Estate Planning

Power of Attorney (POA)

The legal document where you as the “principal” grant legal authority to someone else as your “agent” (called the “attorney in fact”) to “step into your shoes” and legally act on your behalf. Practically speaking, you are giving someone else the legal authority to sign your name and legally manage your financial affairs. POA’s are only valid while you are alive because they terminate at death. POA’s also allows you to designate guardians for yourself and your minor children (should it ever be necessary). For example, if you’re living and become incapacitated and can no longer care for your children, a court will look at your guardianship designation in your POA (Wills also allow for guardianship provisions, but Wills are not of much use until you are deceased).

When the POA is a “General Durable Power of Attorney” (commonly used), the term “General” mean you are giving your attorney-in-fact the authority to act with all the power provided under Indiana law; and the term “Durable” means that the POA remains in full force and effect during any period of incapacity. POA’s are effective immediately upon proper execution unless specified otherwise (such as in a “springing” POA where the effective date is upon a future occurrence–like a formal declaration of incapacity). POA’s can be “limited” or “special,” meaning that effective dates, duration, or powers granted are restricted in some way or granted for a specific purpose.

When choosing your attorney in fact make sure it’s someone that you can 100% trust, and it’s advisable to have at least one back-up (successor) named as well–and they are not required to be family members. You can appoint as many people as you wish to serve in your order of preference, or ask that they serve jointly (if appointing joint attorneys in fact, there are additional considerations we must discuss). POA is a very powerful document, and should be carefully crafted with the advice of an experienced estate planning attorney. Also keep in mind that Indiana does not have a state authorized POA “form.”

Advance Health Care Directive (AD)

This is the health care version of a POA. AD’s allow you to provide instructions and express wishes in regards to your health care. In an AD, you designate your health care representative (and successors), make your living will declaration (wishes in regards to artificial nutrition and hydration), and can address other topics like organ donation and disposition of remains, to name a few. AD’s are created to be HIPAA compliant, so that your representative can receive the necessary information about your health care. The person you appoint under your AD does not have to be the same person you appoint under your POA. It is all about appointing the appropriate person for the job. If you do not appoint a representative, then Indiana law dictates that for you.. Indiana’s does have authorized health care forms and a resource center, which can be found here.

The most common questions I get regarding AD’s are those regarding resuscitation and do not resuscitate (“DNR”) wishes. The only time a health care provider (which includes first responders) does not have a duty to resuscitate an individual is if the individuals attending physician issues an “Out of Hospital Do Not Resuscitate Declaration and Order” (which can only be issued by the attending physician after the individual has been diagnosed with a terminal condition (or has a medical condition such that, if the person were to suffer cardiac or pulmonary failure, resuscitation would be unsuccessful or within a short period the person would experience repeated cardiac or pulmonary failure resulting in death), the physician discusses the condition with the patient and the patient signs the consent with their attending physician in the present of 2 competent witnesses). For those that wish to include a DNR instruction in their AD, it is often preceded with qualifying language essentially saying “do not resuscitate me if my doctors do not believe there’s any chance of my recovery after fully treating me.” Therefore, if your AD includes DNR language it only comes into play after health care providers have done everything they can to treat and save you.

Last WIll and Testament (Will)

Most people are familiar with Wills, and they primarily do 2 things: 1) allow you to appoint the person(s) in charge of your estate (the “personal representative”); and 2) allow you to name the beneficiaries of your probate estate. If you have minor children, you can (and should) also designate the guardians in your Will.

Remember, your will only controls the assets you own individually at your death; thus, it does not control any asset with a beneficiary designated, any jointly owned asset (except “tenants in common” real estate), or assets in trust. If your Will names person “A” as your beneficiary, and your IRA names person “B” as its beneficiary, it doesn’t matter what your Will says–person “B” gets the IRA. That’s why it is important to make sure your wishes are “in sync” throughout your estate plan–to prevent unintended consequences. Finally, Wills are subject to probate.

