About Estate Planning

The Basic Estate Planning Package:
Wills, Durable Powers of Attorney and
Health Care Proxies

By Daniel Karpman Attorney At Law

Estate Planning

Estate planning is the creation of a definite plan for managing wealth while a person is alive and distributing it after the person dies.

When a person dies without a will ("intestate"), the Probate Court must determine the testator's heirs and appoint an administrator to act in accordance with the law. The laws are inflexible and make no exceptions for those in unusual need. A will often reduces probate expenses, by naming the person to administer the estate (the executor), and by telling the executor what to do.

Wills

The role of a last will and testament is to transfer ownership of assets from the person who makes the will (the "testator") to beneficiaries. Only with a will can one decide, sometimes within limits, who gets the person's assets upon death.

A will becomes effective only at the time of the testator's death. Its validity must be proved in the Probate Court.

The will can be as simple or as detailed as the testator wants it to be. It should, however, indicate who is to get what legacies, state how the remaining assets will be disposed of and establish the process for carrying out the testator's instructions by naming an executor and a guardian for minor children.

Not everything owned by an individual can be bequeathed to someone else through a will. Assets in joint name or with designated beneficiaries are not governed by will. Examples include jointly owned bank accounts, life insurance policies and retirement plan accounts.

Any amount that an individual leaves to a spouse is exempt from Federal and Massachusetts estate tax under the "marital deduction". When the surviving spouse dies, the estate becomes subject to this tax beginning at $2 million (for years 2006 through 2008) or $3.5 million (from 2009 forward). The estate tax rate currently starts at 37 percent and goes up to 55 percent.

Frequently, a trust, known as a testamentary trust, is included in a will. A will can provide for substantial estate tax savings by careful planning and use of the marital deduction and trusts.

A will can be changed or revoked at any time during the testator's lifetime, provided the maker is of sound mind. It should be reviewed at least every three to five years, when a person moves to another state or whenever there are major changes in family or overall economic conditions.

It is not a good idea to keep a will in a safe deposit box, because the box may be sealed at the time of death and require court approval to be opened. The maker may wish to leave the original will in the lawyer's custody and keep a copy at home.

Although standard will forms and computer software for writing a will can be bought inexpensively and completed without using a lawyer, this method is not recommended. Such "printed forms" may not suit the individual's situation and needs, may not conform to specific state laws and could create serious problems at the time of probate. The drafting of a will involves making decisions requiring professional judgment. An attorney specifically trained in such matters should draw up the will, expressing the maker's wishes in legally precise terms. The lawyer's fee is often recouped in the form of advice dispensed or taxes later saved.

Durable Powers of Attorney

A power of attorney is a written instrument by which one person (the "principal") designates someone else as his or her agent or attorney-in-fact to perform certain acts.

The principal must be competent at the time the power is executed.

A non-durable power of attorney terminates upon the incapacity, as well as the death of the principal. It is not a useful planning tool for incompetency.

A durable power of attorney continues in effect even if the principal becomes incompetent. The durable power must contain specific language, such as "this power of attorney shall not be affected by subsequent disability or incapacity of the principal." The durable power ceases upon the principal's death.

A durable power of attorney allows the agent, usually a spouse, parent, child, or other close family member, to make decisions for the incapacitated person in the event of a physical or mental disability. This power can prove to be very important if a person becomes incapacitated or incompetent and is unable to handle his or her own financial affairs.

The use of a durable power of attorney avoids the need for a court-appointed guardian or conservator should the principal ever become incompetent. Because the durable power survives the incompetency of the principal, it provides a less expensive alternative to guardianship or conservatorship.

The durable power of attorney should set forth in specific detail all the powers granted to the attorney-in-fact. The powers can be very broad or limited to specific acts.

The attorney-in-fact is usually authorized to handle all of the ordinary aspects of the principal's affairs, including real estate, bank accounts, taxes, insurance policies, and personal property. Even if property is jointly owned, signatures of both owners are often required, such as in the transfer of real estate. The power of attorney allows the agent to sign for the principal. It also allows the attorney-in-fact to be the payee for Social Security payments. It is important to carefully select the agent. That person must be responsible and trustworthy.

Until the principal becomes incompetent, the power of attorney may be amended or revoked. Once incapacity has set in, the power becomes irrevocable and may not be changed.

Health Care Proxies

A health care proxy is a document by which one individual (the principal) appoints another (the health care agent) to make health care decisions should the principal be unable to communicate those decisions.

The agent is authorized to make all decisions involving the health care of the principal that the principal could otherwise make if he or she were able to do so - unless the proxy itself limits this power.

The health care proxy gives the agent the authority to determine the course of action to be taken relative to medical procedures, or the withholding of medical treatment. The health care agent is also authorized to make decisions concerning the use or terminating the use of life support systems (but not suicide).

The proxy must be in writing, signed by or for the principal and signed by two witnesses who must attest that the principal is at least age eighteen, of sound mind and under no constraint or undue influence. The health care agent may not be one of the witnesses. No one associated with a nursing home or hospital where the principal is a resident or patient may be the agent, unless that person is related to the principal by blood, adoption or marriage.

The agent can act only if the principal's attending physician determines, in writing, that the principal lacks the capacity to make or communicate health care decisions. The agent's authority ceases if the attending physician later determines that the principal has regained capacity.

The principal can revoke a health care proxy at any time by giving notice orally or in writing to the agent or to one of the health care providers. Also, if the agent is the spouse of the principal, divorce or legal separation terminates the spouse's authority to act as agent.

Living Wills

A Living Will is a document by which a mentally competent person makes an advance statement of intent concerning medical treatment. The Living Will gives advance directions about the use and termination of use of life sustaining treatment in the event the person is terminally ill, death is imminent and incapable of providing further instructions.

Massachusetts has no law which either authorizes or prohibits the use of living wills. A Living Will, while not legally binding, may be useful to show the patient's wishes in this particular situation.

A Living Will is not a substitute for a health care proxy. The proxy is more flexible, because it allows the agent to make decisions during an actual situation. Also, Massachusetts law protects health care agents and medical providers from civil or criminal liability when acting in good faith. No such protection is available for a person carrying out a living will. A carefully drafted health care proxy may include language similar to a living will by providing instructions about the individual's personal wishes and beliefs regarding life-sustaining treatment.

The information presented in this article is general in nature, and is for informational purposes only. Please consult with an attorney for legal advice with respect to any specific matter.