Estate Planning

1. What is estate planning?

At its core, estate planning involves planning for the future. Individual circumstances vary, but most people benefit from having the following documents in place:

  • Last Will and Testament
  • Revocable Trust (to address probate and confidentiality concerns)
  • Durable Power of Attorney (to address financial control issues)
  • Advance Directive (to help with health care decisions)

Depending on one’s individual circumstances the planning may involve much more than the documents listed above. But, at its core, for most people an estate plan will involve the above four listed documents.

2. What is a last will and testament?

This is an opportunity to effectively distribute property to your intended beneficiaries. But a will certainly involves more than the distribution of property. A will is also the appropriate forum to designation burial arrangement preferences. You may also provide unique distribution rules. If a minor is under your care, then will is a critical avenue for you to decide who will take care of him when you pass. Limitations on the personal representative’s powers or perhaps specific instructions to the personal representative. The variety and personalization of the will are endless. Your will should be tailored to your specific needs.

3. What is a trust?

A trust is a separate legal entity with its own unique set of instructions for asset management and use and a trustee (or trustees) that are bound to follow this set of instructions. Trusts are very useful in situations where one wants a loved one to receive the benefit of property passed on death, but when that person no longer needs the funds (i.e. death or remarriage), the property then reverts to other intended beneficiaries. The classic example of a marital trust is where a husband and wife are in their second marriages, each with a set of their own children. Each spouse can setup a marital trust to care for the surviving spouse while alive, but revert back to their own natural children upon the remarriage or death of the surviving spouse. It is in this fashion that the assets do not go to the surviving spouses children instead of the decedent’s children. Trusts are also used in advanced planning in the event one’s estate is expected to have either Federal and Maryland estate tax liability. Trusts may also be used in the context of elderly parents where funds may be preserved and protected against nursing home expenses.

4. What is a power of attorney?

A power of attorney is the generic term usually meaning durable general power of attorney for financial matters. In Maryland, powers of attorney are assumed to be durable. This means that if the grantor latter becomes “disabled” the power of attorney is still valid after that person becomes disabled. One has to be very careful when drafting a durable general power of attorney. This document can be a very powerful document. Additionally, the powers granted to the “attorney in fact” should be clearly granted in the durable general power of attorney document or you risk having the power of attorney dishonored. Currently in Maryland, financial institutions cannot be forced to honor a durable general power of attorney. There are various forms of powers of attorney. A power of attorney can be a complex document granting very wide range of powers or it may be a limited power of attorney whereby the powers are granted over one asset or one account. Additionally, a power of attorney may be effective when it is signed or it may be a “springing power of attorney.” A springing power of attorney becomes effective upon certain occurrences. The typical event that makes a springing power of attorney effective is the certification by two physicians of the grantor’s disability.

5. What is an advanced directive?

An advance directive in Maryland contains two separate forms: 1) the living will and 2) the health care agent designation. The living will provides instructions for end of life decisions and a Maryland living will should address three Maryland specific conditions: 1) terminal condition; 2) persistent vegetative state; and 3) end stage condition. Maryland is very conservative in that if one does not have a living will and one’s end of life intentions are unknown, if they fall within one of the three Maryland conditions and they cannot physically bring food or water to their mouth, Maryland deems it to be in their “best interest” to be tube feed indefinitely until their body gives out. If your preference is not to be tube feed, then your intentions had better be clear and known. The second part of the advanced directive is the health care agent designation. This is the person that can access your medical information, hire a doctor, fire a doctor, gain access to your medical records, etc. This person acts as an agent for your benefit. Included in the agent designation must be the HIPAA release authorization. This makes it possible for your agent to receive and review private medical information about you. A properly drafted advanced directive should cover all of your unique health care needs.

6. What is litigation?

Litigation in the context of estate planning documents ranges significantly. For disputes for durable general powers of attorney, the issue normally is that the attorney-in-fact is abusing her role as attorney in fact, breaching her fiduciary duty to the grantor, and in some cases stealing the grantor’s assets or making unauthorized beneficiary changes. Challenges to an advance directive may range from disagreement over what the agent may or may not do, having the hospital honor the agent’s instructions; having the hospital or nursing home honor the end of life decisions in the advanced directive. Challenges to a last will and testament are called caveats and range from the accusation that the signature is false (.i.e. fraud); the signature is not valid (undue influence and competency); to the issue that the document was improperly executed. The beginning point for a challenge to a will is was the caveat filed in a timely fashion. If not, your case is over before it began.

7. When should I leave my spouse as the primary beneficiary?

If your spouse is in declining health, it is probably wise not to leave him/her as the primary beneficiary of your estate. Why? If the well spouse unexpectedly passes first, an inheritance could inadvertently go to a spouse in a nursing home causing Medicaid benefits to cease and loss of some or all of the inheritance to nursing home expenses. In such a case, a supplemental needs trust—for the benefit of the surviving spouse—should be named as the primary beneficiary. This area of law is complex. Please call our office for more details.

8. Why should I have an elder law attorney review an existing Power of Attorney and Advance Directive?

It is critical that an elder law attorney review the power of attorney and advance directive. It is very common to have a power of attorney that a family thinks is fine until they have to use it. That is not the ideal time to discover that it is defective. Similar issues exist with an Advance Directive. In the middle of a family health crisis situation is not the ideal time to discover that the Advance Directive is defective. This office routinely examines powers of attorney and Advance Directives as a normal part of our consultations.

9. Does your Advance Directive contain the HIPAA release authority?

The Health Insurance Portability and Accountability Act imposes strict monetary and criminal penalties on companies and institutions that release private information to unauthorized individuals. The result is that family members are unintentionally being keep out of the loop by hospitals, insurance companies, assisted living and nursing homes. The answer is that your Advance Directive must absolutely contain the HIPAA release language allowing individual to access medical information in the event you are incapacitated.

10. Why would I need a Revocable Living Trust?

A revocable living trust is designed to do two things: 1) avoid probate and 2) make sure your beneficiary designations are a private matter and not a matter of public record. Probate is a time and paper intensive process. The typical time for an estate to be probated is roughly 9 months to 2 years. The revocable living trust eliminates probate and insures your beneficiaries receive their distributions in a timelier manner.

11. What is an Irrevocable Life Insurance Trust (“ILIT”)?

A common misconception is that proceeds from a life insurance policy are tax-free. It is true that the proceeds are free from Federal and State income tax for the beneficiaries of the policy. However, the proceeds of the life insurance policy may be subject to Federal and State estate tax. Life insurance is like a stealth asset that, without proper planning, you may not realize the extent of your exposure until it is too late. So instead of expecting to pass your life insurance inheritance “tax-free” to your beneficiaries, you may be unexpectedly find Uncle Sam’s hand dipping in to grab just about fifty percent of your life insurance legacy. An Irrevocable Life Insurance Trust (“ILIT”) is a specialized trust designed to shield your life insurance policy from Federal estate tax. Please contact our office for more information concerning ILITs.