Estate Planning Overview and Objectives

By Stephen J. Dunn

Few things are more important to an individual than planning his or her estate.  This determines who will receive your property at your death, how much of your property will go to the government in taxes, and whether your property will pass through a probate estate.

Estate planning is fraught with ill-advised gimmicks.  Self-help materials sold online and trust kits sold in office supply stores are a waste of your money, or worse.

This is the first of several posts on the subject of estate planning.  My purpose it to help you discern what is and what is not a competent estate plan, and what kind of estate plan is right for you.

Everyone needs a will.  The primary purpose of a will is to make sure that your property goes to the person(s) you want it to go to at your death.  A secondary purpose of a will is to enable you to nominate guardians and conservators for any or your children who are minors at the time of your death.   A will should be drawn by an attorney, and executed under the supervision of an attorney.  A will defectively drawn or executed can spark a litigation challenge (called a will contest) leading to unintended disposition of your property.

When an individual dies without a will, their property passes according to the statute of intestacy.  This often produces unintended results.  For example, if you die without a will (this is called dying intestate) and married with children, the statute divides your property between your surviving spouse and your children of whatever age.  Most people would intend that their surviving spouse succeed to all of their property, especially if their children are grown.  To avoid the statute of intestacy, you need to make sure that you leave a legally-effective will at your death.

A will directs where your property goes at your death, but it does not determine how it gets there.  If you own property at your death, title to that property must be cleared to those legally entitled to it, by your will if you left one or by the statute of intestacy if you did not.  This title-clearing process requires the opening of a decedent’s estate in Probate Court.    A decedent’s probate estate is costly.    If the decedent owned widely-scattered properties, and did not keep good records, the probate estate can cost tens of thousands of dollars.  A decedent’s probate estate is a matter of public record―anyone can go to the Probate Court and look in the file.  Notice of a decedent’s probate proceeding is published in a legal newspaper, and creditors of the decedent are invited to assert their claims against the estate.   A decedent’s probate estate will delay distribution of the decedent’s property.   The delay can be especially lengthy if the estate is embroiled in litigation.

The way to avoid probate is to establish a revocable trust and transfer your property to it during your lifetime.  Then, at your death, you own no property requiring a probate proceeding.  Instead your property is administered privately, according to the terms of your trust document.

A well-drawn revocable trust also enables a married couple to avoid estate tax on twice the amount of the estate tax exemption, and to defer estate tax on their property until the death of the successor of them.   The exemption equivalent has been in the news lately.  When the estate tax returns on January 1, 2011, it will do so with en exemption equivalent of $1,000,000 per individual.  But an agreement reached by the President and Congressional Republicans, with substantial support among Democrats, will increase it to $5,000,000.  Thus, a married couple with a well-planned estate will be able to avoid estate tax on at least $10,000,000 of property.

Irrevocable trusts enable individuals to avoid estate tax on more than the exemption equivalent amount of property.

People who are prone to claims, like physicians, can arrange their affairs to protect their assets from judgments.  For example, assets held in a qualified pension or profit sharing plan are exempt from state-law claims, such as malpractice claims.

When mental incapacity disables an individual from acting for himself, a guardian must be appointed for care of his person, and a conservator must be appointed for care and custody of his property.  Guardianship and conservatorship proceedings are judicial proceedings in Probate Court, and they are expensive.  They require an attorney for the guardian or conservator, and possibly a separate attorney for the protected person.   Guardianships and conservatorships require annual reporting to the Probate Court, and sometimes specific Probate Court authority for acts such as terminating medical care or sale of real property.

You can easily and inexpensively avoid guardianship or conservatorship proceedings by executing durable powers of attorney while you still have your mental faculties.  A health care durable power of attorney empowers your patient advocate to make decisions regarding your health care if, in the opinion of your physician, you unable to make those decisions yourself.  The powers conferred nearly always include the power to forgo or terminate medical care if, in the opinion of your physician, you are in a persistent vegetative state without hope of recovery, and medical care would only artificially delay your death.   “Medical care” should be defined to include feeding or hydrating you by artificial means.  Your health care durable power of attorney should also name one or two successor patient advocates to act in the event the prior-named individuals are unable to act.

Your health care durable power of attorney should express whether you wish to receive medical care if, in the opinion of your physician, you are in a persistent vegetative state without hope of recovery, and medical care would only artificially delay your death.   In some jurisdictions, such wishes are expressed in a separate document called a medical directive.

A general durable power of attorney empowers your attorney-in-fact (also called your “agent”) to make transactions in your property.  The best-drawn general durable powers of attorney are immediately effective.  Obviously, you should only name individuals whom you eminently trust to serve as your attorney-in-fact.

Alternatively, a general durable power of attorney can spring into effect upon your disability.  Such a power is self-defeating.  The purpose of a general durable power of attorney is to induce banks, brokerage firms, transfer agents, and other third parties to act in reliance thereon.  If a power is effective only upon your disability, what is a third party supposed to do, bring a judicial proceeding to determine your disability?  Of course third parties will not bring such a proceeding.  They simply will decline to act in reliance upon such a power.

Your general durable power of attorney should also name one or two successor attorneys-in-fact to act in the ever prior-named attorneys-in-fact are unable to act.

Patient advocates and attorneys-in-fact are your fiduciaries.  They owe you fiduciary duties of due care and loyalty.  Their powers may be exercised only in your best interests.  If there is a colorable allegation that a patient advocate or attorney-in-fact has breached a fiduciary duty owed to you, the burden is on them to prove that they did not breach the fiduciary duty.

That  powers are “durable” means that they are effective notwithstanding your disability.  The powers cease at your death.

The language of a legally-effective health care durable power of attorney or general durable power of attorney varies from state to state.  Such documents should be drawn and executed under the supervision of an attorney licensed in your state.

That is where your estate planning journey should begin:  finding a competent attorney in your locale to help you with the process.

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