William J. Kovatch, Jr., Attorney at Law, PLLC

Located in Alexandria, Virginia, we specialize in the legal needs of the elderly community. From estate planning to guardianships to Medicaid planning to special needs trusts, we strive to provide the best quality legal advice suited to your needs, values and goals.

Thursday, September 27, 2012

Choose Your Trustees, Agents and Health Care Proxies Wisely

This week, a colleague asked me to review a trust for her. We were concentrating on the tax provisions. But what struck me most of all were the provisions concerning the Trustee.

There were instructions to the Trustee about what to do if the beneficiaries engaged in drug abuse. There was a provision about how to handle the house, because the client had feared that one sibling might use the house as a tool to bully the other. Then, to my surprise, the siblings were named as the successor co-trustees. Wow. That was odd.

As the name suggests, appointing a trustee requires trust. You have to trust that the person you appoint is going to fulfill your wishes and going to be fair with your beneficiaries. The same concept applies to appointing an agent through a power of attorney and a health care proxy or health care agent through an advance directive. If you can't trust the person, then you are giving that person way too much power.

This is where family dynamics come in. In way too many cases, people choose trustees, agents or health care proxies because they don't want there to be hurt feelings. One sibling was chosen over the other as trustee, so that must mean you favor that one. Quite frankly, I think those types of considerations should be given minimal weight in the grand scheme of things. The primary consideration should be do you trust this person to do the things you want done, while being fair to the beneficiaries. If you fear that the person you want to appoint will bully others, then you've made the wrong choice. If you appoint co-trustees because you fear one will bully the other, then you are forcing two people to work together who probably shouldn't. Again, you've made the wrong choice.

In most families, choosing an adult child as a decision-maker or fiduciary is a good choice. But, if your family dynamics is such that you cannot trust siblings to work together, then you need to make another choice.

Here are some considerations I give to my clients when choosing a trustee. Number one, trust. Can you trust this person? Number two, age and health. Is this going to be a person who will be around and able to act when you get sick or pass away? Number three, proximity. If you want a decision to be made quickly, then it may be advantageous to have someone who lives nearby to be the decision-maker, and not the adult child who lives on the other coast or on another continent.

Sometimes, we come to a point where it is clear that a friend living close by is a better choice for fiduciary than an adult child. If that is the case, don't be afraid to hurt your family's feelings. This is an important choice for you, not for them.

Wednesday, September 5, 2012

Why Parents Need an Estate Plan

Everybody should have an estate plan. But, planning is critical for parents with minor children. Surely, one of the things a new parent does is to make sure that they have life insurance to protect their young ones. Well, think of an estate plan as an extension of that life insurance.

First, and most important, every parent should think about whom they would want to raise their children if the parents were gone. This is by far the hardest thing for any parent to think about. But, it is the most critical. You don't want your children to find themselves the wards of the court. Court battles can be messy, and can take time. Meanwhile, the children may need to be in foster care until the case can be completed and a new guardian appointed. You want to make sure that you decide who is going to raise them. Plus, in Virginia, this step is easy to do. Appointing a standby guardian who can act immediately upon an emergency is a simple act of completing a one page document.

Once you know who could be taking care of your children, you need to give them the tools. In this regard, note that leaving a large sum of money to a minor directly is a bad thing. If no one is named as custodian, then there will have to be proceedings to name a guardian of the estate. This includes the appointment of a guardian ad litem to investigate the case. In Fairfax County, I've noticed that not all guardians ad litem understand the law completely and may insist that the money left to a minor, including insurance proceeds, be deposited with the court until the minor reaches eighteen. Plus, we have the added problem that under the law, any money left to a minor directly becomes the minor's money at age eighteen with no strings attached. How many eighteen year olds who you know are responsible to manage thousands of dollars given to them all at once?

The simple and most flexible solution is a living trust, either naming the potential guardian as the contingent trustee to take over after the parents' deaths, or naming another responsible person as the contingent trustee with instructions to cooperate with the potential guardian. Naming the trust as the beneficiary of life insurance proceeds should both parents pass is one way to make sure that all of the money is managed in a single, simple plan.

The point is that all of this is simple to create. It takes just a few meetings with a lawyer to plan, and some thought on the part of the parent. But, for a parent, it is one of the most critical things you can do to protect your children.