Legal Documents

Estate Planning Tools

You may hear a senior tell a spouse, “If I’m in a coma and there’s no hope that I’ll recover, pull the plug.” Or one of them ay tell a child, “After I die, I want you to have my house and for your sister to have my IRA.” But expressing these wishes orally and making them legal are two very different things.

For individuals of any age to make legally binding their desires for passing on their legacy, they must use the following legal documents or tools:

  • Legal and health care directives including powers of attorney
  • Wills
  • Property titles, particularly titles with rights of survivorship
  • Trusts
  • Named beneficiaries

One of the most common mistakes that people make is that they do not know which legal document controls the management of their assets if they become incapacitated or the distribution of their property after their death.

Document

Controls

Takes Legal Precedence Over

Is Overruled By

Powers of attorney

Legal, health, and medical decisions on behalf of another person

  • Orally expressed wishes
  • Personally written notes or letters
  • Instructions in a will (because power of attorney automatically ends at the death of the person signing the document)
  • Certain property titles
  • Trusts
  • Beneficiary designations
 

Will

Probate property (property owned solely by an individual for which there is no named beneficiary; joint tenancy property or property owned as tenants in common or jointly, and in some states, as community with rights of survivorship)

  • Orally expressed wishes
  • Personally written notes or letters
  • Powers of attorney

Non-probate property:

  • Certain property titles
  • Trusts (except for testamentary trusts, which are part of the will)
  • Beneficiary designations

Certain property titles

Non-probate property (property owned by an individual, as tenants in common or jointly and, in some states, as community with rights of survivorship)

  • Powers of attorney
  • Instructions in a will
  • Trusts (beneficiary designations)

These property titles take precedence over all other documents in this chart.

Trusts:

  • Testamentary trust
  • Revocable living trust
  • Irrevocable living trust
  • Subtrusts: family, marital, credit shelter, etc.

Property placed under the management of a third party for the benefit of individuals or organizations

  • Powers of attorney
  • Instructions in a will (except for testamentary trusts, which are part of the will)
  • Certain property titels
  • Beneficiary designations
 

Beneficiary designations

Property owned solely by an individual that is designated to be given to another person or organization after death

  • Powers of attorney
  • Instructions in a will
  • Trusts
  • Certain property titles

 

Not surprisingly, in many instances an estate attorney must coordinate the use of two or more of these legal documents to ensure the instructions for an estate will be carried out.

In addition to being experts in creating estate plans, estate-planning attorneys have an important role in protecting seniors. Although not licensed mental health professionals, an experienced estate attorney will, within appropriate guidelines, assess the senior client’s mental capacity and be alert to potential undue influence by family members or others. The attorney also becomes a witness if there is a dispute over the validity of the estate documents, and the expertise of the attorney is invaluable in preventing or at least reducing problems when these legal documents are implemented.

Seniors should periodically review their estate plan documents to ensure they are current. Many seniors will have lifestyle changes of one kind or another that will affect how they wish to provide for themselves and others.

The following sections examine how an estate plan enables individuals to provide for the possibility of incapacity through use of legal and medical powers of attorney, health care directives, and revocable living trusts. As the first step to using these legal documents correctly, it is important to know how incapacity is defined for estate planning purposes, and who is involved in managing it.

An Estate Plan Provides for Incapacity

Individuals may be physically disabled but still able to manage and carry out their own legal and medical decisions. Estate planning covers the possibility that an individual’s disability results in an inability or incapacity to make or carry out these kinds of decisions. Incapacity is typically defined as the lack of physical or mental ability to take action that has legal significance. Incapacity may be obvious, such as a coma, or subtle, such as moderate dementia. An effective estate plan will contain documents that detail one or more options for determining if incapacity exists, for example, a decision by the individual’s for determining if incapacity exists, for example, a decision by the individual’s doctors only, or a joint decision among doctors and selected family members.

Selecting Helpers

All seniors, rich and not so rich, face the prospect of having someone else make decisions for them if they are incapacitated. Even if an incapacitated senior has no assets, someone will have to make decisions about his or her health care, housing, and professional assistance. Therefore, it is important for seniors to give serious thought to who will be named to make and carry out important decisions on their behalf if they become incapacitated.

