Asset Protection Strategies for a Larger Estate

My question involves estate proceedings in the state of: PA

Hi everyone. I am a 90% beneficiary of my grandparents' estate and am sole agent (POA) for both of them. If I had to estimate, their estate in likely worth around $3 million fully liquidated. In order to simplify their wills, we did not set up and trusts or other asset protection measures and I'm wondering if anyone can give any advice on some measures we could take. The only existing trust is a trust for my sister (the other 10%) which I will be fully in control of on her behalf. I would like to minimize the tax liability as much as possible and preserve at least 50% of the transferable wealth for maintenance of 30 acres with 2 houses on it. One other item is in regard to his stock portfolio. Is there any benefit to liquidating that prior to their death? As I am POA for both of them, am I able to speak to an estate planning attorney about these items without my grandparents? Thanks.

Under the current tax laws (could change at any time), $3M is well under the FEDERAL estate tax limit. No worries there. Pennsylvania has a state inheritance tax that will apply to most adult heirs other than the spouse of the deceased. There are certain exceptions for farms and agricultural properties. I don't know if you "30 acres" comprises such property. I don't know why "trusts" complicate things. They're not all that difficult to establish and fund and they do make things easier after the death of the grantor.

As far as taxation goes, it really doesn't make any difference whether they hold cash or securities, it's treated the same (the securities having the value they have on the date of the death).

Your POA is worthless once they pass by the way. You can certainly speak to an attorney. Almost certainly he will ask for their informed, consent before he executes anything on their behalf.

Quote:

---

Quoting flyingron

---

Your POA is worthless once they pass by the way. You can certainly speak to an attorney. Almost certainly he will ask for their informed, consent before he executes anything on their behalf.

---

What if they are unable to give their informed consent? Isn't that the whole point of the POA?

Quote:

---

Quoting KBoy420

---

What if they are unable to give their informed consent? Isn't that the whole point of the POA?

---

Yes.

While they are still alive.

Upon their death the estate will have to go through probate, an expensive and time consuming effort.

For a $3,000,000 estate I suggest you get your grandparents to a trust attorney or estate planner if you want to avoid spending a few hundred thousand dollars on probate attorneys.

I find it hard to imagine that two people, smart enough to accumulate $3,000,000 in assets, aren't smart enough to get proper counsel (not you) on how to preserve their estate and have it devised as they choose.

Could you give me some examples of the types of planning that could be done? I've had this all thrown at me since my dad died a few years ago. Their estate planning was done several years ago, but family circumstances changed and changes needed to be made quickly based on those family circumstance changes. So the wills and POAs were all changed and here we are. What should have been done and what are done are two different things. I am trying to act as a responsible Trustee/Agent on their behalf and preserve their assets. I just need to guidance as to what can be done and what should be avoided.

Quote:

---

Quoting KBoy420

---

My question involves estate proceedings in the state of: PA

Hi everyone. I am a 90% beneficiary of my grandparents' estate and am sole agent (POA) for both of them. If I had to estimate, their estate in likely worth around $3 million fully liquidated. In order to simplify their wills, we did not set up and trusts or other asset protection measures and I'm wondering if anyone can give any advice on some measures we could take. The only existing trust is a trust for my sister (the other 10%) which I will be fully in control of on her behalf. I would like to minimize the tax liability as much as possible and preserve at least 50% of the transferable wealth for maintenance of 30 acres with 2 houses on it. One other item is in regard to his stock portfolio. Is there any benefit to liquidating that prior to their death? As I am POA for both of them, am I able to speak to an estate planning attorney about these items without my grandparents? Thanks.

---

I look at trusts as just another layer of BS when there is a simple will and a small number of beneficiaries in a trusting family where the executor will carry out the wishes of the testator. It overcomplicates the entire process.

Here we have a simple will that leaves 90% of the estate to OP and a 10% trust for the sister. The net assets are below the Federal tax limits so there is no real Federal consequences.

