I have an initial meeting scheduled with an estate-planning attorney. How can I best prepare for the meeting?
The end of the year (in anticipation of New Year’s resolutions!) is a perfect time to meet with an estate-planning attorney and knock this “to do” right off your checklist. It is also very smart to prepare for your meeting in advance so that you can make the best use of your time. Preparing your estate-planning documents is a very personal exercise, so you need to be comfortable with the attorney you choose. Most importantly, your attorney should be able to answer your questions and explain the proposed plan to you so that you understand what your documents mean.
Here are a few issues you, and, if applicable, your partner or spouse, should discuss in anticipation of doing your estate planning. You do not necessarily need to have answers to all of these questions, but you certainly should be thinking about them.
The first question to ask is how you want your assets distributed when you die. By assets, I mean real property, bank accounts, and your tangible “stuff.” Many couples leave everything to their spouse or partner, and then to their children, but this does not necessarily have to be your objective. Consider whether you have concerns about your spouse remarrying, or whether you want to leave assets to other family members who may require care.
Who do you want to serve as guardian of your children if you and your spouse or partner pass away? Who do you want to appoint as successor guardian if the primary guardian is unable, unwilling, or unavailable to serve? Do you want the guardian’s spouse or another individual to serve as co-guardian? Do you want a different guardian to be appointed for different children (for example, half-siblings)? Do you want the guardian to be required to post a bond? Where do you want your minor children to live? Do you want your children to live in their guardian’s home, or would you like your guardian and his or her family to move into your home? In either case, will there be a need for capital to make improvements to accommodate the new family unit?
Individuals under the age of 18 are not legally competent to own property. In your Will, you can set an age before which a person cannot have outright access to the property you leave to him or her. Minor’s trustees are effectively guardians of the property left to minor children. The trustee oversees the money left to your children if they are still minors (usually when both spouses predecease).
The trustee does not need to be the same person as the guardian and there are certain objectives that you might appoint a different person (i.e., ensuring checks and balances on the money and distributions; ensuring that both sides of a family are in contact after the parents are deceased). The guardian is usually someone who you feel can impart the most important values to your children, while the trustee is someone who can handle money, be responsible for it, and have a long-term view of preserving principal while balanced against providing for the minor children.
If both spouses pass away, you need to specify at what age your children will receive distributions of remaining principal. While the trustee usually has the discretion to distribute both income and principal for the health, education, maintenance, and support for the minors (a fairly broad standard), you need to state at which age the minor children will receive the balance of whatever is left after a certain point. One possibility is to allow for half at age 25 (or 30) and the other half at 30 (or 35). You can break it into thirds (25, 30, and 35). You can also provide an incentive for higher education by allowing for half at age 25 and the other half at 30 if the child graduates from an (accredited) college or graduate school, otherwise at 30 and 35.
Spouses are often named as the executor for the other’s Will. An exception can be in second marriages where there are children of the first marriage and you want to ensure that the assets pass to the children of the first marriage after the death of the second spouse. Some other things to consider in choosing an executor are:
• Do you want your executor to be compensated?
• Do you want to impose a limitation on the amount of compensation they should receive?
Keep in mind that being an executor (or trustee) can entail a lot of work — it is essentially managing the aspects of your personal life that you manage now, such as balancing bank accounts and maintaining oversight over assets and satisfying liabilities. Should your executor be required to post a bond? (i.e., insurance if the executor loses or absconds with money).
Each spouse can establish a Credit Shelter Trust in his or her Will up to the maximum amount that can be exempt from Federal or state estate taxes, currently $5.45 million and $4.187 million, respectively. A credit shelter trust is a tax-savings device that also allows one spouse to ensure that his or her assets will pass to the children in case the surviving spouse remarries. As noted above, you need to name a trustee of the Trust. As with choosing any fiduciary, you should seek to choose someone who is responsible and a prudent investor, but who will also make distributions to provide for the spouse. You want to choose a friendly trustee that will cooperate so that if you do need access to principal for a reasonable purpose, the trustee will not deny you that distribution.
These are documents — such as Power of Attorney of Healthcare Proxy — that are effective during your lifetime. Spouses usually name each other to make decisions for them during their lifetime, with successor agents to act in the event that the spouse is unable. While you can name one or more co-agents on the Power of Attorney, only one person can act at a time under a healthcare proxy in New York. Successor agents are critical and should be identified, together with their appropriate contact information.
A living will is a directive authorizing your agent to withhold certain life-sustaining measures (such as artificial respiration, CPR, resuscitation) in the event that you are suffering from an incurable condition from which you will not recover. The absence of a living will does not mean that the agent cannot make those decisions, but it does give the healthcare agent both the comfort, assurance, and authority to make those decisions in the event of a dispute with another family member or the hospital or healthcare professionals.
You should identify any specific items such as art, valuable books, collections, jewelry, or heirlooms that you want to be given to certain individuals. New York does not recognize personal property memoranda that are outside the Will; the executor has the discretion to honor the list but the list is not binding. Similarly, consider any monetary bequests that you want to make outright.
Taker of last resort and common disaster clause
If both spouses and children pass away in a common disaster, where should the assets go? Typically, it goes to parents, siblings, nieces, and nephews. However, consider the situation of those people — leaving money to your parents could disrupt their own long-term planning needs and any Medicaid or other government benefits they might be receiving.
These are hard questions to face and answer, but they are necessary steps in the estate-planning process. Giving these questions thought before meeting with your attorney will help maximize the effectiveness of your conference.
Fnd Alison Besunder on Twitter @estatetrustplan and on her website at www.besun