If a court appoints a helper, this individual will have the title of guardian, conservator, or both. If a trust is involved, the helper is referred to as the trustee.

A disinterested or dishonest guardian or trustee can ruin the financial lives of the senior and the senior’s family. It is important to help seniors identify a help who is trustworthy, available, and sufficiently capable of analyzing and making decisions in their best interests. A good guardian or trustee will be able to objectively weigh the options for addressing medical and legal issues, even when family members are at odds with their best interests.

Appointing a health can cause problems within families. For example:

  • Friction may occur when family members question an agent’s appointment or actions.
  • A particular family member may not have the qualifications to be a guardian or trustee but desire to have the position anyway.
  • Chronological or gender-based appointments (Such as the oldest child or first male child) do not assure that a particular family member is the best choice.

It is important that seniors appoint both a primary guardian or trustee and at least one contingent (secondary) individual to serve if the primary person is unable or unwilling to fill the role.

Seniors frequently ask about appointing co-guardians or co-trustees to prevent resentment among their grown children. Co-guardians or co-trustees can be helpful, either to provide additional help waiting in the wings if the preferred person is not up to the tasks, or to provide some checks and balances, such as when two out of three children are authorized to make a decision for a parent. When naming more than one person fill the role at the same time, it is important to provide instructions as to how the group is to reach and carry out a decision.

Legal Documents Used to Select Helpers

Power of Attorney

Powers of attorney are the documents seniors use to name the individuals who may make legal and medical decisions if he or she becomes incapacitated. They may also be called a durable power of attorney and medical power of attorney. Ther person who is the helper is named as the agent or attorney in fact.

Durable powers of attorney get their name from the fact that they “endure beyond incapacity.” (Nondurable powers of attorney are impractical because they become legally invalid when the power is needed most-if the senior is incapacitated. Therefore, a power of attorney intended for use during diability should specify that the power is valid even when the senior is incapacitated.)

The documents most commonly used to plan for the possibility of making health care decisions for an incapacitated senior are medical powers of attorney, advance directives, and living wills. You should remember that the technical requirements for each of these documents could be very specific, depending on the state where the document is likely to be used.

Revocable Living Trust

In order to discuss revocable living trusts, you must understand a few key terms. A grantor, settler, or trustor is the person creating a trust, while a successor trustee is the individual who oversees the settlement of a trust.

A revocable living trust (a trust that can be changed) can be an excellent tool in planning for the possibility of being incapacitated. If the revocable living trust has comprehensive provisions detailing what happens if the grantor is incapacitated, the successor trustee can take over upon the individual’s incapacity and manage all the assets funded in the revocable living trust.

Remember that the grantor or the successor trustee has power over only the assets that are title in the name of the revocable living trust. For it to be the most effective planning tool possible, your clients must title all assets in the name of the revocable living trust.

Do-It-Yourself Documents

Boilerplate documents are available from many sources, including office supply stores, Internet sites, and from professionals other than laywers. This do-it-yourself path to estate planning can be fraught with peril. Fixing a sink may be an appropriate do-it-yourself project-because every sink is essentially like every other sink-but no two families, or their assets, are alike.

If seniors cannot afford the services of a private estate planning attorney, consult Home and Community-Based Services, to help them find assistance through senior service and legal aid organizations that offer their services at no charge or at reduced fees.

Determining Incapacity

Family, friends, and health care providers may be frustrated with the manner in which a senior carries out daily life. However, most courts operate under the premise that seniors have as much right as anyone else to make bad judgments. Therefore, mere eccentricity and refusal to accept necessary medical care are not reasons for revoking seniors’ rights to make their own decisions.

Instead, courts must determine whether or not an individual is incapacitated. Recall that incapacity is the lack of physical or mental ability to take action that has legal significance. For example, seniors may be physically incapacitated if they become too frail to read bills, write checks, or express their preferences clearly. And seniors with Alzheimer’s disease eventually lose the ability to make sound judgments, remember details, and complete daily tasks.

