Alexander A. Bove Jr. and Melissa Langa,
The Daily Record Newswire
Attorneys frequently get calls from clients who say, “I need a will,” when what they really mean is that they need an estate plan. And the clients who make those calls almost always end up with more than just a will.
Today’s estate plan, even for relatively modest estates, typically involves a will, a durable power of attorney, a health care proxy and a trust, usually for each spouse or partner, if a couple is involved. Of course, in larger estates or more complicated family situations, there will be more documents.
Even the simple plans are not really simple, however, and the clients themselves are getting more sophisticated. They are asking challenging questions that we should be prepared to answer.
With a nod to David Letterman, here are our Top 10 questions asked by the typical estate planning client, and our answers:
10. Why do I need all these documents — and even a trust? Isn’t a simple will enough?
The period when just a will was all a person needed ended shortly after the end of World War II. A will only disposes of one’s assets at death. Acquisition of property, retirement plans, savings and life insurance gave and continue to give most of us an “estate” that requires legal attention during our lifetime — especially during incapacity — as well as more elaborate dispositive provisions at death. These “extra” documents, such as a trust, a durable power of attorney and a health care document, are designed to deal with that.
9. I already have a durable power of attorney I made a few years ago. Why do I need a new one?
Many banks and other financial institutions are reluctant to honor a power of attorney that is several years old (even though by statute they remain legally valid). It is easy and inexpensive to review and renew it every three to five years to avoid confrontations. As important, most of us review and revise our core documents every year (or every time there is a problem), and only a recently drafted durable power is likely to deal with digital assets and foreign property, as an example.
8. If I should become incompetent, can my spouse or my power of attorney change my trust or will?
Certainly a power of attorney does not allow the attorney-in-fact to change your will. It may, however, allow that person to amend your trust depending on the specific language in the power of attorney document and the trust. And you can grant a power of appointment in your documents to your surviving spouse (or another person) to alter the dispositive provisions of your plan after your death. Some like that flexibility; some do not. Finally, the commonwealth, by statute, has granted broad powers to your fiduciaries and beneficiaries to change the terms of your trust by settlement, either outside of court or by court approval. If you wish to guard against that, you might consider a forfeiture clause for those who attempt to change your plan.
7. What if I move? Will my documents be valid in another state? Another country?
As a general rule, documents that are valid and properly executed in one state will be valid in another. Issues arise, however, when real estate is involved, in which case local law often applies. For example, this can lead to an attorney-in-fact being unable to transfer real estate if the power of attorney document does not comply with local law. If you own real estate in another state, that state’s law should be checked. And if you move, you should always have local counsel review your documents. Requirements for self-proving wills can vary from state to state. Further, when assets are held in another country, a second will is often recommended that specifically (and only) deals with those assets.
6. Is the cost of these documents tax deductible?
The IRS and the courts have ruled that the portion of your estate planning fees that relate to tax advice or tax planning will be deductible in the year paid under tax code Section 212(3). So most estate planning firms will include on their bill a statement that says, “We estimate that ____% of this fee is attributable to tax planning,” and advise the client to give a copy of the bill to their accountant.
5. Will my trust protect me against a lawsuit?
No. In most basic estate plans, the trust is a revocable trust, meaning you can terminate it at any time and recover your funds or the trust assets. Under the laws of most states, including Massachusetts, if you have any access to the trust assets, your creditors will have the same access.
4. Will this trust protect my money if I enter a nursing home?
This is one of the biggest sources of misunderstanding of trusts. It is often thought that assets in an estate planning trust will be “protected” from nursing home costs. Not so. The assets in a revocable trust established by that person are fully accessible to the nursing home. There are trusts that will “protect” assets in such a case, but under current law the trust must be irrevocable, must confine the creator’s access to the trust income (and even that can be problematic), and the transfers to the trust must be at least five years old.
3. If you arrange my estate to avoid probate, won’t that also avoid taxes?
This is also an extremely common misunderstanding: that avoiding probate means avoiding estate taxes. If it were only that easy. Simply stated, estate taxation is based on control, ownership and enjoyment of assets, not on probate.
2. How much are you going to charge for handling my estate?
Just because we have assisted in the execution of your estate plan does not mean your family is required to use our firm to handle the estate. When that time comes, the persons you have put in charge of your estate will decide whom to hire to assist them, and fees will be one part of that discussion. At one time, lawyers would use a “minimum fee schedule” to determine their fees for settling an estate. The schedule called for a percentage of the estate assets and was seen by some as arbitrary (and later declared to be illegal). Now, most lawyers and law firms simply charge on an hourly basis, dividing the time as appropriate among paralegals, associates and partners for the best and fairest result. A signed engagement letter with the selected firm should set out the fee arrangements in detail.
1. What steps do we (my spouse, family) take when catastrophe strikes?
Although the death of a close family member is often accompanied by a feeling of panic and “what do I do now,” from a legal (estate settlement) standpoint, there are very few matters that require truly immediate attention, absent burial arrangements — and hopefully the decedent had communicated her wishes to family members during her lifetime. For sure, a line of communication with estate counsel should be established within a matter of several days or a week, mostly to have a resource if questions arise. But in the typical case, it is a matter of confirming a financial resource for day to day expenses, then gathering information to review with counsel to begin the estate settlement process and to sign documents transferring the control of the assets to successor trustees or filing a will with the court to have a personal representative appointed.
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Alexander A. Bove Jr. and Melissa Langa are shareholders at Bove & Langa in Boston, where they concentrate in domestic and international trust and estate law.
