McClellan Legal LLC Estate Planning & Tax Assessment Blog

Tuesday, June 24, 2014

Planning for Your Children’s Inheritance

One of the biggest decisions that people need to make when drafting their estate planning documents is determining how and when their children will receive their inheritance.  The law requires that a minor child’s inheritance be managed in a trust until they reach adulthood, usually 18 or 21 years old.  However, the problem arises when the child reaches 18.  Do you really want your 18 year old (or 23 year old for that matter) to have full access to all of your assets, which includes retirement accounts, life insurance payouts, home equity, etc.?  If you do not execute effective estate planning documents, this is exactly what will happen.

A better solution is to draft a Will that places the inherited assets in a child’s trust to be managed by a trustee (usually a family member), wherein the trustee will be responsible for managing the assets and paying the child’s expenses.  The child will receive the benefit of the trust assets but will not be able to demand principal until a triggering point that attempts to predict when child will have sufficient financial maturity to independently manage the assets.  Holding the assets in a child’s trust will provide asset protection from the child’s immature spending, from creditors, and from predators (e.g., a potential failed relationship).  Determining when a child will be financially mature is extremely difficult, especially when the children are very young. 

The most convenient method of predicting financial maturity is age.  In your Will, you can instruct the child’s trustee to allow the child to take more control of the inherited assets as the child reaches different age milestones.  For example, the child may be permitted to withdraw one-third of the principal at 25 years old, another third at 30 years old, and the remaining third at 35 years old.  The suggested age range may be set higher or lower depending on the child.  Often my clients prefer an older age range (e.g., 30, 35, and 40 years old).  However, age alone may not be a good indicator of financial maturity. 

In addition to age, you may also set additional trigger points to fine tune your child’s control over their inheritance based on other indicators of financial maturity, such as, obtaining advanced degrees or avoiding addiction problems.  Setting these additional triggers allows you to incentivize desired behavior and disincentivize against poor behavior.  Further, upon certain conditions, you may want to transfer management of the child’s trust to the child entirely. 

The final issue to consider is how your children will receive inherited assets that are controlled by beneficiary designations that will not naturally flow through the terms of your Will (e.g., life insurance, retirement accounts, etc.).  Often these beneficiary designation controlled accounts are your most valuable assets.  Unless the beneficiary designations are coordinated with the terms of your Will, your children may receive these assets outright at the age of majority.  In order to avoid this problem, you will need to prepare and submit custom beneficiary designation statements to the account custodian so that the custodian will know how to distribute the assets in accordance with your wishes.   

If you have any further questions regarding planning distributions for children, please call our office to schedule a meeting to discuss these issues.

Monday, June 23, 2014

Lower Your Property Taxes

Many property owners in Pennsylvania are unfairly required to pay more property tax than their similarly situated neighbors.  This disparity may be because your neighbors have successfully appealed their assessment in past years or your existing property assessment may be based on erroneous property data.  Either way, no one should be required to pay more taxes than is obligated under the law.  In order to remedy this problem, property owners are permitted to file an annual property assessment appeal each year between May 1st and August 1st.   

Pennsylvania property assessment laws are confusing for many property owners because your assessed value typically will not equal what you believe is your fair market value (i.e., an appraised value).  Each county assigns an assessed value for a property based on a ratio (known as the common-level ratio) of a base year. Only during the base year does the assessed value of a property equal the property’s fair market value. The common-level ratio for each county is determined and published each year in mid-summer (effective the following tax year) by the Pennsylvania State Tax Equalization Board (S.T.E.B.). For example, the base year in Chester County is 1996 and the common-level ratio that was recently published in June 2014 for the 2015 tax year is 1.73.  Therefore, to determine the current fair market value that Chester County has used to determine your property taxes, you simply multiply your assessed value by the current common-level ratio.

EXAMPLE: Property XYZ is located in Chester County and has an assessed value of $320,000 that is taxed at a current fair market value of $553,600 ($320,000 x 1.73). To determine if Property XYZ is over-assessed, you simply determine if Property XYZ would appraise for less than the current fair market value of $553,600. If Property XYZ would appraise for less than $553,600, then you would likely benefit from filing an assessment appeal.

For the first time in years, the new common-level ratio is in your favor for filing an assessment appeal.  Don’t miss the August 1st deadline to file a property assessment appeal.  If you have any concern that your Pennsylvania property is over assessed, please call our office and we will evaluate your chances of reducing your property tax burden.

