Practical Considerations in Choosing a Representative
Specialized estate planning attorneys aren't the only ones who run into estate planning issues. This article will look at some of the basic issues we should look at when helping clients draw up their will.
There are few clients who don't need at least a simple will. When I talk with a client I remind them that they have a will no matter what they decide to do. The only question is who writes it, the client or the state’s intestatcy statute. Talking about estate planning issues can be difficult for clients, even when they sought us out. To ease this discomfort I help my clients look at it as another chance to pass on their life lessons. Finding out about the client’s family and the events that helped shape their lives can give us a good idea of what is important to them and who they might want to think about when drafting their documents.
The most important decisions our clients can make regarding their wills involve who they name as personal representative, trustee, and guardian for their children. When naming these positions they need to consider the specific requirements and responsibilities for each of the positions and ensure they are appointing someone who is both capable and comfortable fulfilling those roles. This should include talking with the prospective designee to make sure they are willing to serve in this position. The client should also choose at least one alternate in case when the will comes into effect the person they chose is no longer willing or able to serve.
The personal representative is the most visible person and target for discontent throughout probate proceedings. This person should ideally be someone who understands the clients and their wishes regarding family and property, as they will have to resolve any ambiguities during probate. This should also be someone who will understand the beneficiaries will be hurting and lashing out at any available target. They should not take things said to them personally or get upset themselves. If possible this person should be someone the proposed beneficiaries would view as impartial and fair. Appointing someone outside of the family (a close friend) or co-personal representatives (possibly both of the client’s children) may help. However, the client should understand these choices can also lead to further discontent if there is any disagreement between the co-representatives or the outside representative and family. If they do decide to use either of these options they need to set in place tie-breaking procedures.
The trustee will need to be someone the client has complete confidence in. Not only is this person going to care for the funds entrusted to them, they are also asking this person to decide how they would have spent money in any given situation. The trustee will have to decide what a reasonable standard of living is for the beneficiaries and sometimes weigh the competing interests of several beneficiaries. This will need to be a person who can not only deny a beneficiary funds if warranted, but also clearly articulate to other beneficiaries why they allowed for certain expenses. The more discretion left to a trustee, the better communicator they will need to be. This is another area where appointing more than one person to serve concurrently can be helpful in some situations. If the estate is large enough to warrant an institutional trustee some families have found it helpful to appoint a family member to serve alongside the institutional trustee, giving a personal element to the decisions. Here also, there needs to be a clear dispute resolution mechanism in case of disagreement between the trustees.
Any client with minor or special needs children will also need to think about who they would like to have serve as the guardian of the children. Specific issues they need to consider include:
- if the potential guardian has similar parenting styles and values;
- if taking on the children would be either a financial or practical burden;
- if money left in trust will put the clients children in a significantly different financial position than the guardian's children; and
- if the guardian is likely to be healthy and able to provide physical and emotional support until after the child is able to move out on their own;
Additionally, if there is a special needs child involved, make sure that the clients evaluate how the proposed guardian would be able to handle those needs and ensure that they will be able to care for that child for the longer period of dependency.
The will also needs to include provisions for passing on property that is held in the client’s name at the time of their death. This may include personal property, real property, bank accounts, retirement accounts, and interests in trusts or businesses. When they designate who they would like these assets to be given to, clients need to think about both economic and psychological effect individual gifts will have on both the recipient and others included in their estate plan. Writing a letter outside of the will can be a good way to explain their thinking to their family and friends. By taking a proactive approach to the explanation, clients can try to avoid some of the probate fights that waste their assets.
For a client with assets totaling less than 2 million (2006-2008) or 3.5 million (2009) there will be no federal estate tax due. (In 2010 the federal estate tax disappears completely, but then reappears at the old level in 2011 if no changes are made. Congress is working on bills now to address that.) For those who will be above those threshold limits or may owe state death taxes there can be some simple alternative planning tools to use. The first is to use pay on death (POD) accounts for bank and retirement accounts. The bypass or credit shelter trust is a common way for married couples to avoid taxes on amounts above the exclusion limit. Life insurance can also be used to pass money on to the next generation without having it included in the decedent’s estate at their death. Anyone can also reduce their taxable estate by gifting up to $12,000. per recipient each year.In closing make sure that the client analyzes what they want to accomplish with their will and how they want to do it, paying special attention to the people they appoint.