If I were in this situation (and I was) I would have all bank accounts and stock accounts made payable upon death to the OP so that upon death of the grandparents, he can take care of the estate anyway he chooses and there is no probate on those assets. He can set up any trust for the future if he chooses and if he doesn't think he can manage the property in the future.

The same for any real property. He inherits it and does what he was trusted to do.

Quote:

---

Quoting budwad

---

I look at trusts as just another layer of BS when there is a simple will and a small number of beneficiaries in a trusting family where the executor will carry out the wishes of the testator. It overcomplicates the entire process.

---

And this is exactly what our lawyer told us, almost in those exact words.

Quote:

---

Here we have a simple will that leaves 90% of the estate to OP and a 10% trust for the sister. The net assets are below the Federal tax limits so there is no real Federal consequences.

---

Correct. I am the sole executor of their wills and I am will receive 90%, with the other 10% is allocated for my sister, at my specific direction. I have instructions to ensure that she is not incarcerated or otherwise in criminal trouble. No one else is a beneficiary other than myself and my sister.

Quote:

---

If I were in this situation (and I was) I would have all bank accounts and stock accounts made payable upon death to the OP so that upon death of the grandparents, he can take care of the estate anyway he chooses and there is no probate on those assets. He can set up any trust for the future if he chooses and if he doesn't think he can manage the property in the future.

The same for any real property. He inherits it and does what he was trusted to do.

---

Can you explain this more? I was just reading about payable-on-death accounts and how they are used to avoid probate. Can you clarify how this is done specifically? Assets include cash checking and savings, stock portfolio, and real property. There's little I can do to avoid the inheritance tax, but if I can avoid probate and those related costs that would be good.

Would you also recommend my grandparents each gifting me $14,000 per year until they die in an effort to minimize my tax liability?

If your grandparents are mentally competent, it's up to them as to whether they make gifts in advance of their deaths. If they are not, then the power of attorney controls, and most (but not all) of the time the attorney-in-fact is not empowered to make gifts. When the attorney-in-fact makes gifts from a disabled person's estate without having the power to do so, it is a breach of fiduciary duty and can even rise to the level of a criminal offense.

There is no taxable liability if the estate is roughly under 5 million. I don't know about the state tax.

A Payable-upon-death account simply names a beneficiary or beneficiaries to the account. When the person or persons die, the beneficiary presents a death certificate to the bank or brokerage house and the assets are transferred into that persons name. There is no probate involved. The account has to be set up for a POD before death, obviously. It is a simple form that is filled out for each account. It can be savings, checking, brokerage.

And if any of the accounts are a retirement account, it can be transferred in kind to the beneficiary without tax consequences. When the beneficiary withdraws the assets, it may become a taxable event.

The gifting of money really doesn't matter if the estate is under the 5 mill amount. Take it in small pieces or take it all at once.

There is most DEFINITELY a Pennsylvania inheritance tax Budwad. I already said as much. There is no gift tax however in Pennsylvania. Dumping assets may disqualify them for medicaid asisstance but it sounds like they don't need it.

A POA allows you to act but doesn't require the person you are dealing with to accept it. Specifically certain things (like changing wills, etc...) CAN NOT be done with a POA. Other things, may require a more specific power of attorney to be acceptable.

Giving away cash isn't such a big thing. Liquidating securities potentially opens them up to substantial capital gaines tax. If you ineherit the securities, the basis steps up to the value at the time of the death which AVOIDS the capital gain.

You should be talking to an estate planner. There's far too many issues that are involved.

Quote:

---

Quoting flyingron

---

Giving away cash isn't such a big thing. Liquidating securities potentially opens them up to substantial capital gaines tax. If you ineherit the securities, the basis steps up to the value at the time of the death which AVOIDS the capital gain.

---

Interesting. So typical capital gains taxes are calculated on the cost-basis of the investments. You are saying that by leaving those investments as-is, and having the entire portfolio transfer to me after the death, MY cost-basis would be whatever the share prices are when I inherit the portfolio? Meaning if I sold everything off the day I inherited it I would effectively pay no capital gains taxes?

