Estate planning requires an integrated approach to ensure that different parts work together. The Revocable Living Trust, Will, Power of Attorney, and Advance Health Care Directive should be written in consideration of how they will function together in overlapping situations.
The Living Trust, the centerpiece of most estate planning, and the Power of Attorney have overlapping purposes: to provide for the settlor’s personal care (either at home or elsewhere); to assist the settlor to remain at home; to support the settlor’s dependents while the settlor is incapacitated; and, sometimes, to make lifetime gifts to qualify the settlor as eligible for needs based government benefits.
Whereas the Trustee controls and uses the trust assets to further the trust’s purposes, the Agent acts, within the scope of his or her delegated authority, to manage a person’s financial and legal affairs on a day to day basis. The Agent, for example, will sign personal care contracts and admission papers to admit a person into a skilled nursing facility. The Trustee will then use assets to pay the expenses.
A Power of Attorney and an Advance Health Care Directive also overlap. The Agent under the Advance Health Care Directive makes health care decisions that create expenses to be paid by the Agent, who in turn may also seek financial support from the Trustee.
The Agent under the Advance Health Care Directive may also be the person who obtains a physician’s Certificate of Incapacity necessary to commence authority for another person to act, on behalf of the incapacitated person, either as the Agent and/or as the Trustee.
Often the same person acts in each of these various fiduciary capacities (i.e., as the legal representative). The same person avoids possible conflict when different individuals have separate legal authorities but are unable to cooperate together.
In second marriages, however, a married person may still want different individuals. They may nominate their spouse to be their Agent under the Power of Attorney and Advance Health Care Directive – to manage the day to day operating financial, legal and health care decisions – but nominate an adult child as the Trustee to control their Trust assets where the bulk of their estate is contained.
When different persons are involved it is important to consider areas of possible disagreements amongst them and to address them.
Thus, the Trust may require the Trustee to pay for the Settlor’s personal care and living expenses which the Agent has approved. Likewise, the Trust may require that that the Trustee transfer an incapacitated spouse’s ownership interests to their well spouse in order to qualify the incapacitated spouse to receive Medi-Cal for residential skilled nursing care.
A person’s Will must take the person’s Living Trust into consideration. Often, but not always, the Will leaves everything (or almost everything) to the Trust for unified administration under the Trust. Moreover, married people through their Wills often give their surviving spouse complete authority to change designated death beneficiaries to inherit the deceased spouse’s one-half community property interest in any life insurance on the surviving spouse’s life and retirement plans where the surviving spouse contributed marital earnings.
In addition, limitations on one’s estate planning options are to be found in various non-estate planning documents — such as premarital and post marital agreements, dissolution orders, and business succession agreements. These must also be considered when drafting the estate planning documents. For example, a business succession plan that requires a buy-back of a deceased partner’s equity in a business will prevent a partner from gifting their share of the business in their estate plan.
Estate planning has many potential pitfalls, only some of which we have considered, for the unwary. Hiring a qualified estate planning attorney to draft estate planning documents that integrate all relevant factors may avoid these pitfalls.