Monday, August 21, 2017

Are Witnesses Required on a Will?

[The following article was written by Attorney  Casey Sauerwine of Marshall, Parker and Weber, and is posted with her permission]

Does a Will Need Witnesses to be Valid? Like many estate planning questions the answer is not as simple as yes or no; but more along the lines of “it depends.” While the law varies from state to state, in Pennsylvania a will usually only has to meet two basic requirements: 1) It must be in writing and 2) it must be signed by the testator (the person whose will it is) at the end[i] thereof. See: 20 PA.C.S.A. §2502.  

 These basic requirements do not include witnesses. Normally as long as you meet the writing and signing requirements witnesses are not required when you sign your will. 

However, there are special circumstances where witnesses are required: when the testator cannot sign his name but rather has to make a mark on the will; or, when the testator cannot sign nor mark on his will and another person has to sign for him. When these circumstances arise it is required that the mark or other individual signing for the testator be done in the presence of two witnesses who sign their names. See, 20 PA.C.S.A. §2502 (2) and (3).

Those are the basic requirements. The bigger question is “Should I have witnesses when I sign my will”? The answer to that question is a definite YES. Here’s why. 

Although witnesses are usually not required at the time the will is signed, they are required in some capacity in order for the will to be probated after the testator dies. (Probate is the legal process of authenticating the will and authorizing someone to administer the estate.) The role of the witnesses is essentially to verify that the instrument being offered is indeed the testator’s will.

If there are no witnesses to the signing of the will, people will need to be located who can verify that the will contains the true signature of the deceased. This can cause unnecessary delay and expense and even result in the inability to probate the will.

In the long run it is definitely better to have witnesses sign your will in the beginning rather than having the executor chase down individuals after your passing.

For Pennsylvania residents, the best way to proceed is to follow the procedure for a “self-proving” will.  Self-proving wills simplify the probate process as they allow the Register of Wills to accept a notarized affidavit from the testator and witnesses as proof the will is the testator’s. This notarized affidavit is placed at the end of the testator’s will and signed by the witnesses at the same time as the testator is signing. If the self-proving will procedure is followed, witnesses will not have to come in to the courthouse to verify the will.

In the end, although you do not usually need two witnesses to sign your will, having a self-proving will can be a huge help for your executor and beneficiaries.

Wills are important and complicated documents. Do yourself and your heirs a favor by avoiding the temptation to “do it yourself” or use a cheap online service. (See our earlier article: Don’t Try This at Home: Do-It-Yourself Wills are Dangerous for more on this topic).

Instead, meet with an experienced elder law attorney who can help you avoid the problems and traps that can cost so much lost time, money and distress for your family after you are gone. If you live in Pennsylvania, the lawyers of Marshall, Parker and Weber will be honored to assist you.

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Friday, August 18, 2017

Risks Involved in Giving your Home to your Children

[The following article was written by Attorney Elizabeth White of Marshall, Parker and Weber, and is posted with her permission]

It is common for parents to consider deeding their home to their child or children. The reasons for contemplating a home ownership transfer vary, but typically include the parents thinking that this will allow their estates to avoid probate, inheritance taxes, or to help them qualify for benefits for long-term care. Although it may appear to be a good decision, unfortunately, many times it does not turn out that way.

It is important to understand the risks of transferring your home to your child.

1.)  Your Home Becomes Subject to Your Child’s Life Circumstances

Once you sign a deed transferring title of your property to your child, you are no longer the owner. A loss of control of the property comes with this loss of ownership. If your child has creditors, a lien could be placed on your property by those creditors. If your child is in an accident and does not have sufficient insurance, your home could be subject to a lien or sale.

If your child divorces, the ownership interest of your home may become part of that divorce settlement. If your child passes away before you, the home will be distributed to his or her estate beneficiaries. The beneficiary could be an in-law who you do not get along with and evicts you from the home. While no one wants to think of the worst case scenario, although everything is stable with your child today, we never know what the future may hold. The risk of losing the ability to live in your residence is a large gamble to take.

2.)  Your Transfer is Subject to the Five (5) Year Medicaid Look-Back

Transferring your home to a child is a gift for Medicaid purposes. Medicaid penalizes gifts made within five (5) years of applying for benefits. During a Medicaid penalty, Medicaid will not pay for long-term care services.

Some parents explain that the deed states that they sold the house to their child for “one dollar”, and therefore it is not a gift. However, Medicaid treats any amount over the fair market value of the property as a gift. Unless your house was actually only worth one dollar, the full value of the home is going to be considered a gift for Medicaid purposes for five years from the date of the transfer. This could significantly impact your ability to pay for long-term care and in certain circumstances could create a situation where your children become responsible for your nursing home bill under Pennsylvania’s filial support law.

3.)  Your Child May Have Future Tax Gain Issues

Generally, when you gift property, the person that receives the gift receives a tax basis in the property that is the same as the donor’s. Many times the parents’ basis is the amount for which they purchased the property. For example, if the parents’ basis in a property is $100,000 and it is transferred to their son, the son’s basis in that property is $100,000. If the parents both die years later (assuming the son did not make the property his primary residence) and the son sells the property for $250,000.00, under today’s tax rules the son is responsible for paying capital gains tax on the difference between his basis ($100,000.00) and what he sells it for ($250,000.00). In this case, the son would have to report the $150,000.00 of gain on his personal income tax return.

In contrast, if you retain ownership or certain powers in your real estate during lifetime, your beneficiaries get a stepped-up basis. This means that your child inherits the property at its value as of your date of death. Many times the capital gains due by a child because of a transfer by parents during lifetime outweigh the inheritance tax that would be due if the parents would pass away with the property in their estate or trust.

The encouraging news is that you can protect against these dangers. There are options, such as irrevocable trusts and life estates, which can alleviate the risks. A properly drafted irrevocable asset protection trust can serve to safeguard and secure your home from a majority of the risks associated with a transfer.