The foundational estate plan:
- living trust
- pourover will
- durable power of attorney
- advance health care directive
Your foundational estate plan will bring you peace of mind, as well as
confidence that your assets will be preserved for your loved ones and you will be cared for if you become unable to care for yourself.
You have probably created a living trust without even knowing it. If you've ever given a friend money to buy something for you, that's a trust. Your friend held the money but it was still your money. Your friend was allowed to use your money but only in accordance with your directions. But here we are not talking about giving a friend a few dollars to buy something on your behalf. We're talking about your entire life savings, your home, your other assets, and your family. Thus, the directions necessary to manage all of those assets must be in writing in order to assure that the assets are managed and passed on in accordance with your wishes and the law.
Typically, people think that a living trust is a document. But in fact, a trust is not something you can touch. It is an entity, like a corporation, with rules for how to manage the property held by that entity. The "living" part of a living trust is simply acknowledging that the trust was formed during the lifetime of the person who created it. The other type of trust is a testamentary trust, which is formed as a result of someone's death (usually in accordance with their wishes as expressed in a will).
Living trusts are very flexible. This flexibility is valuable because it allows you to direct the use and disposition of your property in ways that reflect your values and needs. For example, many of Gadi Zohar's clients utilize his "college acceleration clause" as incentive for their child to complete college in a timely manner. In short, the college acceleration clause gives the child a reward for finishing college before reaching age 25. Other uses of this flexibility are more complex, such as the creation of a special needs trust to help a person who lives with a life long disability maximize the use of your assets without jeopardizing that person's often essential means tested public benefits.
Many people think a living trust is a simple fill-in-the-blank document that they can even do themselves. Gadi Zohar's clients include many people whose mistakes have landed them or their beneficiaries in court. The cost to the survivors who need to reform do-it-yourself trusts (usually in court, if it is even possible to do so) is typically 3 - 5 times the cost of an entire custom estate plan. A poorly drafted trust can result in stress and in some cases litigation among the survivors. In addition, an inappropriately drafted trust can have serious estate, gift, income, or property tax consequences. Only an experienced professional can spot potential tax pitfalls and draft documents addressing those pitfalls. This is why to date there is no replacement for an experienced estate planning lawyer asking you the right questions and considering the particulars of your situation.
Generally, the pourover will serves two purposes. First, it is a backup document in case you forget to title assets in your trust. Typically, someone will buy or refinance a house years after creating a living trust. In that process, the person forgets to title or re-title the house as trust property. If the house needs to go through the probate process, the pourover will simply directs that the probate property be titled as a trust asset. Thus the will is "pouring" your probate property "over" to your trust.
The second purpose served by many pourover wills is the direction of who should be the guardian of your minor children. Unlike most functions in the living trust and pourover will, this has no direct connection to your property. As a Licensed Marriage and Family Therapist,* Gadi Zohar is in a unique position to help advise you about choosing a guardian for your minor child.
durable power of attorney
The durable power of attorney serves a function similar to the pourover will discussed above. It is for the management of assets that are not titled in your trust. The big difference from the will is that a power of attorney is effective only during the lifetime of the person who created it. The "durable" part of a durable power of attorney references competence. A "durable" power of attorney endures even if you are no longer competent (e.g., unconscious from an injury, etc.). It allows an agent chosen by you to manage your non-trust assets for your benefit if you are unable to do so. Some assets would be non-trust assets because nobody titled them in the trust. Other assets, like IRAs, cannot be titled as trust assets and can therefore only be managed through the durable power of attorney during periods of incompetence.
advance health care directive
Until now the foundational estate plan documents discussed have been primarily for the management of your assets. The advance health care directive (AHCD) is different, because it is designed to empower someone to make health care decisions for you if you are unable to give informed consent. The most common concern people have is whether or not to take measures to prolong life under circumstances where they might otherwise be relying on artificial life support to remain in an incurable vegetative state. Other directions in the AHCD include disposition of remains (buried, cremated, etc.) and whether or not you want to be an organ donor.
Professional wills for psychotherapists
As a de facto requirement, psychotherapists in private practice must have a so-called "professional will." If a psychotherapist dies or becomes incompetent, someone must immediately contact the patients and take control of the clinical files in accordance with medical privacy laws and professional ethical standards. Without a professional will, a therapist risks a lawsuit against the therapist (if incompetent) or the therapist's estate (if deceased). Unlike the traditional estate planning documents, there is no real guidance for how a professional will should operate. As a Licensed Marriage and Family Therapist,* Gadi Zohar has created unparalleled robust living trust terms for psychotherapists.
