FOUR ESTATE PLANNING TOOLS EVERYONE NEEDS

WARNING: At some point in your life the unexpected will happen.  If that “unexpected” is sickness, becoming mentally incompetent, or dying, you will need certain legal tools to get you through that period.  As you are guaranteed to either get sick, become mentally incompetent, or die, or all of them, my advice to you is obtain the following four documents:

          Will: A Will directs how you want your property distributed on death. It also may describe, among other things, who is to manage your Estate (e.g. personal representative or executor), who you want to take care of your children, and instructions about the payment of debts.  It does not avoid probate.  It is a “one way ticket” to probate.

            Durable and General Power of Attorney: A power of attorney gives someone the power to act on your behalf for legal matters.   A durable power of attorney springs to life if you are not medically competent to act for yourself. A general power of attorney gives someone broad authority to act on your behalf and should be carefully drafted to give authority in every legal area that you will need.

            Healthcare Power of Attorney: A healthcare power of attorney gives someone authority to make medical decisions on your behalf should you lack the ability. 

               Living Will:  A living will informs and gives direction about what medical treatment you want should you be unable to express you wishes.  In other words, if you are unconscious or mentally incompetent, this document will state whether you want life sustaining treatment, heroic lifesaving measures, or simply manage the pain while you pass.  

The above documents are the essential estate planning tools.  If you do not have the documents above, there are laws in place to compensate for your lack of planning; however, your end of life could become more complicated and more expensive for you and your loved ones.  Here are the legal alternatives that take the place of the above estate planning tools: 

  

Missing  Estate Planning Tool	Explanation of Why You Do Not Want This Result
Will	If you die leaving no will, the State will decide how to divide your assets at death. Please know that the rules for distribution may cause you to enrich someone that you did not intend or wish to enrich.
Durable and General Power of Attorney	A conservator is someone appointed by a court that manages all your assets, if you are not competent to do so (e.g. you are addicted to drugs, suffer from dementia, etc.).  The conservatorship is frequently thousands to administer.  The system is ripe with mismanagement, is cumbersome to administer, and can take hours of your loved ones time to administer.
Healthcare Power of Attorney	A Guardian is someone appointed by a court that manages all your healthcare needs.  If you value privacy, you will no longer have it with the guardian process as your healthcare is the subject of the court.  Moreover, it can costs thousands to administer.
Living Will	If you have not planned for your end of life, someone will plan for you.  This may mean that you are placed on life support for a prolonged period. Moreover, it means that you may burden your loved ones with the decision to terminate or extend life support.

Death and Debt

This is a terrible and misleading article and I want to set the record straight regarding debts and death:

1. If your loved one dies (who is not your spouse) and the loved one leaves behind debt, the survivors are NOT responsible for that debt; rather, the estate of the deceased is responsible.  It is important to note that the deceased cannot avoid the debts by giving his assets to his heirs through beneficiary designation, joint tenancy, or similar device.  The deceased will not escape those debts and creditors may, under the right circumstance, reach into funds transferred in that manner.    

2.  If your spouse dies and leaves behind debt, the spouse is frequently, but not always, responsible for the debt.  For example, the spouse leaves a credit card in his name but not in the spouse's name, the surviving spouse may be found responsible for the debt. A spouse should seek counsel regarding the debt from a qualified attorney because the issues are seldom clear.  

FATAL ESTATE PLANNING MISTAKES: ACCOUNTS IN JOINT TENANCY

This is the third article in a series, Fatal Estate Planning Mistakes, which focuses on "war stories" regarding common estate planning mistakes, as seen by a probate and trust litigator.  These stories are meant to serve as lessons for the average reader.  If the reader sees the mistake below in his or her estate plan, please contact Robert Sewell, Esquire, to discuss how to remedy the problem.

THE FATAL FLAW:  Cindy is an elderly woman with a paid off home, $50,000.00 in a checking account, $100,000.00 in a savings account and $100,000.00 in a retirement account.    She feels herself "slipping" and is no longer able to manage the daily tasks of shopping, banking, and paying bills.  To aid Cindy in her daily tasks she puts her daughter, Shelly, on each account as a joint tenant.  Shelly is now able to transact business from those accounts on Cindy's behalf.  Cindy’s Will grants an equal share of her entire estate, including the accounts, to three children. Upon Cindy’s death, Shelly inherits all Cindy’s cash and all the children inherit an equal share of the house.  In other words, one daughter takes significantly more than the remaining children despite the fact that the will grants each child an equal interest.  The reason for this result is that joint tenant accounts pass to the joint tenant upon the death of one of the tenants. 

THE REMEDY:  Parents who wish their children to take over financial operations for them should not choose joint tenancy to aid them.  Parents should give the child a power of attorney to transact the business.  There are two problems with putting a child as a joint tenant on the account.  First, joint tenancy causes the survivor to inherit all after the death of the remaining joint tenant.  Accordingly, joint tenancy causes one child to inherit more than all the other children.  If the parent wishes for all his/her children to inherit equally, joint tenancy force the opposite result.  Second, joint tenancy exposes the parent to the risk that the joint accounts will be used for the creditors of that child.  While there are statutes to protect against the wrongful taking of an elderly person's joint account, this frequently requires court intervention.  

If you are using joint tenancy, rather than powers of attorney to aid you in your business affairs, please consult with an attorney regarding whether this is a good option for you. 

FATAL ESTATE PLANNING MISTAKES

Wills Without Witnesses

This is the second article in the series, Fatal Estate Planning Mistakes, which focuses on "war stories" regarding common estate planning mistakes, as seen by a probate and trust litigator.  These stories are meant to serve as a lesson for the average reader.  If the reader sees this mistake below in his or her estate plan, please contact Robert Sewell, Esq., to discuss how to remedy the problem.

