Pennsylvania Trusts and Estates Blog

A person who dies without a will dies intestate. Each state has a statute that specifies to whom the decedent's property is distributed if there is no will.

You can check out who would receive your property if you die without a will at Intestacy Calculators TM. This site and the calculators it contains were created by Pennsylvania estate planning attorney Kurt R. Nilson, Esq.

The intestacy statute applies to probate property, that is, property in the decedent's name alone. Joint property passes to the surviving joint owner at the moment of death. Life insurance, retirement plans, and other assets that have a beneficiary designation pass to the named beneficiary. The will, if there is one, or the intestacy statute if there is no will, operates on the property that was in the decedent's name alone.

Thank you to Kurt R. Nilson for putting together such a useful tool.

Many people have wanted a Roth IRA, but didn't meet the income limit guidelines. In 2010 this will no longer be an issue.

Beginning in 2010, the income limits on Roth IRA conversions that have prevented taxpayers with modified adjusted gross incomes of $100,000 or more to convert their traditional IRAs to Roth IRAs are lifted. Beginning January 1, anyone, regardless of income level, will be able to convert an IRA to a Roth IRA.

As with traditional IRAs, the assets inside a Roth IRA grow tax-free. Withdrawals from a traditional IRA are taxed as income to you when withdrawn. Withdrawals from a Roth IRA are completely tax-free as long as you've had the account for at least five years and you are at least 59-1/2 when you start to make withdrawals.

A big difference between Roth IRAs and traditional IRAs is that there is no requirement to take minimum distributions from a Roth IRA. Your beneficiaries will have to take minimum distributions, but they will be tax-free.

A conversion is treated as a taxable distribution, but is not subject to the 10-percent early withdrawal penalty. Generally, taxpayers must pay all of the income tax on the withdrawn amount in the year of the conversion. In 2010, and only for that year, taxpayers will be able to elect to pay the tax on the conversion over the next two years; that is, in 2011 and 2012. Conversions in subsequent years are included in income during the tax year in which the conversion is completed.

Deferring tax is usually a good idea, but keep in mind that the tax on your 2010 Roth conversion, if paid in 2011 and 2012, will be taxed at the rates in effect for 2011 and 2012. If income tax rates go up significantly, you could end up paying a lot more tax. If you do not want to risk it, you may elect to pay the full tax on the Roth conversion on your 2010 return at the 2010 rates.

You can't convert to a Roth from a 401(k) plan, but an IRA that is the recipient of a lump sum from a 401(k) upon termination of employment can be converted. If your 401(k) plan permits it, you could take an "in-service" distribution from the 401(k), and roll all, or part, of the withdrawal into a Roth IRA.

Required minimum distributions (RMDs) cannot be converted to a Roth IRA, per se. But if liquidity is a problem, a RMD might be the solution. Remember, there is no requirement to take RMDs in 2009 (that was part of the stimulus package). You could take what would have been the required distribution and convert it in 2009 if the IRA owner qualifies under the $100,000 income eligibility limit for 2009. You could continue this plan in subsequent years until the traditional IRA is withdrawn in full.

Some taxpayers don't qualify to make regular, deductible IRA contributions. Participation in an employer plan is the most common disqualifier. Even if you do not qualify to make deductible IRA contributions, there are ways to take advantage of the Roth IRA conversion. You could contribute to a nondeductible traditional IRA now, in anticipation of converting that traditional IRA to a Roth in 2010. These contributions would not generate a deduction now, but you would not pay any income tax on the conversion to a Roth IRA in 2010 to the extent that there was basis in the traditional IRA. In 2009, the maximum permitted contribution to a nondeductible IRA is $5,000 or $6,000 if you are age 50 or older at year-end. By starting in 2009, and making another contribution in 2010, you can effectively convert two years' worth of contribution to a Roth IRA in 2010.

If you convert from a traditional IRA to a Roth IRA, and change your mind after the conversion, you have until October 15th of the year after the year of conversion to recharacterize the Roth conversion. That means reversing the Roth IRA conversion, and going back to a traditional IRA. If the market value of the Roth plummets after conversion, loss of value would be a good reason to recharacterize. If you correctly recharacterize the conversion, it rolls back the tax consequence as well, so you would recoup the tax paid on a much larger amount that was converted to the Roth.

2010 is the last year for the current income tax rates before they sunset in 2011. There may be a huge rush to do Roth conversions in 2010. Make sure you are prepared to take full advantage of the 2010 change in the law that eliminates the $100,000 income limit at the same time as historically low income tax rates are still available.

Start planning now to take advantage of this window of opportunity. Who knows how long it will be open.

Do you have minor children? Who will take care of the children if you die? This is the number one reason for you to make a will.

Michael Jackson left a will in which he nominated his mother, Katherine Jackson, as guardian of his three children, Prince Michael Junior, aged 12, Paris Michael Katherine, 11, and Prince Michael II (known as "Blanket"), 7. If Katherine is unwilling or unable to serve as guardian, he named his long-time friend Diana Ross.

It is a good thing that Michael Jackson had a will and that he made judicious choices about who would raise his children. But will his wishes be honored? Katherine has been appointed interim guardian pending a hearing. Debbie Rowe, Michael Jackson's ex-wife and the mother of his two oldest children, made comments to the media indicating that she wants custody of the children. It is unclear if her parental rights were terminated. The third child, Blanket, was born to a surrogate mother who has never been identified.