No, your capital gains tax would be based on the buying and reinvestment history of the security from your grandparent's account. Think of it this way, they are only changing the name on the account.

No, I disagree with Budwad. The basis steps up at the time of the owner's death. If you sell them the day he dies (or soon after before the stock price changes), there is no capital gains due. If you hold them then you pay the difference in value between the day he died and the day you sold them. In fact you get long term rate most likely. This is presuming you inherit them (either by probate or a trust), rather than being added as a joint owner before death.

Quote:

---

Quoting flyingron

---

No, I disagree with Budwad. The basis steps up at the time of the owner's death. If you sell them the day he dies (or soon after before the stock price changes), there is no capital gains due. If you hold them then you pay the difference in value between the day he died and the day you sold them. In fact you get long term rate most likely. This is presuming you inherit them (either by probate or a trust), rather than being added as a joint owner before death.

---

Not on a Payable-upon-death account. You inherit the entire history of the account.

There is far too much here to get proper advice from an internet discussion site. Differences of opinion seem to dominate conversations here quite often. There is an important consideration that has not been discussed, however, and that is the cost of probating the estate upon death. In my state, attorneys routinely charge up to 3% of the probate estate to handle the process. A revocable living trust can eliminate much of that expense, regardless of whether it helps with the tax situation or not. The use of will alternatives can greatly simplify administering assets once a person dies. Payable on death or transfer on death accounts are also useful. The durable power of attorney (if it is durable at all) will govern what the agent can do at this point and even with a durable POA, if the individual is not competent then it may be too late to establish a trust. But discussing this with a probate / trust attorney immediately is highly advisable. As I say, there are too many moving parts for a discussion board.

Quote:

---

Quoting budwad

---

Not on a Payable-upon-death account. You inherit the entire history of the account.

---

No bud you are WRONG. POD account or not, there is always a stepped up basis for federal tax purposes. The only time there is no stepped up basis is when the asset is not inherited...ie, when the granter gives it away before their death.

Quote:

---

Quoting jdbofky

---

There is far too much here to get proper advice from an internet discussion site. Differences of opinion seem to dominate conversations here quite often. There is an important consideration that has not been discussed, however, and that is the cost of probating the estate upon death. In my state, attorneys routinely charge up to 3% of the probate estate to handle the process. A revocable living trust can eliminate much of that expense, regardless of whether it helps with the tax situation or not. The use of will alternatives can greatly simplify administering assets once a person dies. Payable on death or transfer on death accounts are also useful. The durable power of attorney (if it is durable at all) will govern what the agent can do at this point and even with a durable POA, if the individual is not competent then it may be too late to establish a trust. But discussing this with a probate / trust attorney immediately is highly advisable. As I say, there are too many moving parts for a discussion board.

---

I agree that consulting a probate/trust attorney would be wise IF the parties are still competent. If they are not, there is no changing anything. Everyone will have to live with what there is.

That is correct. POD and TOD accounts are merely will substitutes so that the assets transfer outside the probate estate. They have no effect on stepped up basis. Technically, securities are held in a transfer on death account, but the principle still applies.

The IRS reasoning is with TOD or POD or payable on death or a living trust, as long as the owner has revocable control, the asset it is as if he owned it simple with regards to taxes. The amount counts towards the estate tax and the basis steps up.

Apparently I need to repeat this, at a louder volume:

Quote:

---

Quoting KBoy420

---

What if they are unable to give their informed consent? Isn't that the whole point of the POA?

---

Quote:

---

Quoting Mr. Knowitall

---

If your grandparents are mentally competent, it's up to them as to whether they make gifts in advance of their deaths. If they are not, then the power of attorney controls, and most (but not all) of the time the attorney-in-fact is not empowered to make gifts. When the attorney-in-fact makes gifts from a disabled person's estate without having the power to do so, it is a breach of fiduciary duty and can even rise to the level of a criminal offense.

---

Quote:

---

Quoting llworking

---

I agree that consulting a probate/trust attorney would be wise IF the parties are still competent.