Friday, June 20, 2014

Living Will v. Will

Many people ask me to explain the difference between a Living Will and a Will. They are two completely different documents and address different issues. A Will is only implemented when you pass away and allows you to set forth the beneficiaries of your estate, the executor of your estate, and name guardians for any minor children. A Will also allows you to describe how and when your beneficiaries will receive their inheritance.

A Living Will is a health care document that allows you to retain control over whether or not you want your life to be prolonged by the use of artificial means when you are incapacitated and have a terminal condition or are permanently unconscious. The main reason people execute a living will is so that they will not have to burden their family members with making a decision to pull the plug.

Any individual who is of sound mind and at least 18 years old may execute a Living Will. A Living Will is not a Health Care Power of Attorney. While both documents are health care documents, a Health Care Power of Attorney is a much broader document that authorizes someone you name as your agent to make health care decisions for you, in the event that you are unable to speak for yourself or make your own decisions. For example, your health care agent will make decisions, such as, selecting a hospital, a physician, a surgeon, and determining the type of medical procedures to administer. Again, a Living Will is much more limited and only addresses your wishes during end of life situations. Some lawyers draft a combined Living Will and Health Care Power of Attorney while other lawyers draft them as separate documents.

You should provide copies of your signed and witnessed Living Will, along with a copy your Health Care Power of Attorney, to your physician. It is also a good idea to provide copies of your heath care documents to your family members and your health care agent. You can also upload both of your health care documents into an online storage system (e.g., LegalVault or Docubank) that will provide medical personnel instant access to your health care documents in case of emergency. Most online storage companies will provide you with a wallet card that will inform medical personal how to download your health care documents.

If you have any remaining questions regarding Living Wills, please contact my office so that we may discuss your concerns.

Wednesday, June 18, 2014

Estate Planning for Second Marriages

Spouses in a first marriage generally have estate planning goals that are aligned because most of the time there are no children from prior relationships.  Typically, spouses in a first marriage own assets jointly and distribute assets upon death to the surviving spouse and then to the children equally.  This strategy does not provide a good result in second marriages where there are children from prior relationships because your surviving spouse can do whatever he or she wants after your death, including disinheriting your children. Do you want your children’s inheritance to be gambled on whether you will outlive your spouse?

A second marriage is very different because it may include your children, your spouse’s children, and sometimes joint children.  Obviously, each spouse wants to make sure that their children receive their inheritance.  Most of the time, estate planning strategies that you relied upon for your first marriage will not work in your second marriage.  For example, if you decide to add your spouse’s name on the title of your home with a right of survivorship, ownership of the property will immediately pass to your spouse when you pass away.  Your spouse will be able leave the property to anyone and completely disinherit your children.

Many spouses in second marriages believe that a promise made during the marriage will be honored, but promises can be broken after you are gone.  Unfortunately, relying upon promises generally does not end well.  With proper planning, you can be sure that your decisions will be honored. 

Here are a few estate planning strategies that can be used to ensure that your children will receive their inheritance when you are in a second marriage:

  • The most common estate planning solution is to put your spouse’s inheritance in a trust for their lifetime use, but then indicate that the remaining assets will pass to your children.
  • If your spouse is close in age to your children, then the above lifetime use option generally does not provide a great result because your children will have to wait a very long time to receive their inheritance.  In this case, you may want distribute some your assets to your children immediately upon your death. 
  • You also need to coordinate your beneficiary designations to make sure that your spouse does not receive outright control over the assets, which could potentially disinherit your children.
  • If you own life insurance or large retirement assets, you may want to consider leaving those assets to a trust in order to provide your wife only with lifetime income.  Otherwise, a spouse-beneficiary could redistribute those assets to anyone, which may not be your children.
  • If each spouse has their own substantial assets, then you may want to keep the estate plans entirely separate. 

When spouses in a second marriage have very different estate planning goals, it will create a conflict of interest.  In these situations, it may make sense for each spouse to receive estate planning advice from separate lawyers.  If you have any additional questions estate planning in a second marriage, please call our office to set up a meeting.

Wednesday, March 19, 2014

Beware of Your Fiduciary

Beware of Fred the Fiduciary

I received a call from a man (let’s call him Fred the Fiduciary, or better yet, Fred the Fraud) this morning and he asked to meet with me immediately concerning his Aunt (let’s call her Vicky the Victim).  It’s not uncommon for a person to arrange a meeting for an elderly family member, so I agreed to meet two hours later.  Instinctively, my radar was on high alert when Fred arrived at my office without Vicky. 

