Overcome the challenges of uncertainty today
Wills for Families
A Last will and Testament is a vehicle to leave instructions for your assets to be divided to different people.
A will is a legal document that specifies your wishes regarding the distribution of your property and assets and the care of any dependents after your death. Without a will, your estate may not be distributed according to your preferences, and your loved ones could face added stress, time, and costs in settling your affairs.
While no document can cover every potential issue that arises after death, a last will and testament comes close, allowing you to outline your instructions for your property and the care of your loved ones. Here's a breakdown of what you need to know about these essential documents.
Key Takeaways
A will outlines your wishes for asset distribution and the care of dependents after your death.
Without a will, state officials or the courts will make decisions on your behalf, potentially causing family disputes.
While you can write your own will, having it witnessed helps prevent challenges later on.
Consider consulting an attorney specializing in estate planning for more peace of mind.
Why You Should Have a Will
You might think that only the wealthy need a will, but everyone can benefit from having one. Here are a few reasons why:
Clear Distribution of Assets: Specify who gets your property, how much, and when.
Protect Your Loved Ones: Ensure your assets don't fall into the hands of estranged relatives.
Appoint a Guardian for Minor Children: Without a will, the courts will decide who cares for your children.
Faster Access to Assets: Having a will simplifies the process for your heirs.
Tax Planning: You can plan to reduce your estate's tax liability and make charitable donations.
A Written, Witnessed Will Is Best
To maximize the likelihood that your wishes will be carried out, create what's known as a testamentary will. This is the most familiar type of will; you prepare the document and then sign it in the presence of witnesses. It's arguably the best insurance against successful challenges to your wishes by family members or business associates after you die. You can write a will yourself, but having it prepared by a trusts and estates attorney tends to ensure it'll be worded precisely and correctly and in keeping with your state's laws.
Other Types of Inheritance Wills
While a testamentary will (the most common type) is typically your best option, several other types of wills exist:
Holographic Wills
Wills written and signed by the testator but not witnessed are known as holographic wills—from the less common secondary meaning of the word holograph, which is a document hand-written by its author. Such wills are often used when time is short, and witnesses are unavailable—for example when the testator is trapped in a life-threatening accident.Holographic wills are only recognized in half of the states, however. In states that permit the documents, the will must meet minimal requirements, such as proof that the testator wrote it and had the mental capacity to do so. Even then, the absence of witnesses often leads to challenges to the will's validity.1
Oral Wills
The least widely recognized are oral wills, in which the testator speaks their wishes before witnesses. Lacking a written record, or at least one prepared by the testator, courts do not widely recognize oral wills.Pour-Over Wills
Another type of will, a pour-over will, is used in conjunction with creating a trust into which your assets flow. (See "Wills and Trusts," below.)Mutual Wills
A married or committed couple usually executes this type of will. After one party dies, the remaining party is bound by the terms of the mutual will.Mutual wills can be used to ensure that property passes to the deceased’s children rather than to a new spouse. Because of state differences in contract law, a mutual will should be established with a legal professional's help. Though the terms sound similar, a mutual will should not be confused with a joint will.
What Does a Will Cover?
A will allows you to specify how your property, bank accounts, and personal belongings should be distributed. You can even direct assets to charities or organizations. However, a will doesn’t cover everything:
Life Insurance Proceeds: These pass directly to designated beneficiaries, not through your will.
Transfer-on-Death Accounts: Designated beneficiaries receive these accounts outside the will. There's a key exception: If the beneficiaries of those assets predeceased the testator, the policy or account then reverts to the estate and is distributed according to the terms of a will or, failing that, by a probate court—a part of the judicial system that primarily handles wills, estates, and related matters.
Elective-share Laws: In some states, your spouse cannot be disinherited and is entitled to a portion of your estate due to community property laws. If a will assigns a smaller proportion of such assets to the surviving spouse than state law specifies, which is typically between 30% and 50%, a court may override the will.3
Additionally, a will can include your choice of guardian for minor children.
People Tax Liability
PA Inheritance Tax Rates
Pennsylvania imposes an inheritance tax on a decedent’s taxable estate. The tax applies to every dollar of the estate in excess of expenses and debts. There is no exemption nor is there an exclusion under which no tax will apply. The tax rate is dependent upon the relationship between the decedent and the beneficiary.
According to Pennsylvania Department of Revenue, 2020 Tax rates on individually owned assets passing to beneficiaries at the death of a PA resident are as follows:
A decedent’s spouse: 0.0%
A decedent’s children or grandchildren: 4.5%
A decedent’s siblings: 12%
A decedent’s nieces, nephews & friends: 15%
A decedent’s Parents: 4.5%
Charities: 0.0%
Lifetime Gifts: There is no Pennsylvania gift tax. However, all gifts made during the 12 months preceding the decedent’s date of death are brought back in and are taxable in the estate for PA Inheritance Tax purposes. There is a $3,000 exclusion for gifts made during each calendar year of the 12 months prior to the date of death. For example, if Sally dies on May 1, 2019 and she made a gift of $103,000 to her son on December 30, 2018 and another $3,000 on January 1, 2019, only $100,000 will be brought back into Sally’s estate for PA inheritance tax purposes. The $3,000 exclusion applies to both the 2018 and the 2019 gifts made during the 12 months prior to Sally’s date of death.
Jointly Owned Assets: Pennsylvania imposes inheritance tax on the decedent’s percentage ownership interest of jointly-owned assets. For example, if Sally died owning a $100,000 account jointly with her son, $50,000 of that account would be subject to a 4.5% tax. If Sally died owning a $100,000 account jointly with her son and daughter, $33,333 of that account would be subject to a 4.5% tax.
In Trust For Or Beneficiary Accounts: Pennsylvania imposes inheritance tax on the entire value of accounts a decedent owned in his or her name alone and on which he or she designated beneficiaries.
Assets Owned In a Revocable Trust: Generally, if someone dies owning assets in a revocable trust over which he or she had access and control those assets, those assets will be 100% taxable for Pennsylvania inheritance tax purposes.
Assets Owned In An Irrevocable Trust: Irrevocable Trusts are taxed in a complex way and you should consult counsel when determining if assets in an irrevocable trust are PA Inheritance taxable. Depending on how an irrevocable trust is written, the trust assets could either be inheritance taxable or not, subject to the reservations of powers in it when created.
Life Insurance: Pennsylvania does not apply inheritance tax to the proceeds from life insurance on a decedent’s life.
Track Your Refund
Track Federal Refund Track Federal Refund Check Federal Amended Return Fund Check Federal Amended Return FundCheck your State Refund
Sign up for our newsletter.
Each month, we will send you a roundup of our latest blog content covering the tax and accounting tips & insights you need to know.