make a gift. Some are surprised to learn that gifts are regulated at all. Unfortunately there are rules - both in terms of taxes and Medicaid qualification. And the laws are complicated.
Adding to the confusion - the tax rules related to gifts are very different from the rules that apply to Medicaid eligibility. This article discusses the tax rules. See my earlier blog post: Don’t Confuse Medicaid Rules with Tax Rules, for more on the Medicaid disqualification rules that can apply when you make a gift.
Here are some tips that should help you understand whether your gift is going to be taxable.
State Gift Taxes
In general gift taxes laws are federal not state.
Most states do not tax gifts made from detached or disinterested generosity. However, transfers of cash or property in payment for services, or as an inducement to perform services, may be subject to state (and federal) taxes.
As far as I am aware Connecticut is currently the only state that imposes a state gift tax. The Connecticut tax applies when the aggregate amount of the Connecticut taxable gifts made on or after January 1, 2005, exceeds $2 million.
Pennsylvania residents should note, however, that gifts made within one year of the death of the donor are subject to PA inheritance taxes to the extent they exceed $3,000 per donee. A few other states also impose some form of so called “gifts-in-contemplation-of-death” rules similar to that of Pennsylvania.
Federal Gift Taxes - 7 Tips
Here are some useful tips (drawn from information provided by the IRS) about gifts and the federal gift tax.
1.    Nontaxable Gifts.  The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:
  • Gifts that do not exceed the annual exclusion (see below) for the calendar year,
  • Tuition or medical expenses you paid directly to a medical or educational institution for someone,
  • Gifts to your spouse (for federal tax purposes, the term “spouse” includes individuals of the same sex who are lawfully married),
  • Gifts to a political organization for its use, and
  • Gifts to charities.
2.   Annual Exclusion. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year. For 2018 the annual exclusion is $15,000 (up from $14,000 in 2017).
3.    No Tax on Recipient.  Generally, the person who receives your gift will not have to pay a federal gift tax. That person also does not pay income tax on the value of the gift received.
4.    Gifts Not Deductible.  Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
5.    Forgiven and Certain Loans.  The gift tax may also apply when you forgive a debt or make a loan that is interest-free or below the market interest rate.
6.    Gift-Splitting.  You and your spouse can give a gift up to $28,000 to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.
7.    Filing Requirement.  You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:
  • You gave gifts to at least one person (other than your spouse) that amount to more than the annual exclusion for the year.
  • You and your spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
  • You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later.
  • You gave your spouse an interest in property that will terminate due to a future event.
Further Reading:
Much of the information in this article is drawn from, Seven Tips to Help You Determine if Your Gift is Taxable, IRS Tax Tip 2015-51.
For more information, see IRS Publication 559, Survivors, Executors, and Administrators.

An earlier version of this article was published in July 2015

Saturday, October 21, 2017

Standards for Probate of Copy of Lost Will Eased in PA

[This article was written by  Casey Sauerwine a lawyer with my law firm, Marshall, Parker and Weber}
In 2014 a colleague wrote about a PA Superior Court decision where the court’s application of the two witness rule led to a less than favorable result. The decision was given in the case of in re the Estate of Isabel Wilner. My colleague wrote that he was not sure he had ever seen a court opinion so apologetic over applying a well-established rule of law.
Now, two years later the court no longer needs to be apologetic.
The issue in the Wilner case dealt with a “lost” will and the appropriate interpretation of the two witness rule. I wrote about Pennsylvania’s law regarding witnesses for wills in a prior blog article: Does a Will Need Witnesses to be Valid? The two witness rule, as applied by the Superior Court in Wilner, makes it very difficult to probate a copy of a will when the original cannot be found.
Here are the facts in the Wilner case. Ms. Isabel Wilner had a will drafted by an attorney in June 2007. She signed it in front of the drafting attorney, another attorney acting as notary and a secretary. Ms. Winder’s lawyer followed his customary practice and gave his client the signed original will; he also prepared and conformed two unsigned photocopies (one for the client and one for the attorney’s file). Ms. Wilner had the original will placed in an unlocked lock box in her bedroom and had the copy placed in an upstairs safe.
In 2010 Ms. Wilner signed two codicils (amendments) to the 2007 will. The codicils were prepared by the same attorney who drafted the 2007 will. Again the signed original codicils were placed in the unlocked lock box in her bedroom and the copies were placed in the upstairs safe.
Later in 2010 family members came to visit Ms. Wilner at her home. The visitors included a niece who had not been invited. This niece created a lot of distress for Ms. Wilner.
Ms. Wilner passed away on March, 16, 2011 and her caregiver/executrix went to collect the original will and codicils from Ms. Wilner’s lockbox. She found that the original will had been removed but the original codicils remained. The executrix then went to the upstairs safe to retrieve the conformed copy only to find that it had also been removed.
The executrix went to the original drafting attorney to get his conformed copy of the will. She then filed that copy along with the codicils for probate with the Register of Wills. But the niece filed an objection to the probate of the copy of the will.
Ms. Wilner had never married and had no children. Her intestate heirs were the niece and a nephew. If the copy of the will and codicils were rejected  the niece would inherit a large portion of Ms. Wilner’s estate.On the other hand, iIf the copies were accepted the entire estate would go to charity as Ms Wilner had specified in the lost original will.
The dispute went to the Orphans Court which held two hearings. The drafting attorney testified that the contents set out in the copy of the will were the same as the contents of the lost original will. But no one else testified regarding the contents. The Orphans Court entered a decision allowing the copy of the will to be admitted for probate. The niece appealed.
On appeal the Superior Court (a lower appeals court) reversed the decision of the Orphans’ Court. The Superior Court held that to probate a lost will there must be proof by two witnesses of both due execution and “of the contents substantially as set forth in the copy offered for probate.” Since only one witness testified to the contents of the will the Superior Court held that the copy could not be probated.  It ruled, apologetically, for the niece.
The executrix appealed this decision to the Pennsylvania Supreme Court. The question was whether the two witness rule applies to proving both a will’s proper execution and it’s contents. In re Estate of Isabel Wilner,
A very old Supreme Court case had required proof by two witnesses as to both the will’s proper execution and its contents  before a copy could be admitted for probate   Hodgson’s Estate, 270 Pa. at 213. But after Hodgson the relevant statute was changed. In the Supreme Court’s analysis the current statute leaves the question of the evidentiary standards for proof of the contents of a lost will to the courts to decide. In the Supreme Court’s view the relevant sections of the statute (20 Pa.C.S. § 3132)
 are principally concerned with signature requirements and evidence that the signature (or mark) at the end of the will is genuine. They do not appear to contemplate the contents of a will, lost or otherwise. As well, such focus upon the validity of the signatures is consistent with the specialized term, to “prove” a will, as applied in the probate context.
The court says that as a matter of common sense in many cases it will be unlikely that anyone besides the testator and the drafting attorney would be aware of the contents of the will since the subscribing witnesses are not required to read the will.
As a result of this reasoning, the Supreme Court ultimately reversed the Superior Court and reinstated the Orphans’ Court order. The will is admitted to probate and the estate  goes to charity not to the niece.
This is just one example of how legislation and statute interpretation can be so complicated. My colleague wrote an article in 2014 stating that although the Superior Court ruling was unfavorable and maybe unjust, it was the right and clear interpretation of the law.
Two years later the Supreme Court decides that the statute was not so clear after all. The Wilner case has now set the bright line rule that the “Two Witness Rule” only applies to determining if a will was properly executed and does not apply to the contents. The contents are to be proven through clear and convincing evidence at a judicial proceeding.