Outside of the basic goals Wills accomplish, they can do much more. A will can (and generally should) build in the following types of details and/or contingency plans:

• Name successor personal representatives, and specify if you want your estate administered without court supervision and without the requirement of bond.
• Name guardians for minor children;
• Specify any specific gifts you wish to make and contain the appropriate provisions;
• Name the contingent beneficiaries should a named beneficiary predecease you;
• Provide for the creation of appropriate testamentary trusts (a trust created under you Will) to hold a beneficiary’s inheritance should a beneficiary be: a minor (or under a specified age of your choosing); disabled, incapacitated, or have special needs considerations (for supplemental/special needs trust provisions);
• Specify in detail those you wish to disinherit;
• Include a “no contest clause” (if you contest the Will, you get nothing); and
• Be self-proved.

While this list is certainly not exhaustive, it highlights the common things Allen Legal will advise you on through the process.

Creating your Will, Power of Attorney, and Advance Directive is the foundation of a basic, but thorough, estate plan. And when doing an estate plan that utilizes a trust, those 3 documents should also be a part of a trust plan as well. When you do a trust, you should still have a Will; it’s then generally a “Pour-over Will” (a Will that names your trust as its only beneficiary).

Trusts

What is a trust? It’s a legal agreement you create consisting of 3 parties: grantor, trustee, and beneficiary. The grantor is the ‘creator’ of the trust. The trustee is the ‘manager’ of the trust. The beneficiary is the one entitled to benefit from or use the trust property. Once created, a trust becomes a distinct legal entity that is capable of owning property. Worth noting, most trusts do not require the use of a separate taxpayer identification number, which means that the trust is not required to file its own separate income tax return.

There are many types of trusts, and at a high level there are testamentary trusts (a trust created by your will that takes effect after your death); and inter vivos or living trusts (a trust you create that takes effect while you are alive). Since a testamentary trust is created by your Will, it must therefore be created through the probate process. However, living trusts do not go through probate, and that is one of the main reasons living trusts are used in estate planning.

• When you create a trust, all of the details and contingency plans you would build into a will are instead built into the trust.

While you can avoid probate with the strategic use of beneficiary designations, most choose trust planning because of all of the contingencies that can be accounted for up front. Think of a trust like a crockpot, in many instances you can “set it and forget it” because if something happens to a beneficiary, your trust already contains your contingency plan; whereas with beneficiary designations, you’ll likely need to review and update each one accordingly. Also, your trust can create trusts for beneficiaries (sub-trusts) at your death–a strategy commonly used to protect the inheritance you leave someone from ending up in the wrong hands (think of divorces, creditors, lawsuits, addiction issues, etc.).

Regardless of the type of trust, trust funding is required for it to serve its estate planning purposes. To fund a trust, you can register/title/deed property in the name of the trust now, and/or the trust can be designated as the beneficiary of assets after death. Generically speaking, there are 2 types of living trusts commonly used for estate planning and elder law purposes: revocable trusts and irrevocable trusts.

Revocable Living Trust (RLT)

RLT’s are primarily used in estate planning to avoid probate. Being “revocable” means that you can make changes (amendments) to the terms of the trust at any time, and it can be revoked (terminated) if ever necessary. Most of the time, the grantor is the trustee and also the beneficiary of the trust while living, and then at death the trust property passes to the beneficiaries you have specified in the document. There are no restrictions on how you use the assets you place in your RLT. RLT’s are commonly created by both single individuals and jointly by married couples. These trusts are very popular estate planning vehicles because they are extremely flexible. However, RLT’s do not provide asset protection for the grantor while living, but can provide asset protection to a beneficiary that receives their inheritance in a sub-trust you created for them.

Irrevocable Trust / Asset Protection Trust (APT)

From the Elder Law perspective, APT’s are commonly used in Medicaid Pre-planning to protect assets from the ever-rising costs of long-term care. Just like an RLT, you can be the grantor, trustee, and generally the beneficiary of any income produced by the trust assets while you are living. However, to offer asset protection and comply with Medicaid law, the terms of the trust generally have certain restrictions in regards to the trust principal. Even though restricted, the principal is not uselessly locked away in the trust forever; and even though irrevocable, modifications can be made. Irrevocable trust law has evolved substantially over the past 25 years, so the word irrevocable is not as scary as it sounds. Another huge benefit is that assets in your APT after death are generally not subject to creditor claims, like Medicaid Estate Recovery.