Certificates of Independent Review
Because of past abuses, the law has created a presumption of undue influence for some terms in living trusts or wills leaving property to "prohibited transferees." A common example of a "prohibited transferee" is an in-home caregiver. While it is natural for someone to want to leave property to a person who is caring for them in the late stages of life, the caregiver is also in a unique position to exert pressure on a person who is dependent on the caregiver for personal care and safety. The presumption that a prohibited transferee unduly influenced you can be reversed with a certificate of independent review drafted by an independent attorney who certifies that you understand the terms of your trust and that you are acting of your free will when leaving property to a prohibited transferee.
Special Needs Trusts
A special needs trust (SNT) is a trust designed to ensure that a person who depends on means tested public benefits does not lose those benefits. Money can be left for the beneficiary in a segregated account that does not count as an asset of the beneficiary for purposes of determining their need for public benefits. There are specific rules for how that money can be spent. The SNT outlines those rules. The SNT Trustee must be careful not to inadvertently jeopardize a beneficiary's public benefits in administering the SNT. For example, buying food for a beneficiary, which seems innocuous enough, could jeopardize a beneficiary's Supplemental Security Income benefits.
Property Status Agreements
In some cases it may be important for a married couple to determine whether property is separate or community property. Many people think their property is community property (which carries with it some tax benefits) just because the property is jointly owned. They could be wrong for many reasons. One such reason might be property purchased with inherited money. If the inheriting spouse then buys a house with the inherited money, that house remains separate property (or mixed property) even if both spouses are on title. And putting the property in a joint trust does not change the character of the property. Yet for other couples, property has been so mixed up for so many years that it is nearly impossible to figure out what is separate or community property. With a property status agreement, a couple can clarify that all (or some) of their property interests are community property.
real life examples
Below are some real life examples of estate planning Gadi Zohar has done for his clients.
- After inquiring, Gadi found out a client was the beneficiary of his father's irrevocable trust. After reviewing the irrevocable trust, Gadi advised his client that he could exercise a "power of appointment" and direct that the proceeds in the irrevocable trust be transferred to the client's revocable trust at his death. Now the client's wife and son will get the trust property according to the client's wishes. Had the power of appointment not been exercised, the client's son could have ended up with $1M or more at a young age, before being equipped to responsibly manage such substantial capital
- A couple had a robust estate plan for their $11M estate. After reviewing their trust, Gadi Zohar was able to provide them with suggestions to amend the trust so that there would be less likelihood of friction among the couple's children and so that resorting to the probate court would not be necessary to replace a trustee.
- A client unwittingly created a "foreign trust" when she and her husband created a trust through an online do-it-yourself option. This created administrative problems when the client's husband died because of the burdens imposed on foreign trusts by the IRS. After getting a court order allowing reformation of the otherwise irrevocable trust, Gadi was able to reform the trust so that it was no longer a burdensome foreign trust.
- A woman was concerned that her children would fight after she passes. After consultation with the woman and some family members, Gadi was able to draft a trust instrument with incentives aimed at avoiding fights among the surviving adult children. The woman died a couple of years later and the trust administration concluded with no major incidents among the surviving beneficiaries.
- An unfortunate mistake by a non-estate planning lawyer resulted in a nasty will contest that threatened to leave two of the heirs without the home their mother intended to provide to them. Gadi represented the estate in the will contest and negotiated a settlement in mediation that helped to preserve the home for the surviving heirs.
- A client wanted to provide for a son who, at age 55, was still living with his mother. While she wanted to provide for her son, the client wanted to ensure that the son would make prudent decisions. Gadi created a specialized house trust giving the son a specified number of years during which he was required to make certain payments as "rent" and to maintain the house in an acceptable condition. If he complied, he would get the house outright. If not, the Trustee would sell the house and give the client's son half of the sales proceeds.
- A client lost the ability to open his eyes and speak just a few days after meeting Gadi Zohar. The family house was titled in a way that could have serious negative tax consequences for the man's surviving wife. Gadi rushed to the hospital where he was able to get a "signature by mark" from the man who, though unable to speak, was able to move his foot in response to questions. The man died 4 hours later, and Gadi completed a living trust for the surviving wife a few weeks after. Had he not obtained that signature by mark, the tax consequences to the surviving wife would likely have cost at least $60,000.
- A man called Gadi Zohar unable to find his daughter who was involuntarily confined in a mental health facility. With his knowledge of the mental health system, Gadi was able to locate the daughter. Later, it was discovered that certain provisions in a living trust would cause the daughter to lose the public benefits on which she relied. The trust could no longer be amended because the person who created it was incompetent. Worse yet, the trust not only jeopardized the daughter's benefits but it also contained terms that were just plain unenforceable, because the attorney who drafted it was not an estate planning lawyer. After getting the trust reformed in court, Gadi was able to preserve assets and reform the ill-conceived trust to a special needs trust supplementing the daughter's needs based public benefits.