There are really two types of guardians with differing responsibilities: (1) Guardian of the person, which is physical custody of the minor, and (2) Guardian of the minor's estate, which is the care and management of the minor's property. It is not necessary that the same person hold both offices. The two functions can be split between different people.

In Pennsylvania, the law permits a surviving parent to name a guardian of the person for minor children in his or her will. However, the statute provides that no parent who, for one year or upwards previous to his death, shall have willfully neglected or refused to provide for his child, or who for a like period, shall have deserted the child or willfully failed to perform parental duties, may appoint a guardian.

In addition, Pennsylvania law permits anyone who gives property to a minor in his or her will to name a guardian of that property. Parents may name a guardian of the minor's estate as well as guardian of the person. Other persons also may name guardians of the minor's estate. For example, if grandparents leave their estate to a minor grandchild, the grandparents may name a guardian of the minor's estate in their wills to manage the funds for the benefit of the minor grandchild, even if the parents are living and even if the parents do not agree with the choice.

Pennsylvania law provides that the court shall not appoint as guardian of the estate of a minor the parent of the minor, except that a parent can be appointed as a co-guardian with another co-guardian.

A guardian of the person is a sort of substitute parent. For so long as the ward (the minor child is called a ward of the guardian) is under the age of majority, age 18, the guardian has the same rights and duties as a parent. As parents, you and your spouse are the so-called "natural guardians" of your minor children. Natural guardianship is a personal right to the custody of a child until the child reaches the age of majority. Where the parents are unmarried, the mother is considered the "natural guardian." A natural guardian, however, does not have any authority to exercise control over the minor child's property, except in limited circumstances where the court approves an award to the parent.

In the case of a married couple who are both the parents of the children, a court proceeding is not required when one parent dies. The surviving parent is the natural guardian. In all other cases, such as blended families and unmarried couples, court appointment is required to have legal authority. Will the court appoint the guardian who is nominated in the will? Probably. But its not automatic. If there is no will and the parents are deceased, the court will select and appoint a guardian.

Too many young couples say, "we don't need wills; we don't have anything to leave to anyone." If you have children, you have the most valuable thing in the world. You do everything you can to be a good parent. Make sure you make a will and have plans for your children's care if you are no longer around.

The statistics for termination of marriages in the United states are pretty grim. The latest statistics claim roughly 50% of first marriages end in divorce. Second or third marriages have only about 20% of couples remaining happily married.

On the dissolution of the marriage by divorce, there are a number of issues to be dealt with including child custody, support, and equitable distribution of assets.

In Pennsylvania, marital assets and debts of a divorcing couple are divided between them in a process called "equitable distribution." "Fault" or misconduct within a marriage that's ended is generally not a factor in determining the fair division of marital property during the equitable distribution decision.

Here are some of the factors that are considered in making the decision:

• The length of the marriage
• The existence of any prior marriages
• The age, health, station, income, vocational skills, employability, estate, liabilities and needs of each party
• Any contribution by one party to the education, training or increased earning power of the other
• Each party's opportunities for future acquisitions of capital assets and income
• Sources of income of both parties, including medical, retirement, insurance or other benefits
• Roles of each party in the acquisition, preservation, depreciation or appreciation of marital property, including contributions as homemaker
• Property values set apart to each party
• The parties' standard of living established during the marriage
• Your individual economic circumstances when the division of property becomes effective
• Tax ramifications associated with each asset to be divided
• Expenses related to a sale, transfer or liquidation associated with a particular asset
• Determination of which party will serve as the custodian of any dependent minor children
Generally, marital property means all property acquired by either party during the marriage, regardless of whose name it is in.

In Pennsylvania, separate or nonmarital property is not subject to equitable distribution. Nonmarital property includes property that a spouse brought into the marriage and kept separate during the marriage, inheritances received during the marriage and kept separate during the marriage, gifts received by just one spouse during the marriage and kept separate, and property excluded by a valid prenuptial agreement.

There is a very important distinction to be made here. While nonmarital property remains the individual property of the spouse who owns it, the increase in value during the marriage of nonmarital property is considered to be a marital asset and is subject to equitable distribution.

Here is an example: Let's say Husband inherited $100,000 from his grandmother and kept it in a separate account in his name only. The $100,000 was invested; and at the time of the couple's separation, was worth $150,000. The original $100,000 remains separate property, but the $50,000 increase in value is marital property subject to equitable distribution.

On the other hand, a different result is reached if the inherited $100,000 is co-mingled with marital property. If Husband deposits the $100,000 inheritance into a joint account with Wife or spends it on a joint asset, then the separate property loses its status as separate property and becomes marital property. If it is marital property, it's in the "pot" and will be divided like any other asset. In our example if the $100,000 is in a joint account and grows to $150,000 then the whole $150,000 is marital property.

The Pennsylvania statute provides that the increase in value of nonmarital property is measured from the date of marriage or later acquisition date to either the date of final separation or the date as close to the hearing on equitable distribution as possible, whichever date results in a lesser increase. Any decrease in value of the nonmarital property of a party is offset against any increase in value of the nonmarital property of that party. However, a decrease in value of the nonmarital property of a party shall not be offset against any increase in value of the nonmarital property of the other party or against any other marital property subject to equitable division.

If the marriage has deteriorated or may deteriorate, you should think carefully about what to do with a gift or inheritance. Since the future is always uncertain, the best course is to keep nonmarital property separate.