Where There’s a Will: Estate Planning Documents

A “last will and testament” sets forth your intentions regarding the distribution of your probate estate upon death. The probate estate means assets that are in your name alone with no right of survivorship, beneficiary or payable on death designation. All other assets are non-probate assets and it is important to review beneficiary designations to determine if the assets will pass in a manner consistent with your intentions.

A living trust sets forth the management of assets and income during your lifetime and the distribution of assets upon your death. The distribution upon death provisions contained in a living trust could provide numerous benefits if you own assets in multiple states. The trustee of a living trust could easily distribute assets to trust beneficiaries without obtaining letters of executorship in multiple states where the living trust owned property.

If a person dies without a will, the disposition of probate assets is determined by state law. In New Jersey, if a decedent has a surviving spouse or domestic partner, the estate is distributed entirely to the surviving spouse/civil union partner only if there are no descendants or parent of the decedent surviving or all of the decedent’s surviving descendants are also descendants of the surviving spouse/civil union partner and there is no other descendant of the surviving spouse or domestic partner who survives the decedent.

On the other hand, any part of the intestate estate not passing to the surviving spouse or the entire intestate estate if there is no surviving spouse, passes to the following individuals in order:

  1. To the decedent’s descendants;
  1. If no surviving descendants, to the decedent’s parents equally if both survive, or to the surviving parent;
  1. If no surviving descendants or parent, to the descendants of the decedent’s parents;
  1. If no surviving descendant, parent or descendant of a parent, half of the estate to the decedent’s paternal grandparents or to the descendants of the paternal grandparents and the other half passes to the decedent’s maternal relatives in the same manner;
  1. If there is no surviving descendant, parent, descendant of a parent, or grandparent, but the decedent is survived by one or more descendants of grandparents, the descendants take equally if they are all of the same degree of kinship to the decedent;
  1. If there are no surviving descendants of grandparents, then the decedent’s step-children or their descendants by representation.

dreamstime_s_14628723Power of attorney

A power of attorney is a written instrument by which an individual, known as the principal, authorizes another individual, known as the agent, to perform specified acts on behalf of the principal.

The power of attorney is an effective planning tool for those who anticipate needing assistance with financial matters. Ideally, a client executing a power of attorney chooses a trustworthy agent who acts for the client’s benefit, avoiding the need for a guardian, the associated court costs and a public determination of incapacity.

By giving another person authority to manage one’s financial affairs, however, the client may risk misuse of the power of attorney by the agent.  Power of attorney forms are widely available on the internet allowing a principal to sign a simple document that conveys extraordinary powers without the benefit of counsel.

The popularity of the power of attorney has contributed to its use in transactions more complex than originally intended by the law. An unscrupulous agent acting under a broad power of attorney may have authority to conduct transactions that are not in the principal’s best interest such as transferring the principal’s property without notifying the principal.

In an effort to curtail abuses of powers of attorney, states like New York have adopted statutes that address execution requirements, fiduciary obligations, limitations of the authority of the agent and the standard of care required of the agent.

A general durable power of attorney becomes effective upon signing and continues regardless of the principal’s subsequent disability. The power of attorney should include sufficient powers to allow your agent to conduct your financial affairs. For example, the agent should have authority to perform banking transactions, conduct IRA and other qualified retirement plan transactions, pay debts, defend and settle claims, buy and sell stocks and bonds, execute contracts, act as a partner in any partnership association and to buy or sell real property.

Advance directive

Advance directives for health care include the designation of a health care representative (health care proxy) and/or a statement of personal wishes regarding health care in the event of loss of decision making capacity.  The healthcare representative is appointed to make medical decisions at any time a person cannot give informed consent to a health care provider.

Once operative, the designated health care representative has the legal authority to participate in the decision-making process and to make health care decisions on the patient’s behalf. It is best to appoint one individual health care representative with successor(s) to serve if the initial representative does not serve.

New Jersey law provides the declarant may direct the appointed health care representative to consult with any other person(s) in the course of the decision making process. A proxy directive may be a stand-alone document or incorporated with an instruction directive (living will).

An instruction directive expresses the person’s wishes at such time or times as he or she shall be unable to make medical decisions. It primarily sets forth whether life sustaining treatment shall be provided or withheld when the person is in an end-of-life condition. However, a competent patient’s contemporaneous wish that medically appropriate life sustaining treatment be provided takes precedence over any decision made by a health care representative or any contrary statement in an instructive directive.

A valid advance directive must be signed by the patient in the presence of two witnesses who are not named as representative in the documents, or alternatively, in the presence of a notary or attorney. Advance directives may be revoked by oral or written notification or by the execution of a subsequent directive.

What happens if there is no power of attorney or advance health care directive?

A competent adult may execute a power of attorney or an advance directive for health care or petition the court to appoint a conservator at any time. On the other hand, an incapacitated person is unable to execute such documents. In such case, a surrogate decision maker can only be appointed by the court in a guardianship action. There are three types of guardians: general, limited and temporary.

SpielbergIn order for the court to appoint a general guardian, the court must find that the person cannot govern his/her affairs. A general guardian exercises all rights and powers of the incapacitated person. The Court may appoint a limited guardian when it finds that the individual lacks the capacity to do some, but not all, tasks necessary to care for him/herself.

The use of a power of attorney and health care directive appointing a health care representative in most cases can avoid the necessity of a court action to appoint a guardian.

Regina M. Spielberg, Esq. is a partner with Schenck, Price, Smith & King, LLP. As an estate planner, she assists clients with the orderly and tax efficient transfer of assets during life and after death, including preparing estate planning documents. Spielberg is a Fellow of the American College of Trust and Estate Council and past chair of the New Jersey State Bar Association’s Real Property, Trust and Estate Law Section.

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