The Waking Nightmare of Living Probate(Part 2)

This is the second half of a 2-part article.  Read the first half here.

Putting Your Fate in the Hands of Strangers

Today you don’t have to be King Lear, Groucho Marx, or Martha Taye to run the risk that a younger generation will decide you’re too old to manage your own affairs.  And no one is immune to catastrophic illness or injury.

In the face of these challenges to our dignity and desire to control our destinies, we have but two choices.  We can trust in the kindness of strangers and hope the outcome they affect resembles what we would have chosen for ourselves.  Or we can plan ahead so that our wishes are carried out as we would want them to be, and by the person we choose.  As we pursue this goal, here are the choices available to us.

Power of Attorney: Providing A False Sense of Security

Recognizing that sickness or injury may affect their ability to control their lives, a growing number of Americans have looked for a tool that will let them direct how their financial and personal affairs should be managed if they’re unable to do so for themselves.  Many consumers think they’ve found the solution in the power of attorney.

With a power of attorney, you empower someone else to act on your behalf.  Technically, this person becomes your “attorney in fact,” but is more commonly referred to as your “agent.”  How and when that person may act depends upon the kind of power of attorney you draft.  For example, a general power of attorney gives your agent the broadest authority possible.  It provides that at any time and in just about any capacity your agent can conduct business in your name.  By legal definition, the agent has great discretion and few restraints governing his actions.

As you might expect, that unchecked degree of power over your affairs can be about as dangerous as handing someone a blank check.  And that’s just the most obvious of the disadvantages with a General Power of Attorney.  Ironically, next on the list of disadvantages is the fact that the more powers your General Power of Attorney gives your Agent, the less likely it is to be honored.

A Limited Power of Attorney carves out a specific realm of responsibility that your Agent is empowered to pursue.  Although it offers you greater protection against abuse by reducing the activities your Agent can conduct on your behalf, like the General Power of Attorney, it offers precious little direction or supervision of the Agent’s activities.

No matter whether your Power of Attorney is General or Limited, it may be next to worthless as a tool for avoiding Living Probate.  That’s because many Powers of Attorney will very likely become invalid the moment you become incapacitated and that’s just when they’re needed most.

Durable Power of Attorney: Better, But Still Not Best

In contrast, the durable power of attorney whether general or limited remains in force even if you become incapacitated.   A “springing” durable power of attorney goes into effect only if you become legally disabled.  Because someone now has your authorization to step in and mange your personal and financial affairs on your behalf, you may be able to avoid Living Probate.

While it offers many advantages such as its flexibility, low cost, and simple language, it’s still not a perfect solution.  It shares with all powers of attorney these drawbacks:

  • Because there is no legal requirement compelling your financial institutions, such as your bank, brokerage house, insurance company, to honor your power of attorney, many will not do so.  Others will accept it only if drafted on their forms or if it uses the specific language they require.
  • The older and more complex your power of attorney, the more likely it is that third parties will not honor it.
  • In some states, if you’ve named more than one agent under your power of attorney, only one of the agents can serve.
  • Sometimes the power of attorney works too well.  With few guidelines or restraints to govern the performance of your agent, he or she can act at will.  If you’ve chosen your agent well, you may have nothing to worry about.  But the inability to carefully control an agent’s performance makes many people uncomfortable with a power of attorney.
  • While a power of attorney is easy to revoke in theory, in practice, revoking it can be difficult.  Without any way of knowing with whom your agent has conducted business and what kind of business he has conducted, it can be nearly impossible to effectively end your agent’s role in your personal and financial affairs.

There are times when a power of attorney is still a necessary tool. But in general, relying on it as your sole recourse to avoid living probate can pose as many risks as living probate itself.

How the Health Care Power of Attorney Solves Half the Problem

The health care power of attorney is durable, so it remains in effect when you become legally disabled.  And, as its name suggests, it is limited, restricting your agent’s sphere of authority to health care decisions only.  You can use the health care power of attorney to express your wishes on such important topics as life-support intervention and long-term care.  Because its authorization is very narrow, it is more likely to be honored than a limited power of attorney or even more broadly drafted general powers of attorney.

But that leaves the question of how your financial affairs will be managed.  Fortunately, there’s an excellent solution within reach of nearly everyone.

A Revocable Living Trust Gives You Control over All Aspects of Your Life

Today a growing number people are using the revocable living trust as an estate planning tool that helps them avoid death probate.  This versatile document can also help you dramatically eliminate the risk that you’ll ever have to endure the nightmare of living probate.