Fred began our meeting by informing me that Vicky already has her basic estate planning documents in place, including a will, power of attorney for finances, and health care documents.  My first question was, “Who drafted her documents and why are you not going back to her previous attorney with these new concerns.”  Fred indicated that he is an intelligent man and that he “was able to prepare her documents without an attorney." Anyone see a problem with this yet?  Fred, the non-attorney, is providing Vicky legal advice by drafting and executing her estate planning documents. 

My second question was, “Who are the fiduciaries and beneficiaries of her estate?" Fred proudly noted that he is his Aunt’s power of attorney, executor, and SOLE beneficiary. Giving Fred the benefit of the doubt, we will assume that Vicky has no other family members that would naturally inherit.  But, what are the chances that Vicky doesn't have any living children, grandchildren, great-grandchildren, siblings, or other nieces and nephews? Very slim. 

The reason that Fred was in my office is because Fred wanted to “protect” Vicky’s assets from herself.  Vicky is about 80 years old and she still drives herself to work each day.  It doesn't sound like she needs much protection. Fred wanted to learn more about putting all of Vicky’s assets into an Irrevocable Asset Protection Trust.  Apparently Fred had spent some time on the web researching his plans for Vicky’s assets and realized that his estate planning competency does not include drafting complex asset protection trusts, so he came to me for advice. 

In order for an Irrevocable Asset Protection Trust to provide any real protection from creditors, Vicky would have to give up full control of her assets and not be able to receive any of her own principle.  Hence, Vicky would be completely isolated from her assets even though she still had the capacity to drive herself to her full-time job.  Of course, Fred offered to “serve” as trustee of his aunt’s Irrevocable Trust.  At this point, I told Fred that the meeting could not continue without Vicky sitting at the table. In fact, if he brings Vicky to my office, I told him that I would request that he wait in the reception area.  He indicated that since he had Power of Attorney, it was not necessary for Vicky to be present.  I politely ended the meeting.

I have seen various levels of abuse by family members in order to control assets that do not belong to them. A fiduciary’s role is one of trust and requires the fiduciary to put the principal’s interests ahead of their own.  You should never appoint a fiduciary to serve on your behalf unless you have absolute confidence that he or she is looking out for your best interests.  In this case, Fred did not care about anyone’s interest other than his own.  I suggest that we all keep both eyes open for people like Fred and be aware of who we trust to serve as our fiduciaries.  

Friday, January 3, 2014

Beneficiary Designations – Don’t “Set it, and forget it!”

When developing your estate plan, I do not recommend following Ron Popeils catchphrase of “Set it, and forget it!”  Estate planning requires a coordinated effort of drafting and reviewing various documents to ensure that your assets are distributed according to your wishes. 

Beneficiary Designations for Non-Probate Assets

Most people are well aware of the importance of executing a will to distribute their assets to their loved ones.  Assets that pass via your will are distributed via a court supervised process known as probate.  These probate assets include all property individually owned by the deceased that do not include a designated survivorship interest.  However, some very high value assets, known as “non-probate” assets, do not pass through the ordinary probate process, but pass via contract law. 

Some of the most common non-probate assets include: life insurance payouts, retirement accounts (IRAs, 401ks, etc.), and annuities.  While not the subject of this article, other non-probate assets include real property (e.g., your personal residence) owned via Joint Tenancy with Right of Survivorship (JTWROS) with another person or by Tenants by the Entirety between a husband and wife. 

The non-probate assets discussed in this article are distributed according to a written beneficiary designation that specifically identifies the recipients.  These designations include payable on death ("POD") accounts, transfer on death ("TOD") accounts, and in trust for ("ITF") accounts.  A beneficiary designation following contract law trumps instructions defined in a will. 

Strategically setting your beneficiary designations is often an overlooked aspect of estate planning.  Most people take the “Set it, and forget it!” strategy to assigning beneficiary designations.  That is, they designate someone to receive their assets when they set up their account and then forget to periodically review their designations as their life changes. 

Potential Problems

All too often the initial designee on their account is not consistent with their current wishes.  For example, many unmarried people will name their parents or a sibling as the designated beneficiary of their employer sponsored life insurance policy.  However, when they get married, they forget to change the beneficiary designation to their spouse.   

Other potential problems arise when the named beneficiary does not survive you.  In those situations, the asset is distributed to the “estate”, which may cause undesirable consequences, including: additional vulnerability to creditors, increased estate/inheritance taxes, and non-optimal stretch-out of retirement accounts.

