CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
Auxillary Estate Planning Documents. Estate planning involves the use of documents other than a will or a trust. Also to be considered, and in many cases even more important, will be financial powers of attorney, health care advance directives (including living wills and appointment of health care representative instruments), beneficiary designations, buy-sell agreements for business owners, and others. This multiplicity of documents obviously cannot be reviewed during the course of the initial planning meeting. Either prior to that meeting, or subsequent to it and as a part of the process, the various documents should be reviewed and then recommendations made based on the client’s goals and objectives. People who believe that simply preparing a will or a trust is all that needs to be done are fooling themselves.
Beneficiary designations are among those documents that are most frequently either not used when they should be or used inappropriately. Many previous issues of this newsletter have addressed the importance of coordinating beneficiary designations with the estate plan. If a client establishes a trust in a will, and if the trust comes into existence after death pursuant to the will, then it will generally be necessary to designate that trust as a specific beneficiary of life insurance, an annuity, or an IRA or another retirement plan. If a trust will be a beneficiary of an IRA or another retirement plan, then it must be considered whether it makes sense from a tax perspective to have those taxable benefits paid into that trust. The trust may need to be designed specifically to address the issue of retirement plan distributions. Likewise, as explained in the March 2019 issue of this newsletter, pay-on-death (POD) and transfer-on-death (TOD) designations must be coordinated with the will or trust in the same manner as beneficiary designations. Previous issues of this newsletter have addressed health care advance directives and how they are frequently misunderstood and misused. The next issue of this newsletter will address certain particular planning issues applicable to health care advance directives and financial powers of attorney.
Legal Practice Conflicts Of Interest. The practice of law is subject to severe limitations on conflicts of interest. A conflict of interest can arise in a variety of family and business relationships which limit the ability of an attorney to represent one client or another. Attorneys will generally represent both the husband and the wife in an estate planning scenario, although it should be noted that prior to marriage, it is absolutely prohibited for the attorney to represent both spouses-to-be in connection with an antenuptial agreement. In a typical estate planning scenario involving spouses, because there is the potential for conflicts of interest, the attorney representing both the husband and wife will ask each spouse to consent to the joint representation and acknowledge that the attorney may be unable to represent one against the other if issues arise in the future. For example, if the attorney has drafted estate planning documents for both spouses, and later gets a call from the husband wanting to get advice for his benefit and not necessarily for the benefit of the wife, the attorney would be unable to offer that advice and would have to withdraw from representation in regard to that matter.
Conflicts of interest can be waived, which is one reason why in a husband and wife situation, both parties will consent to the joint representation. However, if a specific conflict of interest later arises, then that particular conflict would have to be waived, and some situations are simply unwaivable because the conflicts of interest are unresolvable. Waivers must be informed, and so in general it is insufficient to secure a general waiver of all future and potential conflicts. The conflict must generally be specifically discussed and the risks evaluated. In many instances, if a conflict of interest arises, the attorney will not be able to represent either party regarding the conflict.
Obtaining Copies Of Retirement Documents. The administrator of a qualified retirement plan is required to make a copy of the plan available to each participant, and also upon request. The employer will typically have an office that can be contacted to obtain that information. IRA plans should be available from the administrator or the account custodian, although many bank employees that you might deal with will be unaware that there is an underlying document other than the application itself. Because retirement benefits can be a significant portion of a person’s estate, it may be important to obtain a copy of the plan document (in the case of an IRA it might be important to see the custodial agreement and the beneficiary designation). As noted previously in this newsletter, the failure to properly implement beneficiary designations in the case of retirement plans, life insurance, and annuities is the biggest mistake that not only many, but in fact most, clients make when they have their estate plans prepared. Most people seem to think that signing a will or trust accomplishes the completion of the estate plan. It does not. All beneficiary designations must be coordinated, and the tax attributes of those benefits must be considered. Particular retirement plans or IRA arrangements may not allow certain kinds of beneficiary designations that may be important to the implementation of a particular estate plan. In such a case, it may be necessary to move the account to a different custodian or to roll the retirement plan into an IRA
Misunderstanding “Convenience” Accounts. Many parents will set up a joint account with a child as a matter of “convenience” so that the child will be able to help the parent with the payment of bills, etc. While in many instances that may be a workable arrangement, in some cases it can result in unanticipated results and family disharmony. Establishing a joint account presumptively creates a right of survivorship so that the surviving child will own the funds in that account. If the parent intended for those funds to go to the other children or to other beneficiaries, that intent may be frustrated. Litigation over such matters will certainly not be in the family’s best interest, and the financial institution will be exonerated from any liability for distributing the funds to the surviving owner. If the child predeceases the parent, there can be complications regarding the ownership of the funds in the account prior to the child’s death, particularly if the child owed money and left an estate with significant creditors – the parent might become embroiled in a fight involving the parent’s own money! In general, it is preferable to avoid joint accounts that are established for “convenience,” and instead to rely on a power of attorney giving the child the ability to deal with the parent’s funds. The child could be added to the account in the child’s capacity as attorney-in-fact, rather than as an owner. If the parent does in fact want the funds in that account to pass to certain children at death, without probate, then a pay-on-death (POD) designation could be added to the account to designate the children as the POD designees. While POD designations do not always work as intended (please review previous issues of this newsletter), utilizing such an arrangement will mean that the child will have access to the funds during the parent’s lifetime under the power of attorney to assist the parent in financial dealings, and at death the funds will pass without probate to the designated POD designees.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.