THE FATAL FLAW: Susie goes to the drug store and buys a will.  She fills in the blanks on the will.  The will calls for two witnesses for her signature and a notary.  Susie believes that two witnesses are optional and chooses only to have one witness and no notary.  In the will, she gives her entire estate to her daughter Janice and disinherits her son Victor (an addict that will use the money on drugs).  The result is that Susie dies intestate, meaning she has no will or estate plan, because the will was not witnessed by two witnesses.  Victor inherits equal to Janice. 

THE REMEDY:  Creating a will is a right given to you by the legislature.  This seems counter-intuitive; however, because so much fraud and deception has been involved with transferring wealth at death, the legislature insists that for a will to be valid it must meet certain requirements. Foremost among those requirements is that the will be signed by the testator whose signature is witnessed by two witnesses.  Attorneys have successfully argued that a will which has one witness signature and was notarized can be made to be valid in court.  However, there is little case law to support that argument and it will be left to a judge to evaluate the facts.  It is imperative to get two witnesses for every will.  Further it is best to have that will notarized. 

If your will lacks two witnesses, you should have the will reviewed by a qualified attorney to determine its validity. 

FATAL ESTATE PLANNING MISTAKES

Trusts Without Pour-Over Wills

            This is the first article in a new series, Fatal Estate Planning Mistakes, which will focus on “war stories” regarding common estate planning mistakes, as seen by a probate and trust litigator.  These stories are meant to serve as lessons for the average reader.  If the reader sees the mistake below in his/her estate plan, please contact Robert Sewell, Esq., to discuss how to remedy the problem. 

THE FATAL FLAW:  Frank creates a trust.  He titles no assets in the name of trust.  He fails to create a pour-over will believing the trust was enough.  Frank disinherits three of his six children from the trust because he supported these three disproportionately to the other children during his lifetime.  Frank dies believing all his property was in the trust.  The result is that the disinherited children inherit equally to the other children as Frank is “intestate,” meaning he has no estate plan.  This situation is not unique.

THE REMEDY: Individuals who wish to create a trust should also create a pour-over will.  A trust is a device that presently allocates property, as identified by the trust maker (“trustor”), to be placed into the trust.  If the trustor does not title his/her property in the name of the trust, the property is not in the trust.  Rather, upon the testator's death, the property is in the “estate.”  A pour-over will directs property left outside the trust on the trustor's death to be poured into the trust after death.    One might argue that another solution is to title everything in the name of the trust before death; however, whether intentionally or unintentionally, most individuals leave property out of the trust.  If you have a trust, but do not have a pour-over will, your estate plan is incomplete. 

(Please note:  I see this estate planning mistake often when individuals purchase trusts from the internet or from a certified document preparer.  If this is your situation, please have your estate plan reviewed.)

FIVE SIGNS YOU NEED A PROBATE AND TRUST ADMINISTRATION ATTORNEY

A self-represented successor trustee or personal representative (the “Estate Manager”) often ignores warning signs that problems are ahead.  There are a number of signs a Estate Manager is will experience problems and possibly litigation.  Here are five signs the Estate Manager is in trouble and an attorney should be hired:

1.   THE ESTATE MANAGER THINKS THE TRUST AND/OR WILL ARE A SECRET.  The Trust and Will are not a secret held only by the Estate Manager.   Beneficiaries requesting a copy of the Trust or Will, unless the document says otherwise, should receive the ENTIRE document.  If the Estate Manager makes the decision to withhold the document, it makes the Estate Manager appear furtive and beneficiaries lose trust.  When that happens, litigation may be forthcoming.     

2.  THE ESTATE MANAGER IS ACCUSED OF WRONGDOING. A sign of possible litigation ahead is a beneficiary accusing an Estate Manager of wrong doing. This can happen even when the Estate Manager has committed no technical wrong (e.g. he has not stolen the money).  At key moments in the administration of a probate or trust certain things must happen.  An Estate Manager who meets deadlines, provides notice of key events, and provides proper accounting of the estate/trust, engenders trust, can quiet distractors, and in many cases, can stop litigation before it happens.   

3.  THE ESTATE MANAGER THINKS TAXES ARE A PROBLEM ONLY FOR THOSE “RICH GUYS.”  Every estate and trust, large or small, must consider tax issues.  For estates and trusts over 5 million dollars, estate taxes (aka “death taxes”) may be owed.  However, there are other taxable events.  For example, negotiating debts lower than the face amount owed may cause a taxable event.  Significant gifting before the death may cause a taxable event or, at minimum, reporting of the gifts.  The estate/trust making money after the death may cause a taxable event. The decedent’s last income tax return may need to be filed.  As the saying goes, the only thing certain is “death and taxes.”       

4. THE ESTATE MANAGER PAYS BENEFICIARIES BEFORE PAYING ALL THE DEBTS. Debts are paid before beneficiaries.  This sounds simple, but frequently it happens in reverse. An Estate Manager must keep enough money to pay debts and taxes or a lawsuit against the Estate Manager may be forthcoming. 

5.  THE ESTATE MANAGER GUESSES AT THE MEANING OF THE ESTATE DOCUMENTS.  Frequently, an Estate Manager does not understand the estate documents so he/she guesses at the meaning.  If the documents are unclear, an Estate Manager cannot guess at the meaning.  He/She must ask the court for instructions. 

These are just 5 warnings signs that the probate or trust administration is heading for trouble.  If you see any of these signs, either as a beneficiary or Estate Manager, you should immediately contact an attorney.