Further, even if you properly designate your spouse as the initial beneficiary and your children as the successor beneficiaries, your estate plan can still fail.  That is, if your spouse does not survive you, then your children will receive the distribution outright as soon as they reach the age of majority.  Do you really want your young “adult” children to have full access to such large assets as your retirement accounts?  Better planning would likely direct your children’s distribution to testamentary trusts designated in your will or Revocable Living Trust to preserve the assets from their own immaturity, potential creditors or potential predators.

We understand the importance of coordinating all of your assets, including non-probate assets, into your estate plan and periodically reviewing your plan to ensure that it remains effective.  It will be our pleasure at the Law Offices of James S. McClellan to discuss your specific circumstances and design/implement an estate plan that aligns exactly with your goals.

Tuesday, December 10, 2013

No Will... Big Problems

What happens if you die without a will in Pennsylvania?  Like all other states, Pennsylvania has “intestate” laws that govern the distribution of your assets to your closest family members.  While most of us know that, few know what specific assets pass via the intestate laws and in what ratios to our family members. 

Before we discuss who will receive your assets, we first must determine which assets will pass through the probate process via PA intestate laws.  Probate is an administrative process of inventorying your assets, paying your debts/taxes, and then distributing your assets.  Many assets will pass directly to your beneficiaries via a beneficiary or Pay on Death  (POD) designation outside of the probate process. 

Assets Passing Outside of Probate

Non-probate assets include: most retirement accounts (e.g., 401k, IRA, etc.), life insurance, pay on death accounts (e.g., bank accounts), transfer on death accounts (e.g., securities), and real property that you own with someone else in joint tenancy or tenancy by the entirety (e.g., typically how a married couple owns their home).  These non-probate assets will pass directly to the beneficiary or co-owner without going through the probate process.  If fact, even if you had a will, these assets would also pass outside of the will.

Who Gets Your Assets

So here’s where we run into potential problems.  Do the default intestate laws regarding the distribution of your assets to your family members align with your wishes.  In almost every situation, my clients say No.  Here are the mostly likely intestate succession scenarios:

  • If you leave with children, but no spouse, then your children inherit everything (4.5% tax). 
  • If you leave a spouse, but no children or parents, then your spouse inherits everything (tax free).
  • If you leave a spouse and children, then your surviving spouse inherits the first $30,000 of your probate property and half of everything else; your children receive the balance.
  • If you leave a spouse and no children, then your then your surviving spouse inherits the first $30,000 of your probate property and half of everything else; your parents receive the balance (4.5% tax).
  • If you leave parents and no spouse or children, then your parents inherit everything.
  • If you leave siblings and no parents, spouse, or children, then your siblings inherit everything (12% tax).

Only in very rare situations when you leave no family members, will the Commonwealth receive your estate.

The Potential Problems

Here are a few issues that many people have with PA’s intestate laws:

  • Do you want your parents to inherit nearly half of your estate if your spouse is still living?
  • Do you want your children to inherit nearly half your estate if your spouse is still living?
  • Do you want your children to receive their inheritance outright as soon as they reach the age of majority?
  • Would you like to provide to a non-family member (e.g., a charity or close friend)?
  • What happens if you are in long-term committed relationship, but not married?

There are many additional reasons why PA’s default intestate laws are ripe with potential problems.  It will be our pleasure at the Law Offices of James S. McClellan to discuss your specific circumstances and design/implement an estate plan that aligns exactly with your goals.

Monday, August 5, 2013

Estate Planning for Same-Sex Couples in Pennsylvania

On May 20th, a federal judge struck down Pennsylvania’s law prohibiting same-sex marriage, saying it violates the U.S. Constitution.  We are closely monitoring this news and will update this page once we have additional clarity.   Please call our office if you have any questions.  

Unlike many of our neighboring states, Pennsylvania does not allow for same-sex marriage, civil unions, or domestic partnerships.  Further, Pennsylvania does not acknowledge same-sex marriages that were legally entered into in other states when they move to the Commonwealth.   

It is critical for people within the LGBT community to realize that despite the legal hurdles set forth by Pennsylvania in defining your relationships, many rights can be created via properly drafting and executing effective legal documents. The following are just some of the legal documents that are needed by same-sex couples to clearly define their desires (and any non-“married” couple for that matter): Wills, Trusts, Durable Powers of Attorney for Finances, and Healthcare Powers of Attorney.


