Originally published in GPSolo Magazine’s October/November 2008 issue
By L. Rush Hunt
Contemplating writing an article on planning your death is a task that will depress even an optimist. Also, reducing one’s life to a checklist—a final “to-do” list—as is done in this article does seem to be a bit too much efficiency. Yet, those who practice estate planning and probate law know that much mischief can befall the estate of one who does not implement a well-written estate plan.
Let’s first look to what can be termed the personal considerations of an estate plan. Lawyers often overlook these considerations simply because they are personal, rather than legal, in nature, but they are essential nevertheless. Funeral and burial arrangements should be made well in advance. No one wants a family dispute at the funeral home over funeral arrangements. Most lawyers have “war stories” of a court battle prior to the funeral over everything from the selection of flowers and pallbearers to the choice of coffin or urn. Perhaps little can be done to avoid the rush to court for an emergency protective order to keep disgruntled and threatening heirs away from each other at the funeral home, but at least dignity can be assured if funeral arrangements are made in advance. The executor should know such basic things as the funeral home that has been selected, the funeral arrangements, and the location of the original will so that the executor can take appropriate action if the family starts to unravel prior to the funeral.
The executor will need quick access to a great deal of information. Estates that are well planned in terms of the legal documents often are poorly planned in providing the executor with the vital information needed to begin the difficult and time-consuming task of estate settlement. A complete and current listing of all assets and their locations is indispensable. This listing should include supporting documents such as deeds, insurance policies, brokerage statements, all legal documents such as wills and trusts, and the keys to and locations of safe deposit boxes and personal safes (with combinations). Also essential is a listing of all personal or business advisors, including life and property and casualty insurance agents and their companies, stockbrokers and financial planners, and accountants. Names, addresses, and telephone numbers are vital. The same questionnaire used by the lawyer during the formation of the estate plan can be used by the client to keep updated financial information. See Sample Form #1 (page 50) for a questionnaire that, when supplemented by all supporting documents, will greatly aid the executor.
Powers of Attorney
A durable power of attorney, an advanced health care directive, and a will are the essentials. The durable power of attorney, traditionally termed a general power of attorney, involves only a few basic decisions. The reader is reminded that traditionally powers of attorney were only effective until a person’s disability, following which judicial oversight was required through a state’s guardianship proceedings. As the demand increased for private oversight (rather than judicial oversight) of financial affairs during disability, the states adopted statutes providing that powers of attorney could continue during disability if a specific provision so providing is inserted in the document. Absent such a provision, guardianship laws apply. Thus, any general power of attorney that is intended to continue during disability should comply with that state’s law. By doing so the typical general power of attorney becomes a so-called durable power of attorney—simply meaning the power continues during disability and is not terminated by disability requiring a guardianship.
The primary decision to be made is to select an individual to act as the power of attorney and, if possible, to select an alternate. On occasions it may be more appropriate to name two individuals to serve as co-powers of attorney. If two individuals are to serve, then a decision must be made as to whether the power is to be exercised by the individuals jointly or if they may exercise the power separately. Absent a specific directive allowing the delegated powers to be exercised separately, the general rule of law is that both signatures are required. Oftentimes it is more convenient to allow separate signatures.
An additional consideration is the extent of the powers granted, including whether powers should be given for disclaiming an inheritance, borrowing money, selling real estate, making decisions over retirement account distributions, and whether or not to allow gift giving. If gift giving is allowed, then a decision must be made as to what extent gifts can be given and to what class of persons gifts can be given. Further, a decision must be made as to when the power of attorney becomes effective: Is it effective immediately upon signing the document, or does it become effective only at disability? If the document becomes effective only at disability, then it must contain specific wording defining how disability is to be determined. See Sample Form #2 (page 51) for a durable power of attorney checklist.
Advanced Health Care Directives
The primary considerations in an advanced health care directive are obvious and include naming the individual health care decision maker, deciding if an alternate is needed, and if so, naming that individual. Then decisions must be made as to what health care powers are granted and, more importantly, the extent to which end-of-life decisions can be made. These decisions involve consideration of a number of factors, including the use and withdrawal of respirators and nutrition and hydration, and if death is imminent, whether organ donation, organ transplants, or donation of one’s body for medical and scientific research is appropriate. In addition to a well-prepared legal document, it is important that a person’s desires not only are stated in the legal document but also are explained personally to the health care decision maker. All family members should be aware of who the decision maker is, unless there are extenuating family circumstances that justify withholding this information from the family. See Sample Form # (page 51) for an advanced health care directive checklist. A helpful ABA resource is Carol Krohm and Scott K. Summers’s Advance Health Care Directives: A Handbook for Professionals (2002).
