Monday, September 19, 2016

Estate Planning: Choose the right person for the job

You are doing your estate plan. You have to choose people for certain duties. You may be tempted to name your spouse or the kids in birth order because you think that it is the fair thing to do. But is it the right thing to do? Have you really thought about the skill set that is necessary for the jobs that need to be accomplished?
You have different jobs depending upon the estate planning documents you have and the instructions you have in those documents. Generally, there are two main types of jobs that are included in estate planning documents: those jobs relating to handling finances and other property and those jobs relating to taking care of you.
With your will, you appoint one or more personal representatives with at least two backups to handle your finances and other property (in your sole name at the time of your death and do not have a beneficiary designation). Your finances and other property will have to go through probate. Your personal representatives not only will have to manage your finances and other property after your death, they will have to navigate the probate court process.
Your will is only effective after death. During your lifetime, the financial agent and at least two backups that you appoint in your financial power of attorney are responsible for your finances and other property that are owned solely by you or that you can access as a joint owner. Your agents pay your bills, manage your investments and other property in order to provide for you. The powers granted to your agents in your financial power of attorney generally expire when you do.
Your trust is not only effective during your lifetime, but also after your death. You appoint one or more trustees to manage your finances and other property that have been transferred or otherwise funded into your trust. Most of our clients are the trustees of their own trusts while they are alive and well. However, you need to appoint one or more successor trustees with at least two backups to take care of the trust property for your benefit and possibly other loved ones when you are mentally disabled.
You also will need to appoint one or more successor trustees to manage the trust assets after your death for your designated beneficiaries. If you have set up separate lifetime trusts for any of the beneficiaries to take effect after your death, you also need to appoint trustees of those trusts.
Do your spouse and the kids, in birth order, have the skill set to handle your finances and other property? If one of your loved ones is always going into debt and never has enough money, even though he or she has a decent job, then maybe you should rethink appointing them as successor trustee. Maybe money management skills are not one of the gifts that God has given them.
If one of the kids always has their hand out to you and dipping into the family financial bucket, do you think they would be able to resist dipping into the family financial bucket when they are in charge? Is it fair to you or to your other loved ones to face that financial risk? Is it fair to the  individual who lacks money management skills to be put into such a situation?
If the individual cannot even handle their own finances, how are they also going to handle yours during your disability? They are going to have to collect your income, pay your bills, reconcile accounts and protect and preserve your assets.
I have seen more than once when a financially challenged spouse or child is appointed as personal representative, financial agent or trustee, that funds get "borrowed" by the individual. The individual has every intention of paying the money back, but doesn't, for the same reason that led them to "borrow" the funds in the first place. The money is gone. It is spent.
When a personal representative, financial agent or trustee improperly "borrows" funds of others to use for their own benefit, it is a form of embezzlement and is a crime. It does not matter if they intended to pay the money back. It could end up with “hi-ho, hi-ho it's off to jail they go.”
Most of our trust clients have a disability panel made up of at least three individuals who make the determination that they are unable to effectively manage their property and financial affairs. When your disability panel makes that determination, you are out as trustee and then your nominated disability trustees can take over.
Sometimes the disability panel members and the disability trustees are the same individuals. Sometimes they are not. It depends on their skill set. Similarly, many of our clients have a disability panel that triggers when their agent can act under a financial power of attorney. Like with a trust, sometimes the disability panel members are the designated agents. Sometimes they are not.
I have seen a number of situations where a spouse or a child named to a disability panel could not emotionally make the determination and sign the disability certificate when it was clear that the person could not effectively manage their property or financial affairs.
In your health care power of attorney, you appoint a patient advocate and at least two backups to make medical and mental health care treatment decisions for you when you cannot. If you give it to them, they also have the power to withhold or withdraw life-sustaining treatment at end of life when artificial means are being used to keep you alive and prolong the dying process. Basically, they would have the power to pull the plug.
Is your patient advocate emotionally not only ready to make medical and mental health care treatment decisions, but also life and death decisions? I have seen a number of situations where the patient's instructions were very clear, but the spouse or child patient advocate could not make the decision to withhold or withdraw treatment that could or would lead to the patient's death.
Choose wisely. Pick the people who have the skills to do the job that you want them to do. That is probably the fairest thing you can do for yourself and your loved ones