A simple estate plan is easy to create and implement. 1/7/19. Estate Planning Fundamentals and Flubs

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1 Estate Planning Fundamentals and Flubs Marisa Zane MVLC Estate Planning Clinic January 10, 2019 Online viewers Problems streaming? Try using another browser. If slides appear small, they are also available in both handout and full slide versions on the website. Submit questions to the presenter by clicking on the speech bubble icon at the bottom of the screen. An attendance code will be read in multiple parts during the presentation. CLE credit is only available for live viewing. To be eligible for CLE credit, report all parts of the attendance code into the online attendance form within 30 minutes following the presentation. A simple estate plan is easy to create and implement. Or is it? 1

2 Estate Planning Flubs: An MVLC Example Client came in with a deed to a house that his mother and sister lived in. He believed he owned the property and wanted to sell it to his sister. The property wasn t owned by the client, but rather, by a trust the client s mother had set up. Client was listed as beneficiary and his mother as trustee on the deed. The client s mother had severe dementia and was incapacitated, so she was not able to sell the property as trustee. The trust document could not be found in the client s home, any family members homes, or the Register in Probate office. The client also had a document naming his mother as his power of attorney for finances, with no successor agent. There were questions as to the client s capacity. Did the attorney who drafted the POA possibly draft the trust? He was deceased. The mother had no power of attorney document of her own. She was being cared for by her daughter (the client s sister who wanted to buy the house). The mother didn t have a will that anyone knew of (and she didn t have capacity to create one). Estate planning basics Last Will and Testament Power of Attorney for Finances + Property Power of Attorney for Health Care Living Will Last Will and Testament Directs disposition of the decedent s property at death Real property, tangible personal property, intangible personal property Doesn t affect disposition of property with beneficiary designations May include special instructions for dispositions to minors A trust created in the will directs when and how income and principal are distributed and when the trust terminates References separate writing agreement Names a personal representative Names a trustee (if a testamentary trust is used) Names a guardian for minor children 2

3 Last Will and Testament - Flubs Not naming an alternate personal representative, trustee or guardian Could lead to disputes over who is to administer the client s estate or care for their children Naming co-personal representatives Leads to greater court involvement during probate if PRs don t agree Naming a personal representative who is not a Wisconsin resident Out of state PR will have to name a Wisconsin agent or hire a lawyer Naming a couple as guardians for minor children Could lead to a dispute over who provides care and custody if the couple divorces and nothing is specified in the will Assuming the named guardian will be granted care and custody of the child when the other parent is alive and willing to act as guardian Naming fiduciaries who are likely to predecease the client Last Will and Testament - Flubs Not considering potential beneficiaries public benefits Exceeding income/asset limits could disqualify a beneficiary from SSI or Medicaid Not naming or updating beneficiaries on real property or intangible personal property Property may get included in the probate estate and possibly won t pass to the intended beneficiaries Probate may be needed to transfer property at death rather than a summary procedure or transfer by affidavit Transfer on death deed - Naming a beneficiary on real estate may not be desirable if you intend to leave it to multiple beneficiaries or any of the beneficiaries are minors Not coordinating beneficiary designations with the will Property could pass to unintended beneficiaries Name the trust as a beneficiary if a testamentary trust for minors has been created in the will Power of Attorney for Finances + Property Names an agent to make decisions and act with respect to the principal s finances and property Defines the agent s powers Real and tangible personal property Digital property Stocks and bonds Banking Business interests Defines limitations on the agent s powers Can take effect immediately or upon the principal s incapacity Durable continues through incapacity Ends at principal s death Insurance and annuities Beneficial interests (estates, trusts, etc.) Claims and litigation Personal and family maintenance Retirement plans Taxes Benefits (government, military, etc.) Retirement plans 3

4 Power of Attorney for Health Care Names an agent to make health care decisions if the principal is incapacitated Defines incapacity 2 physicians or a physician and psychologist who personally examine the principal declare in writing that the principal can t effectively receive and evaluate information or communicate decisions Defines agent s powers Accept/maintain/discontinue/refuse treatment, choose providers and facilities, request and review medical records, Specific situations admission to a nursing home or CBRF, health care decisions if principal is pregnant, feeding tubes Limits agent s powers inpatient mental health treatment Optional organ donation statement Living will Documents desires regarding medical treatment to keep the principal alive if the principal is incapacitated State form covers tube feeding and life sustaining procedures if principal has a terminal condition or is in a persistent vegetative state Terminal condition an incurable condition caused by injury or illness that reasonable medical judgment finds would cause death imminently, so that the application of life sustaining procedures serves only to postpone the moment of death Persistent vegetative state a condition that reasonable medical judgment finds constitutes complete and irreversible loss of all of the functions of the cerebral cortex and results in a complete, chronic and irreversible cessation of all cognitive functioning and consciousness and a complete lack of behavioral responses that indicate cognitive functioning, although autonomic functions continue. Can be more specific CPR, electric shock to stimulate the heart, dialysis, mechanical ventilation, comfort care, blood products Directed at health care providers Incapacity Documents - Flubs Waiting too long to create documents Believing there is one general POA for all types of decisions Believing naming a POA for finances means adding a name to the account Not keeping health care documents on file with health care providers Not updating documents as medical status or family relationships change Not talking to agents about wishes Not giving agents sufficient power to act on the client s behalf Guardianship may be necessary Or, for agents, assuming guardianship is necessary once the principal is incapacitated Believing the documents survive the principal s death 4

