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Estate Planning Fundamentals and Flubs

Marisa ZaneMVLC Estate Planning ClinicJanuary 10, 2019

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A simple estate plan is easy to create and implement….

Or is it?

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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

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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 - http://www.wi.ctic.com/pdfs/M isc_Docs/wisconsin.ctic.com_TOD-110[1].pdf

• 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

• 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

• Real and tangible personal property• Digital property• Stocks and bonds• Banking• Business interests

• Insurance and annuities• Beneficial interests (estates, trusts, etc.)• Claims and litigation• Personal and family maintenance• Retirement plans

• Taxes• Benefits (government, military, etc.)• Retirement plans

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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

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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. §854.15),

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. §244.10)• Spousal authority under POA for Health revoked after divorce is final

Wis. Stat. §155.40(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

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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 capacityO’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.”

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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 capacityRelevant 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 influenceRed 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?

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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.

MVLC Resources

Gold Guides• Powers of Attorney• Property Transfer

• Probate

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 414-288-5378 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! Email Marisa Zane (marisa.zane@marquette.edu)