Rothman Gordon: Back to Basics Estate Planning: Why A Will

Back to Basics Estate Planning: Why A Will - Part IV

In our continuing series on getting back to the basics of estate planning, we have covered various aspects of the consequences of dying without a Will, or intestate. Our series has included a discussion of who inherits your Probate Assets if you die intestate, who is entitled to serve as the administrator of your estate, and what additional costs are associated with administering your estate if you do not have a Will. In this article, we will turn our attention to the topics of increased costs and court intervention when no Will exists.

Generally speaking, Pennsylvania's laws provide that an individual is permitted through his or her Will to provide powers to an executor over and above those basic powers provided by statute. It is always advisable to have a Will prepared that grants these additional powers so that the executor of an estate can perform his or her duties with minimal additional costs and without court involvement.

An example can be used to illustrate this point. Let us assume a "normal" estate where there is cash, a balanced portfolio of securities and the decedent's principal residence, and that the decedent dies intestate.

With regard to the balanced portfolio of securities, Pennsylvania law provides that the administrator of an estate may invest estate assets, but only in the following investments: (1) obligations of the United States, the U.S. Treasury, the Commonwealth, or any political subdivision of the Commonwealth, (2) an interest-bearing deposit account in any bank located in the Commonwealth that is FDIC insured (and with a maturity date not exceeding one year), (3) a savings account of any Pennsylvania savings association or Federal savings and loan association if the account is FDIC insured, or (4) a money market mutual fund affiliated with a corporate (e.g., bank) personal representative.

Given these very restrictive investments that an administrator may make, the balanced portfolio and principal residence will need to be turned into cash. If, however, the administrator wants to distribute the balanced portfolio "in-kind" to the beneficiaries, it will be necessary to obtain the court's permission to do so - even if the administrator is the sole beneficiary of the estate. This could easily have been avoided by having a Will that allowed the executor to invest in stocks, bonds, mutual funds, etc. Again, without the proper Will, additional costs (broker charges and commissions) will be incurred and court involvement may by necessary.

There are numerous other instances that can increase the costs of administration and the number of visits to the court that can be avoided by having a properly crafted Will such as some of the problems with selling real estate, settling litigation or controversies among beneficiaries and making payments of various taxes.

"Why A Will: Part V" will end our discussion of the problems associated with intestacy by addressing how your heirs receive their inheritance, especially if minors are involved.

Articles are not intended to be comprehensive. Readers should not act upon any information herein without seeking specific legal advice from the Firm's attorneys.

We are required by Treasury Regulations to advise that this writing is not intended as a reliance opinion and cannot be used for purposes of avoiding IRS penalties.