---

Correct. If the grandparents remain competent, they can consult an attorney about amending their estate plan to conform to their wishes. If they are not, it is too late to change their estate plan.

I never said that the amount of POD account is not counted for the purposes of the 5 mill limit. I did say that the beneficiary would inherit the history of the account for the purposes of capital gains and in the event that it was a retirement account, that selling or withdrawing assets could be a taxable event.

But the real issue here is if a trust is needed to preserve the assets of the estate. And I still say no.

Quote:

---

Quoting budwad

---

I never said that the amount of POD account is not counted for the purposes of the 5 mill limit. I did say that the beneficiary would inherit the history of the account for the purposes of capital gains and in the event that it was a retirement account, that selling or withdrawing assets could be a taxable event.

But the real issue here is if a trust is needed to preserve the assets of the estate. And I still say no.

---

Bud, you clearly do not understand what a stepped up basis is. However I will repeat, and repeat and repeat again if necessary, a POD account gets a stepped up basis as of the date of death. If you attempt to say otherwise, or even slightly otherwise, you are dead wrong. If someone has a stock account where their total investments were 100k, and the account's value as of the date of death is 300k, then the heirs get a stepped up basis to 300k, POD or not.

Where they do not get a stepped up basis is if mom or dad actually makes them a joint or sole owner of the account before mom or dad pass away.

Ok. So to summarize, they should leave their portfolio alone and not sell it prior to their death. Upon passing to me, the cost basis for when I sell it will be whatever the total value is of the portfolio on the date of the death of my grandmother/father.

As to competency, we will need to hire an attorney to do any of this anyway so they will have to make that determination. As for making gifts, I understand I could not as the POA write a check from their account to myself as a gift, acting on their behalf. They are both aware of the gifting limits in PA as they have used that before so whatever they can decide.

It sounds like we should have all of their accounts/portfolio formally changed to POD, which would remove these assets from probate, which would only decrease any administrative/lawyer fees (based on %), but not affect PA state inheritance tax.

How about the houses, which are currently deeded to my grandparents? If unchanged, I would be inheriting them and they are taxable based on their current assessment? Taking ownership prior to their death would still result in me having to pay a large income tax due to counting the value of the home as income.

Quote:

---

Quoting flyingron

---

A POA allows you to act but doesn't require the person you are dealing with to accept it. Specifically certain things (like changing wills, etc...) CAN NOT be done with a POA. Other things, may require a more specific power of attorney to be acceptable.

---

I understand I cannot use a POA to change their will. But can I use the POA to establish trusts and change their bank accounts to POD? So you are also saying banks and other institutions can refuse the POA? On what basis, and what is the point of having one if its unenforceable?

Quote:

---

Quoting KBoy420

---

Ok. So to summarize, they should leave their portfolio alone and not sell it prior to their death. Upon passing to me, the cost basis for when I sell it will be whatever the total value is of the portfolio on the date of the death of my grandmother/father.

---

Correct.

Quote:

---

As to competency, we will need to hire an attorney to do any of this anyway so they will have to make that determination. As for making gifts, I understand I could not as the POA write a check from their account to myself as a gift, acting on their behalf. They are both aware of the gifting limits in PA as they have used that before so whatever they can decide.

---

If they are competent to decide, but honestly, I see no reason for any gifting to be done.

Quote:

---

It sounds like we should have all of their accounts/portfolio formally changed to POD, which would remove these assets from probate, which would only decrease any administrative/lawyer fees (based on %), but not affect PA state inheritance tax.

---

It would allow things to pass outside of the probate estate and help things therefore not have to go through probate. However, any changes can be made only if they are competent to do so.

Quote:

---

How about the houses, which are currently deeded to my grandparents? If unchanged, I would be inheriting them and they are taxable based on their current assessment? Taking ownership prior to their death would still result in me having to pay a large income tax due to counting the value of the home as income.

---

Taking any ownership prior to their death would result in you have to pay significant capital gains tax when you sell the properties.

