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Estate Planning Case Study #1: A Simple Estate Plan

The following is a common example of a simple estate plan for an elderly parent, which I see often:

Daughter contacts Legacy Law Center about a will for Mom, who is a widow and in her early 80s.  Mom does not have any estate planning documents, but owns a home which is paid for and has a small checking account at a local bank.  Daughter is an only child and helps Mom out with shopping, cleaning the house and making doctor appointments.  As daughter says, “Mom is starting to slip a little bit but is pretty healthy.”

The first appointment is at my office and since I am trying to determine whether Mom is competent to create an estate plan, but also to make sure the presence of daughter has no influence over here decisions with it, I meet with Mom alone in my conference room.

I spend the first 15 minutes or so just trying to get a feel for how Mom is doing mentally and physically and what she wants with her estate plan.   She is very clear that daughter should get everything but doesn’t want to be a burden for her daughter.  Mom is pretty sharp but has momentary lapses where she forgets information…dates, places and so on.

Mom wants to stay at her home and based on her health, that should not be a problem for now.  Since her income consists of only a small pension and Social Security, Mom’s savings are dwindling, but she still has about $150,000.

In this scenario, the issues can be simplified to an extent…

The first issue is what happens to Mom’s stuff when she passes away, and who is going to control the assets when that happens?  Mom clearly wants everything to go to daughter, who is her only daughter.  Since daughter is an only child and everything is going to her, it makes sense and I recommend that daughter also handle the estate estate.

The second issue is do we need a will or trust to accomplish the goals above?  Since Mom has a home and about $150,000, a trust is not only unnecessary but probably overly complicated for this level of assets.  Additionally, since when Mom dies everything is going to daughter, we have a simple distribution scheme which favors the use of a will.  A will in this case is the more appropriate document to draft.

The third issue is who is going to control Mom’s assets and make healthcare decisions for her when she becomes incapacitated?  Put more simply, does Mom need powers of attorney and, if so, who should serve as her agent?  Given her age, Mom definitely needs powers of attorney.  She could become incapacitated at any moment, and if daughter had to assist Mom because of her incapacity, they would end up having to have a court approve a guardianship and conservatorship.  This is not only expensive, but time consuming.  It also leaves the decision making to the court rather than Mom.  Even if the court decides daughter is the best choice, there’s always a risk that someone else could seek guardianship and conservatorship and delay the process.

The fourth issue is what happens if Mom is persisently unconscious  and we want to ensure that her life is not unnecessarily prolonged with medical procedures?  To avoid this situation, we would draft a Healthcare Directive, which becomes a second part of Mom’s Healthcare Power of Attorney.  The Healthcare Directive gives Mom the opportunity to state what procedures she does not want if she is persistently unconscious or there is no reasonable expectation of her recovery from a serious illness.  Why is this important?  Because with today’s advances in medical technology, people live longer with serious illnesses, but not necessarily with any quality of life.  Simply stated, if Mom doesn’t want to be put in that position, she needs to have a healthcare directive drawn up.

The final issue in this scenario is how can we avoid probate with the two assets that Mom has, the home and the bank accounts?  This is a relatively easy solution.   For the home, we can draft a beneficiary deed which grants the home, upon the death of Mom, to daughter as beneficiary.  In such a case, the only requirement is that the beneficiary deed be signed by Mom and recorded prior to death.  With the bank accounts, daughter should be listed as a power of attorney for the account (utilizing the Financial Power of Attorney document we would draft), but also listed by Mom as a Payable on Death (“P.O.D.”) beneficiary of the account.  Once that is done, daughter receives the proceeds of the account, without having to go through probate, when Mom dies.