Tax Allocation Clause – Protect Your Beneficiary(s)

Remember to Review The Tax Allocation Clause In Your Will or Trust

Most people do not realize that they can choose which beneficiaries will be responsible for paying the PA Inheritance Tax and Federal Estate Tax on their taxable estate. Many wills are written automatically and sometimes incorrectly to say that the taxes are to be paid from the residue/remainder of the probate estate. Therefore, you could unexpectedly lay the entire tax burden on the shoulders of the people who are beneficiaries under the will or trust even though they are not actually receiving all of the taxable assets.

There are several different ways you can leave assets to someone other than those listed as the remainder beneficiaries of your estate.  Here are some examples to consider:

  1. You can name other beneficiaries of specific assets in the will or trust.
  2. You could own joint accounts with other individuals.
  3. You could name other beneficiaries on an IRA or 401K, annuity or stock/mutual fund account.

Depending on your particular circumstances, the PA Inheritance Tax and Federal Estate Tax could be tens or hundreds of thousands or even millions of dollars.  You should be careful to consider structuring the tax clause to make the beneficiaries of specific gifts or non-probate assets responsible for paying the tax on what they receive.  If you do not make this adjustment and the non-residuary gifts are substantial, your remainder beneficiaries could end up paying a hefty tax bill for assets that they do not receive.

So, consider your planning and who will be inheriting your assets, wherever situated, to determine if an adjustment of the tax clause in your will or trust is in order.

In addition to the preparation of wills & trusts to properly effectuate our clients’ planning goals, we also work closely with clients to protect and preserve their assets from the rising cost of long term care.  Some of the most common planning considerations are:  Creation of a Medicaid Asset Protection Trust, use of a Medicaid Compliant Immediate Annuity, qualification of the Family Caregiver Exception, creation of the Caregiver Exception, Irrevocable Burial Reserve, Monthly Gifting Exception, Elder Law Friendly Financial Power of Attorney, Medical Power of Attorney, and Living Will.

Check out our other great articles throughout this site that more specifically address the different ways to protect and preserve your assets.

For PA Residents:  To request our informative Elder Law Guides click here.  Elder Law Latest Reports!

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For assistance developing a comprehensive estate plan or nursing home asset protection plan in Pennsylvania, please contact Douglas L. Kaune, Esquire at 610-933-8069 or email him at Doug’s entire practice is focused on elder law, Medicaid application, estate planning, trust planning, estate administration and protection of clients’ assets from nursing home spending and estate and inheritance taxation.

Unruh, Turner, Burke & Frees, P.C. is a full-service law firm which has three convenient office locations in Phoenixville, West Chester and Paoli, Pennsylvania. The firm primarily services clients in Chester, Montgomery, Delaware, Philadelphia, Bucks and Berks Counties, but can represent clients throughout Pennsylvania.