Quote:

---

I understand I cannot use a POA to change their will. But can I use the POA to establish trusts and change their bank accounts to POD? So you are also saying banks and other institutions can refuse the POA? On what basis, and what is the point of having one if its unenforceable?

---

You cannot use the POA to change anything like that. All you can use the POA for is things that are for their benefit, not for yours or any other heir. The general rule of thumb is that if its going to benefit you or your sister or anyone other than your parents, you cannot do it.

Quote:

---

Quoting budwad

---

Not on a Payable-upon-death account. You inherit the entire history of the account.

---

No, you don’t. Stocks and other investments that you get via a pay-on-death account get their basis set at the fair market value of those assets on the date of death. The person inheriting it does pay the tax on accumulated but unpaid interest, however, once that interest is paid.

What do you mean by "once that interest is paid"? On a private account, the taxes have been paid all along each year. On a retirement account, the taxes are deferred until the investments are sold and the money is taken out as income.

Please explain.

It means any interest that the taxes were not (yet) paid on at the time of death. They are the obligation of the estate. Taxes on interest are generally reconciled at filing time, not over the course of the year when they accrue.

So if a beneficiary sells stock and has a capital gains from the original purchase price he pays the tax. Yes or no? What difference does the step-up value have to do with it?

Quote:

---

Quoting budwad

---

So if a beneficiary sells stock and has a capital gains from the original purchase price he pays the tax. Yes or no?

---

Correct, but since he gets a stepped up basis to fair market value as of the date of the person's death, there generally is little to no (mostly no) capital gain therefore no capital gains tax.

Now I see what you are saying I think. That's a good deal then.

Quote:

---

Quoting budwad

---

What do you mean by "once that interest is paid"? On a private account, the taxes have been paid all along each year. On a retirement account, the taxes are deferred until the investments are sold and the money is taken out as income.

Please explain.

---

Retirement accounts have their own set of rules. An heir can choose to the roll the money over into a retirement account of their own. If the heir chooses to cash it out then the early withdrawal penalty is waived but regular income taxes have to be paid...at least on traditional accounts.

There is no kind of estate planning that can avoid that.

Quote:

---

Quoting llworking

---

Correct.

---

That "correct" was in reference to leaving the stock stuff alone. Yeah, it's possibly a good idea, but if you think the market is tanking and only going to get worse, you might very well want to sell, take the tax hit, and protect what's left from being worthless.

However, that stepped up cost basis is a great thing if it works for you.

Quote:

---

Quoting llworking

---

There is no kind of estate planning that can avoid that.

---

But it can be mitigated. If there's two heirs about the same age, and one makes next to nothing per year, and the other makes 6 figures, it might make a whole lot of sense to leave $1.2 million IRA to the one making less, and the $1 million in cash to one making big dollars because of the progressivity of the tax tables, and have it appear fair whereas the reverse will leave the high wage high with a pot of money that shrinks substantially. A dollar isn't always a dollar.

I've also wonder how permissible it is to leave a high dollar IRA to an 18-yo grandchild or great-grandchild to spread out those withdrawals over a highly probable long number of years so that the tiny withdrawals over a lifetime are minimally taxed.

Appreciate all the feedback. There are not retirement account assets (401k, IRA, etc.). All assets are either cash, stocks, or real property.

Quote:

---

Quoting KBoy420

---

Appreciate all the feedback. There are not retirement account assets (401k, IRA, etc.). All assets are either cash, stocks, or real property.

---

Then there are going to be very minimal tax consequences. Everything that has a potential tax component would get a stepped up basis.

Quote:

---

Quoting llworking

---

Then there are going to be very minimal tax consequences. Everything that has a potential tax component would get a stepped up basis.

---

But we have to have everything changed to POD/TOD in order to received that stepped up basis, correct?

Quote:

---

Quoting KBoy420

---

But we have to have everything changed to POD/TOD in order to received that stepped up basis, correct?

---

No. The assets just need to pass to the beneficiary by reason of the death of the owner. They could pass by will, intestate succession or via a grantor trust and they’d get a basis adjustment to fair market value at the time of death (or, more rarely, 6 months after death).