Estate planning documents can provide significant authority while one is alive, and after passing, of one’s business, personal and medical matters.
Given their importance, and as the new year and then tax season are upon us, it is very timely to consider who your choices are in certain legal documents. Selections made should follow careful thought, are not always obvious, and, critically, should not necessarily be the same from one document to the other. “One size fits all” is not a way to properly designate authority involving these documents.
If you do not have any or all of these documents, now is a good time to determine if you should have such documents. An experienced estate attorney can assist you in all of the matters noted in this blog. If you do have any or all of these documents, a year-end review of the selections and choices that you have made makes sense.
This posting focuses on some types of documents where these issues arrive, and a list of some factors to consider in choosing the individuals who will be making critical decisions under those documents.
The document types are:
- Will – a legal document in which the person executing the will (the “testator”) names a personal representative to manage the testator’s estate and distribute property upon death.
- Trust – this is a legal relationship in which a party (a trustee) holds property for the benefit of another (a beneficiary). The settlor is the person who creates the trust. The trustee is the individual who holds title to the property, but is not to benefit from said property. The trustee must act to protect the rights of the beneficiary as designated when the settlor established the trust, utilizing powers and living by responsibilities delegated in the trust to the trustee.
- Power of Attorney – there are numerous types of powers of attorney; they will not all be stated and defined here. The basic idea of a power of attorney is that a party (typically called a principal) grants certain authority to another party (typically called an agent, or an attorney-in-fact), in certain circumstances, to act in the interest of the principal, as if he or she were the principal.
There are powers of attorney which pertain solely to a particular business or real estate transaction. Some powers of attorney give broad authority to the agent to act in the principal’s name, in a wide array of business and personal matters. Some are durable, meaning that the powers continue even if the principal is no longer of sound mind and body.
Of course, one often-discussed type of power of attorney document regards health care. As an example, husband Bob, as principal, gives wife Jasmine, as agent (again, also called attorney-in-fact), the right to make certain health care decisions on Bob’s behalf, under certain conditions. The realm of health care authority provided to the agent by the principal can be broad and involve matters of life and death; moreover, a medical power of attorney can bind the principal and the principal’s estate with financial consequences stemming from health care decisions.
For the above-referenced documents, there is no formula, but there are factors that need to be considered.
- It should be abundantly clear that the personal representative in a will, the trustee in a trust, and the agent or attorney-in-fact position under a power of attorney, requires an individual who is extremely trustworthy, beyond reproach, and who understands that he or she must make decisions that serve not their own interest, but serve the interest of the testator, trustee, or principal, respectively.
- Location is certainly a factor to consider. When a personal representative, trustee, or agent / attorney-in-fact is nearby, it often is easier to handle matters more quickly and efficiently. As an example, if a person is to make health care decisions upon your inability to do so under a health care power of attorney, proximity to the area in which you are being treated (whether at a hospital of elsewhere) certainly makes it conducive to interact with doctors and nurses, other treaters; see you, the patient; and so forth. Probably in none of the documents, in fact, is location more of a consideration than in a health care power of attorney.
- In a Will, the personal representative must attend to matters, which can become complex and time-consuming. Out of town travel once or twice may not be a problem, but it can be easier if someone is in the area.
- Does the individual you are selecting have the time to handle the job? People have families, children, jobs, other commitments, and the selected individuals should have the time to attend to the tasks that you seek them to perform.
- Does the person you select need specific knowledge for a particular position, and if so, does the person have that knowledge, or have an ability to obtain that knowledge quickly if needed?
- Does the selected individual have the ability to make tough, fair and good decisions and stand by them? The easy, popular decision is not always the right decision.
- Most people like to choose family members where they can for these types of positions, and understandably so. Often, these are good choices. However, the will testator, trust grantor, or power of attorney principal should consider whether there are feuds, the potential for feuds, rivalries, or serious issues of family dynamic that would very possibly create considerable trouble for the family if a particular individual were to be selected. Sometimes, families draw together during times of adversity; unfortunately, in some cases, they do not.
- Institutions – it often used to be that individuals would select banks to be trustees for trusts. This creates a situation where impersonal institutions removed from the situation of the family are paid, often significantly, to administer trusts. In most circumstances, it is preferable to have an individual, rather than an institution, handle the trustee position in a trust.
- Some people choose two individuals to be co-personal representatives, co-trustees, or co-agents / co-attorneys-in-fact. Significant thought needs to go into this decision. On the benefit side there is the plus of having two individuals agree and look out for doing the job as well as possible. On the minus side, there is the potential of conflict, and efficiency in decision-making. In some cases, where there are two individuals named, either individual as co-personal representatives, co-trustees, or co-agents / co-attorneys-in-fact can utilize the authority without the permission of the other individual named.
- While a person might be the right fit for one position in your documents, that person may not be the right fit for another. For example, if you, as a 72-year old with some complex medical conditions, have a son who is a nurse practitioner, who is completely trustworthy, has the time, and lives five miles away, he may be a very good choice to serve as your agent in a health care power of attorney. What if that son is, however, constantly making clear that he is not a stock or bond expert, has no interest in same, and you have stock or bond portfolio that is a significant part of your trust? He may not be the right person for the trustee position.
The inclination is to make a spouse the personal representative, and this is more often than not the right decision. But, what if your husband or wife is someone whom you honestly believe will be overwrought upon becoming a widower or widow, that he or she would likely not be able to handle the business matters required in a power of attorney? Perhaps a trusted grown child can in that situation be considered. What if your spouse has serious health issues of his or her own, which might limit his or her ability to perform the desired role or roles?
It should be clear by now that there are many tough decisions to be made regarding estate documents. This should not drive people to put off those decisions, however, because most of us want people we select to make these decisions when the time comes, not courts, and not people appointed by courts where the interests of the person about whom decisions are being made were not clear.
For questions regarding wills, trusts, powers of attorney, or any of the issues discussed here, please feel free to contact Jennifer Gross (810-227-3103 x. 16) or Catherine A. Riesterer (810-227-3103 x. 12).