Harmonizing the entire Estate Plan

Having one’s affairs in order is like having good health. All related parts have to work together as a whole. That is, each separate estate planning instrument – be it the Living Trust, the Power of Attorney, or the designation of death beneficiary form – needs to function, where relevant, harmoniously with one another. Let us consider some common scenarios where estate planning documents may interrelate.

The Living Trust and the Power of Attorney both pertain to incapacity planning. Typically the agent under the Power of Attorney will use the day to day checking account funds to pay necessary expenses while the principal is incapacitated. Meanwhile the Trustee will manage the investment and savings accounts and will also typically be required to pay upkeep and personal expenses. The agent, if he or she is not also the Trustee, should be authorized in the trust to obtain further money from the Trustee if the checking account outside the trust (which is available to the agent) is ever insufficient to meet the principal’s living and healthcare expenses. Typically the trust requires the Trustee to provide the agent with extra funds as needed. Usually this is a moot point as the same person(s) often act as agent and as Trustee.

Moreover, sometimes it can be very helpful for the agent under a Power of Attorney to amend an incapacitated person’s Living Trust. Consider someone who tells her agent under a Power of Attorney that she wants to amend her trust to disinherit her estranged step-son. Then she becomes incapacitated before dying. The Power of Attorney authorizes the agent to make changes to the trust. The trust, however, restricts the right to amend the trust to the settlor or his conservator. Accordingly, the trust’s own restrictions on who can amend the trust prevent the settlor’s agent exercising the full scope of authority granted within the Power of Attorney. The documents are not in harmony.

Next, the Will, Power of Attorney, and designation of death beneficiary forms can also interrelate. That is, an agent under the Power of Attorney may be authorized to change designation of death beneficiary forms – which control who inherits death proceeds from life insurance, annuities, and retirement accounts. And the Will can authorize a decedent’s surviving spouse to make changes to Death Beneficiary forms that affect the decedent’s community property interests. Without such authorization the surviving spouse cannot exercise full control over who later inherits any Life Insurance, Annuities and Retirement Accounts — even though owned by the surviving spouse – which previously were community property assets while the deceased spouse was still alive.

A person’s Advance Health Care Directive, Power of Attorney for personal care, Power of Attorney for property and financial assets, and Living Trust can also overlap. The agents under the health care directive and Power of Attorney for personal care have the authority to make health care and living arrangements (such as placement in a residential nursing home). Such arrangements will create expenses that need to be paid. Paying for these health care and living arrangements requires the cooperation of the agent under the Power of Attorney and the Trustee, each of whom may have access to assets. Accordingly, the Power of Attorney and Trust instruments should either require that the agent pay such expenses or else the same person(s) should act in all roles.

A person’s ownership (title) documents need to be consistent with the person’s estate plan. That is, if the person with a Living Trust intends for real property assets to pass under a trust, those real properties should all be titled in the name of the Trustee. Having them titled outside the Trust may trigger an unintended probate.

The foregoing are just some illustrations of how estate planning instruments must be considered in connection with other related estate planning instruments so everything works harmoniously.