As you sit down with your estate planning attorney to draw up your revocable living trust, one of the first issues you will decide is who will serve as your Successor Trustee.  This individual will carry out your wishes and manage your affairs if you become legally incapacitated or die.  Upon either event, your successor trustee follows the detailed directions you’ve provided in your Trust documents.

Since this report focuses exclusively on living probate and how to avoid it, let’s look only at how the revocable living trust might work upon your disability.

When properly drafted, your revocable living trust will empower your successor trustee to assume the duties you’ve defined if you become disabled.  Depending upon your trust’s provisions, all that may be required is a physician’s statement indicating you are mentally or physically incapacitated.  That’s it.  No court filings or humiliating public displays.  And in just days or even hours your financial affairs will be placed under the diligent management of your handpicked caretaker.

If the thought of being declared mentally incompetent without justification is a source of great concern to you, take heart.  You can always contest these proceedings and the findings of your physician.  And if greater assurance would make you feel more secure, you can direct your estate planning attorney to require more that one physician’s statement before your Successor Trustee may take charge.

Equally important is management of your personal needs.

Although a successor trustee can’t make health care decisions for you, a properly drafted revocable living trust estate plan will include a health care power of attorney.  This power of attorney will authorize the person you’ve designated to act as your agent to execute your preferences for medical treatment and long-term care.  So your personal care will be assured.

Remember the earlier discussion of living probate and its intent?  Living probate seeks to protect the incapacitated individual and provide for his or her care both financially and physically.  That’s precisely what the revocable living trust does.  However, it accomplishes these goals without the necessity of going to court, and without the expense, delay and harrowing publicity that living probate entails.

Best of all, it assures that the end result is precisely what you want and that the individual overseeing your affairs is the person you want in charge.  That’s something a Living Probate can’t guarantee.

The following are some of the advantages of a revocable living trust:

  • The revocable living trust provides you with complete control over the management and disposition of the property you’ve placed under its authority.
  • The revocable living trust provides you with a vehicle for leaving extensive instructions to your successor trustee without fear of jeopardizing the trust’s implementation.  That’s in marked contrast to the power of attorney, which is less likely to be honored when it contains lengthy directions.
  • A trustee will have much greater success carrying out your wishes, because, unlike an agent or guardian, a trustee wields an authority that is readily and widely accepted.
  • In general, you have more opportunities to direct and supervise the activities of a trustee than an agent.  So with a trust you have somewhat greater protection against abuse and financial mismanagement.
  • When you die, your revocable living trust will survive you, and it will guide your successor trustee in the final disposition of your assets, providing you with important continuity in the management of your estate.

The Revocable Living Trust provides enormous peace of mind and control over your affairs.  Even so, be aware that nothing provides bulletproof protection against a disgruntled family member’s attempt to force you through Living Probate.  What a well designed Revocable Living Trust does do, however, is provide you with the greatest possible assurance that your financial and personal care will be conducted as you, and no one else but you, would wish.

Getting Started

Most of us find it hard to admit we’re mortal.  Death and dying are touchy subjects that we tend to avoid.  That helps explain why so few Americans do their estate planning.  Consider this: even fewer Americans plan for the possibility that injury or illness will make them unable to care for themselves.  Yet, as we’ve seen in this report, for most of our lives, our chances of becoming seriously hurt or sick are even greater than dying.  So it’s imperative that we plan for every contingency–disability as well as death.

Fortunately, you can accomplish both tasks in one full swoop when you work with a knowledgeable estate planning attorney.  Your estate planning attorney will draft for you a Revocable Living Trust Estate Plan that accomplishes both goals.  Your Revocable Living Trust will ensure that when you die, your life’s work passes to whom you want, when you want and how you want, without the interference of Death Probate.  At the same time, your estate planning attorney can ensure that your Revocable Living Trust Estate Plan also helps you avoid the indignity of Living Probate.

Preparing an adequate estate plan requires admitting that you are mortal.  But you knew that anyway.  Once you’ve planned for all eventualities, you’ll gain incomparable peace of mind, knowing that come what may, you’ve remained master of your fate.

About Morris, Hall & Kinghorn:

At Morris, Hall & Kinghorn, we have focused our legal practice on estate planning for over 40 years.  Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, powers of attorney, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects.  We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Tucson, Prescott, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.

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