If a senior shows a persistent and potentially harmful pattern of poor decisions, or a loss of physical capacity, a concerned invidiual may petition the court to appoint a guardian. When a senior faces imminent danger, the courts may appoint a temporary guardian-sometimes within 24 to 48 hours-to provide protection until the senior’s incapacity is fully reviewed and a final determination can be made.

Appointing a Guardian and Conservator

Depending on the state in which an incapacitated person lives, the court will appoint an individual, referred to as a guardian or conservator to manage the senior’s affairs. Most states distinguish between a guardian of the person and a guardian of the assets (a conservator). Some states require that separate parties handle personal and financial affairs, while others allow one person to serve in both capacities. The person who is incapacitated may be referred to as the protected person or the ward.

Guardian

A guardian is an individual appointed by the court to manage the person or medical affairs of a severely impaired individual of any age. (For our purposes, we assume that the person in ned of protection is a senior.) The guardian makes decisions regarding the senior’s care and housing and sees that his or her daily needs are met. Guardians may also be needed when incapacitated seniors are unable to make or communicate medical decisions on their own behalf.

Guardians are responsible for the well-being of protected seniors. The guardian must make decision that will provide the appropriate care and treatment of the senior. In some states, the guardian will be required to file an annual report with the court indicating the senior’s status and the plans for his or her care.

Conservator

A conservator or guardian of the assets is an individual appointed by the court to manage the financial and legal affairs of an incapacitated individual. The conservator becomes responsible for all financial decisions relative to the senior’s assets. When determined by the court to be in need of a conservator, the senior can no longer legally enter into any contracts.

Once appointed, a conservator prepares an inventory of the protected senior’s assets and a financial plan detailing the expected income and expenses. Court approval may be required to buy or sell assets. The conservator must manage the senior’s assets with the care of a “reasonable and prudent person.” (Check with an attorney in your state for the exact standards that apply.) Ongoing court supervision of the conservator offers some protection against mismanagement of the senior’s assets.

If no conservator of the estate has been appointed, a guardian may receive funds on behalf of the senior and use the money for support and care. A conservator, on the other hand, does not have the authority to make health care decisions.

The duty of the guardian and the conservator is undivided loyalty to the senior. They must put the protected person’s needs above their own financial gain. When the wishes of the protected senior can be identified, they should be considered when making any decisions. It is usually advisable for the guardian and conservator to have prior court approval before entering into any sort of inancial transaction on behalf of the protected person.

Holding A Court Hearing

The individual or agency petitioning the court to appoint a guardian for a senior is required by the court to notify the senior, his or her close family members, and any other interested parties. In most states, the court must hold a hearing. Although not always required to do so by a particular state’s laws, the person or agency petitioning the court may elect to engage an attorney because of the complicated nature of the proceedings.

At the hearing, the court considers the stated opinions of medical or mental health professionals regarding the senior’s capacity. These opinions may be presented in person, or they may be accepted in the form of an affidavit. The senior is always entitled to have his or her own attorney. In many instances, the court may appoint an attorney to represent the senior.

State law establishes the standard for guardians or conservators who may be appointed. The court will often appoint a family member, unless the senior has a valid reason to object to that individual or there is other evidence that the family member will not carry out the duties effectively. If a family member is not available to serve as a guardian or if family members cannot agree among themselves, the court will appoint a professional. Certain states have public guardianship programs, while others do not.

In today’s society many of your clients are unmarried couples. Remember that unmarried partners, whether they are heterosexual, gay, or lesbian, have no priority to serve as guardian on conservator. It may be wise to ask all of your clients who are couples about their legal status. You should also recommend that heterosexual couples who do not want to enter into legal marriages consult with an attorney to ensure they have not unintentionally created a common-law marriage.

Court proceedings can be stressful, expensive, and time-consuming. This is escpailly true if the senior or family members disagree with the necessity or choice of guardian by the court. In addition, these proceedings can open a senior’s private and sensitive affairs to public scrutiny. Court proceedings also involve court costs, attorney fees, bonds, medical reports, and compensation of guardians and conservators.

The information above is reprinted from Working with Seniors: Health, Financial and Social Issues with permission from Society of Certified Senior Advisors® . Copyright © 2009. All rights reserved. www.csa.us