5 Estate Planning Flubs During/After Divorce Client wants to disinherit their spouse before the divorce is final Marital property law and the spousal election protect the surviving spouse State law also protects minor children who are left out of a will, but not adult children Client doesn t update the will or beneficiary designations after divorce Divorce revokes dispositions to an ex-spouse (Wis. Stat ), but what if no other beneficiary is named? Update beneficiaries immediately after divorce Client doesn t update power of attorney documents Filing for divorce revokes spousal authority under POA for Finances (Wis. Stat ) Spousal authority under POA for Health revoked after divorce is final Wis. Stat (2)) Client doesn t update their estate plan after remarrying. Estate planning for blended families can get complicated in order to avoid disinheriting adult children in favor of the new spouse Other Estate Planning Flubs Not storing documents in a safe place where family or agents can access them if needed Not in a cardboard box in your attic under some old clothes Mistakes in titling property Most couples want to own their home as joint tenants with rights of survivorship and think they do, but only one spouse is on the deed Some clients want to quit claim property to family members thinking it will make property transfer easier at their death, but it could cause problems during their life Post-Death Flubs Using a Transfer by Affidavit to transfer real estate No court order or signed agreement as to distribution Multiple affidavits can be filed with respect to the same piece of property, leading to a dispute about the proper owner Formal probate required to determine the rightful owner Surviving joint owner or TOD beneficiary don t complete HT-110 (Termination of Decedent s Interest) Needs to be done before the property is sold More work for future beneficiaries if the name of a deceased owner is not removed before the surviving owner passes away 5

6 Don t make an ethics mistake with your estate planning client Adult children + parents: Who is the client? I need to become my mom s power of attorney. Client is the parent signing documents and making decisions about their property and incapacity Tips Ask to speak to the client without their guest present Assess for capacity and undue influence Explain the purpose of the documents Ask the client if the guest can sit in on the appointment Review the completed document with the client and ask if the client has questions Testamentary capacity O Brien v. Lumphrey (In re Estate of O Laughlin),50 Wis. 2d 143, 183 N.W.2d 133 (1971) The testator must have mental capacity to comprehend the nature, the extent and the state of affairs of his property. The central idea is that the testator must have a general, meaningful understanding of the nature, state and the scope of his property, but does not need to have in his mind a detailed itemization of every asset; nor does he need to know the exact value of his property. A perfect memory is not an element of a testamentary capacity. The testator must know and understand his relationship to persons who are or who might naturally or reasonably be expected to become the objects of his bounty from which he must be able to make a rational selection of his beneficiaries. He must understand the scope and general effect of the provisions of his will in relation to his legatees and devisees. Finally, the testator must be able to contemplate these elements together for a sufficient length of time, without prompting, to form a rational judgment in relation to them, the result of which is expressed in the will. 6

7 Testamentary capacity, cont. Client understands generally what property he/she owns. Client understands what making a will means and effects of making a will. Client understands who his/her natural heirs are (even if the client doesn t plan to provide for all of them in the will). Client can consider these elements together to form a rational plan for disposing of property at death. For a POA, the client should understand the purpose and effect of the document and their relationship to their agent. Illiteracy or a fading memory doesn t mean someone lacks capacity. Assessing for testamentary capacity Relevant questions Family Are you married? What is your spouse s name? Do you have children/siblings? What are their names? What property do you own? Do you own a house? Where is it located? Do you have bank accounts? Who do you want your property to go to when you pass away? Why do you want to divide your estate this way? Observations Memory Client s answers about family/property change throughout the meeting Client forgets what was discussed within the meeting time Client needs prompting from guest Confusion About day/time/year/season/where they are Trouble staying on topic Bizarre statements/reasoning Comprehension Difficulty expressing wishes or repeating concepts Assessing for undue influence Red flags Client has a deteriorating physical or mental condition. Client s guest interjects when the client is asked questions. Client seems fearful. Client is isolated. Client wants to make a large disposition to a new best friend. Questions to ask the client Why did you decide to divide your estate this way? Why do you want to make this change to your will/poa? Are there any family disputes or tensions that are affecting your decision? Do you feel safe in your home? 7

8 Special considerations for couples If a couple comes in and they both want documents prepared, let them know individually that having the same attorney prepare their documents is helpful in achieving a cohesive estate plan, but they should be prepared to share information relevant to their estate plan. If either client has individual interests they are concerned about protecting, or they don t want to share certain information with their spouse, they should work with separate attorneys. Examples: A child from outside the marriage, an inheritance one spouse wants to keep separate/secret. Gold Guides Powers of Attorney Property Transfer Probate MVLC Resources Templates and state forms Wills Powers of attorney Living wills HotDocs Referral to the Estate Planning Clinic Serves clients at Veterans Service Office, House of Peace, United Community Center (services available in Spanish). Clients can call to schedule an appointment. We can prepare simple wills, powers of attorney for health and finances and living wills. Appointments take 1 hour per client. Volunteer with the MVLC Estate Planning Clinic We welcome new volunteers! Marisa Zane (marisa.zane@marquette.edu) 8