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Estate Planning in Action

Stephen C. Hosea


The best way to understand estate planning is to see it “in action”, that is, the way it can really play out among the parties affected. Consider the following story (this is purely fictional, but not uncommon): 

Jim’s wife died some years ago.  He finally called a local lawyer to draft a new estate plan [typically a Will and/or Living Trust, Power of Attorney and Advance (healthcare) Directive].  Having three adult children, he and the lawyer consider the plan to be extremely simple.  Jim would leave his entire estate in three equal shares to his three daughters.  He would name the eldest as Personal Representative and the next eldest as alternate.  He would also name those same children as “Attorneys-in-Fact” under his Power of Attorney and as Healthcare Agents under his Advance Directive.  It did not take long for things to start going very wrong.  The eldest child had helped Jim over the years, since his wife died, with paying bills and handling finances, but it is his youngest child who helps him with medical matters and she is not even named in the Advance Directive.  Very quickly the eldest child named as Healthcare Agent and the child who is actually helping with medical visits, prescriptions, etc. start to argue.  Also, the eldest child, being named alone as Attorney in Fact has complete access to all of Jim’s accounts and has decided that she should get some weekly payment for all the work she is doing.  She writes checks to herself weekly – some are signed by her under the Power of Attorney – some are signed by Jim in his very weak handwriting.  She is also married to a man with a struggling business.  Why leave all of Dad’s cash in the bank when the business can pay him much more in interest?  Acting as Attorney-in-Fact, she makes that loan.  As her sisters begin to ask questions, just to find out if Dad is alright financially, the eldest child becomes defensive and the relationship of the three daughters deteriorates.  By the time Jim dies a few years later, they are barely speaking.
 
The end of life problems caused in Jim’s example are only a small part of the overall estate plan picture.  His passing causes more problems.  Although his lawyer advised Jim to “check your beneficiary designations”, Jim never did so.  His old life insurance policy was taken out when he only had one daughter and she is named as sole contingent beneficiary – his wife having been primary beneficiary.  She declines to share the money with her sisters.  Jim’s bank also filled out his account cards incorrectly.  Instead of naming his eldest child as only an Attorney-in-Fact and authorized signer on his accounts, they name her as joint owner “with rights of survivorship”.  The eldest child claims the accounts as her own.  Now the “estate”, that is, the probate proceeding, has very little money.  Much money was paid for uninsured healthcare costs.  The money loaned to the husband of the oldest child has never been repaid.  With the insurance money and bank accounts being excluded, the only thing left is a house and it is in poor condition.  Jim could not keep up with its maintenance and it will cost thousands of dollars to get ready for sale.  There is no money to do that.
 
Maybe not all of these problems could have been avoided with better estate planning, but a more carefully considered and executed plan would have had a much better chance of producing better results.  The beneficiary designations certainly should have been reviewed and updated to name all three daughters as beneficiaries.  The eldest daughter could have been named with one of her sisters as co-Attorneys-in-fact under the Power of Attorney and co-Personal Representatives under the Will.  The youngest daughter could have been named as Healthcare Agent in the Advance Directive.  If there were already strained relations among the daughters at the time the documents were signed, an independent party (a disinterested friend or relative or advisor) could have been considered to fill a role as Personal Representative.  The whole plan could have been structured using a Living Trust to make asset management and bill paying easier and to avoid probate.  Such trusts also make it clear that all of their assets are trust assets.  That would have avoided the survivorship claim as to the bank accounts.  During his life, Jim would have still had full access to the trust’s assets to pay living expenses and he could revoke or amend it at any time. However, on his death, if all of his assets were held in the trust, there would have been no required probate proceeding and the “estate” could have been settled much more quickly.

Estate planning gets even more challenging as the estates get larger and planning is needed for such matters as estate taxes and business ownership and management succession.  If you are interested in more information, we will be glad to send you a discussion outline with more detail.  Just call Brooke, Suzie or Alison at (301) 441-2420 and they will arrange to send you this free outline by email or regular mail. 


Our blog team consists of our estate planning law partners here at McNamee Hosea, including Esther Streete, Danielle Cruttenden, Mick Jernigan and me (Steve Hosea).  Our comments will be based upon our years of experience not only designing estate plans but also implementing them and observing the results of those plans.   Email us your questions at any time and we will try to address them in future blogs for all readers to see. We cannot reply with legal advice or give legal advice in these blogs – just comments and observations on common planning situations.  If you want to meet with a planner to address your own estate plan, we will give you each planner’s contact information with each blog that they write.