While trusts have taken on a more prominent role in recent years, a will remains the central and most important estate planning document. Basic decisions concerning wills include naming the executor and guardian for underage children and possibly an alternate executor and guardian, determining the compensation to be paid to the executor and guardian, waiving a surety bond for the executor and guardian when appropriate, and making specific gifts to individuals. When making specific gifts in a will, it is essential to decide whether or not the beneficiaries’ right to the value of a gift lapses if the gift itself no longer exists at the time of death. Failing to do so runs the risk of the application of the common law rule (or its statutory modification) of ademption, under which beneficiaries lose all rights to the value of a gift if it no longer exists. Further, a decision must be made concerning whether or not the gift lapses if the individual predeceases the testator. Depending on state law, a lapse may not be automatic. Indeed, in many states the gift will not lapse but will pass equally to the descendants of the deceased beneficiary unless specific wording is added to create a lapse. Another area of concern is the distribution of personal property, particularly household contents, furniture and furnishings, jewelry, and collections. It is these items that can create the greatest ill will in a family when several family members want the same sentimental item. There are numerous ways to handle these types of property, but none offer a perfect solution. Nonetheless, serious consideration should be given to avoid ill will or, worse, litigation. The writer recalls all too vividly three children arguing in court over which two of them would receive their father’s two World War II uniforms. Seeing a fellow lawyer and heir breaking down in court in tears over his father’s uniform is a pain that does not need to find its way into the legal system. The basic will concludes by passing the residue of the estate to the beneficiaries and providing for an alternative disposition if the primary beneficiary is deceased. Provisions for trusts for beneficiaries are discussed below.
The importance of reviewing asset ownership and beneficiary designations cannot be overlooked. Many well-written wills fail to pass on the estate as intended owing to a failure to recognize the effect of the non-probate disposition of assets. It is important to determine what assets are owned jointly with right of survivorship, payable on death, or payable under a transfer on death requirement on a brokerage account.
Similarly, beneficiary designations for life insurance policies, retirement accounts, or annuities must be reviewed. Individuals often fail to recognize how asset ownership affects a will, assuming that these non-probate assets will somehow pass under a will. See Sample Form #4 (page 52) for a checklist containing some of the considerations for a basic will.
The use of trusts and their utility for both the grantor and his or her beneficiaries are considerable depending upon the needs of the beneficiaries. Because this topic is so broad, only a few basic considerations will be addressed here. An individual trust for a single grantor or a joint trust for a couple can be used to simplify estate settlement. In this type of trust, the grantor creates a trust for the benefit of him- or herself, or if married, for his or her spouse, transferring assets into the trust during lifetime. The trust provides privacy for those assets; at death those assets are not reported to the probate court, and in some estates this also will simplify estate settlement. The trust can continue for the benefit of the surviving spouse, if there is one, and then can continue for the benefit of the next generation of beneficiaries after the death of both the grantor and his or her spouse. Although the trust can terminate and be distributed outright following the death of the last to die of the grantor and the surviving spouse, it may be wise for the trust to continue. For example, if the beneficiaries are young, it is important for the trust to continue and provide benefits for education, support, and health care needs, but otherwise withhold distributions until the beneficiaries have completed their education and become more mature. Other trusts should continue for the lifetime of the beneficiary to provide the beneficiary with asset protection against a divorce action or a civil law suit for tort or contract liability. In other situations the next-generation beneficiary may suffer from substance abuse, gambling abuse, or other addiction problems, which makes it essential to restrict an inheritance to a trust for the beneficiary’s lifetime with provisions prohibiting distribution, or at least limiting distribution, when the beneficiary is suffering from substance abuse problems. In still other situations the beneficiary may have physical or mental limitations that make a trust a more proper manner for that person to inherit. Oftentimes these trust arrangements are referred to as a special needs trust when the beneficiary qualifies for Medicaid or other governmental benefits and the grantor does not want to see the trust assets expended for needs otherwise provided for by such programs. A partial checklist for a trust can be found in Sample Form #5 (page 53). A more thorough treatment of these issues and checklists for various types of trusts are included in the author’s forthcoming ABA book, tentatively titled Estate Planning Forms Deskbook.
By utilizing the checklists and comments provided in this article, coupled with your own expertise, you can create a checklist that is specific to your own practice. A good checklist is important as it will eliminate many of the omissions that can occur when drafting an estate plan without the use of a good system of checklists.
- Rush Hunt is a partner at Hunt & Hunt, P.S.C., in Madisonville, Kentucky, where he focuses his practice on estate planning, tax law, and business law. He may be reached at email@example.com.