A Will allows a person to define the distribution of their assets and define the people that will be responsible for administering their estate (e.g., executor or personal representative) at the time of their death.  For those that pass away without a Will, the distribution of assets will be set forth by state intestate laws.  In Pennsylvania, the intestate laws will exclude your partner from receiving from your estate despite any intentions that you had previously expressed.  A properly drafted and executed Will permits you, not the state, to define who and how will receive your assets.  While all Wills are subject to contest by family members, it is often a very difficult task to successfully challenge a Will it is professionally drafted.


Trusts (both revocable and irrevocable) are powerful tools to help same-sex couples control their assets and better plan for incapacity.  For example, since the trust legally owns the assets, it is much easier for your partner (if named as a trustee or co-trustee) to access the assets in times of need.  Trusts are not a replacement for wills, but serve as another tool in the toolbox to handle certain challenging situations.

Durable Powers of Attorney for Finances

Unless your assets are jointly titled, same-sex partners are unable to exercise control over each other’s assets.  A Durable Power of Attorney will provide authorization for your partner to manage your financial matters on your behalf in situations when you are incapacitated.  

Healthcare Power of Attorney

If you need medical aid and are unable to consent, your partner will not be authorized to access your medical records or make healthcare decisions on your behalf.  A Healthcare Power of Attorney will allow you to appoint your partner as your agent to make medical decisions for your care and obtain information about your condition.  

The above listed documents are just the bare essentials that same-sex couples should consider (along with Cohabitation Agreements) in order to ensure that their desires are expressed in a manner that is legally recognized in Pennsylvania.  James S. McClellan, Esq. is Pennsylvania licensed attorney focused on estate planning and is available to discuss the process of drafting and executing your legal documents.  Please call our office at (610) 444-5552 to set up a no-fee initial meeting.  

Tuesday, January 29, 2013

Save Property Taxes via the PA Homestead Exclusion

The Homeowner Tax Relief Act of 2004 provided Pennsylvania property owners with another mechanism at their disposal to potentially lower their property tax burden.  If your property is used as a personal residence, you are likely eligible to receive an assessment reduction called the Homestead Exclusion.  The reduction that you receive based on the Homestead Exclusion will vary from year to year depending on the amount of money funded into the tax savings program.  The Homestead Exclusion will supplement any other reduction you receive, for example, via an annual property assessment appeal.

In most cases, your school district will mail you an application for Homestead Exclusion several months prior to the March 1st deadline.  There is no cost to file the application.  If you do not receive an application, I recommend that you call your local school district office or your County Board of Assessment Appeals. 

It would be my pleasure to discuss any questions that you may have regarding reducing your property tax burden by filing one of the following applications: a Homestead Exclusion, “Clean and Green” (Act 319), and/or Annual or Interim Assessment Appeal

I can be reached at (610) 444-5552 or

Wednesday, January 16, 2013

Estate Planning After the Fiscal Cliff

The recent fiscal cliff legislation did very little to change the previous federal estate tax.  The only substantive change was to raise the estate tax rate from 35% to 40%, while maintaining all other 2012 rules. 

Therefore, the federal estate tax exclusion amount remains at $5,000,000 (adjusted for inflation to $5.25M) for 2013.  While many thought the federal estate tax exclusion amount would drop from $5M to $3.5M, nearly everyone expected the federal gift tax exclusion amount to drop drastically from $5M down to $1M.  This fear caused many planners to recommend making large gifts at the end of 2012.  However, the federal gift tax exclusion amount also stayed at $5M (adjusted for inflation to $5.25M).  

The only other change of note for 2013 occurred prior to the end of 2012, wherein the annual tax-free gift amount was increased from $13,000 to $14,000.  Therefore, in 2013, you can give $14,000 to any individual tax free. 

If you have any additional questions regarding federal tax planning, please call my office at 610.444.5552. 

Sunday, December 9, 2012

Am I Over-Assessed?

How do you know if your property is currently over-assessed?  I talk with property owners that call my office and they often say, “I think I pay too much property tax.”  They often tell me that they think their neighbors that have similar homes are paying much less.  However, due to the seemingly complex ratios and formulas that the taxing authorities use (with very little or no explanation in your property tax bills), a typical property owner simply is unable to accurately evaluate whether their current assessment is fair.

Read more . . .

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McClellan Legal LLC is located in Kennett Square and serves clients throughout the areas of Avondale, Chadds Ford, Coatesville, Downingtown, Landenberg, Oxford, Phoenixville, Pottstown, West Chester, & West Grove.

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