By: Martin M. Shenkman, CPA, MBA, JD
DRAFTING CONSIDERATIONS OF ESTATE DOCUMENTS RELATING TO HOMES
A. POWER OF ATTORNEY
A durable power of attorney is one of the most basic and obvious estate and financial planning documents. When drafting the power, consider some of the following points when tailoring your standard form to meet a particular senior's wishes concerning his home:
1. Many powers are vague about the powers and rights of the agent. The following sample clause can assure the agent has authority, and the awareness to exercise that authority, to maintain the grantor's home:
"The Agent is hereby authorized and directed to perform all acts reasonable and necessary to maintain Grantor's customary standard of living: to provide living quarters by purchase, lease or other arrangement, or by payment of the operating costs of Grantor's existing home or living quarters, including interest, amortization payments, repairs, taxes, and so forth; to provide for the retention and payment of reasonably necessary domestic help for the maintenance and operation of Grantor's household. "
Consider expanding the above to provide for any specific requests or requirements of the client.
2. Selling, financing, and otherwise dealing with the Grantor's residence should be addressed. If the client does not want their house sold or financed, the following sample language could be modified to address that concern:
"Exercise or perform any act, power, duty, right or obligation that Grantor now has, or may acquire, including the legal right, power, or capacity to exercise or perform in connection with, arising from or relating to any person or property, real or personal, tangible or intangible, or matter whatsoever, however, expressly excluding with respect the residence located at *ADDRESS the following: the right to execute a deed or security agreement; or to release a security agreement; to enter into a mortgage or similar arrangement; to enter into a contract of sale and to sell any real property on Grantor's behalf."
Consider in the appropriate circumstances an express prohibition against the sale of the client's house, or the specification of certain requirements or conditions before the house can be sold. If the client is likely to need modifications made to the house, consider authorizing such improvements.
B. LAST WILL AND TESTAMENT
A common situation in many wills is to provide a life estate in the client's residence to the surviving spouse. This is often done in a second or subsequent marriage when the client wants to assure the later spouse of the right to live in the residence for her lifetime, but on her later death, to transfer the house to his children from a prior marriage, or other desired heirs. Before using a life estate, practitioners should consider the option of bequeathing the house to a QTIP trust instead. If a life estate is selected, the following sample clause can serve as a starting point to address the drafting issues involved:
"I give, devise and bequeath to *LIFE ESTATE BENEFICIARY, the *LIFE ESTATE PROPERTY (including any furniture, furnishings and household effects appurtenant thereto, and any insurance policies related thereto, if any), if I should own such property at the time of my death, to have and to hold the same for and during such beneficiary's lifetime, without the necessity of paying rent or furnishing bond or other security therefore, but subject to and upon the condition that he pay all real property and similar taxes (but excluding estate or inheritance taxes), assessments, carrying charges (including fire and extended coverage insurance premiums for the full insurable value thereof), and normal costs of maintenance and repair in respect thereof.
On the death of *LIFE ESTATE BENEFICIARY, or upon such life estate beneficiary's earlier renunciation or disclaimer of the interest in said property, or on my death if such life estate beneficiary does not survive me, I give, devise and bequeath said real property to *REMAINDER BENEFICIARY upon such terms and conditions as the Executor may direct and appoint by a written instrument delivered to each appointee with respect to such property. I direct that if, after the death of *LIFE ESTATE BENEFICIARY, or upon such life estate beneficiary's earlier renunciation or disclaimer of any interest in said property, or such life estate beneficiary's earlier disability that prevents such beneficiary from occupying and maintaining the property subject to the life estate herein granted, and if either (i) such property is not effectively appointed, or (ii) the Executor shall determine that it is preferable to sell such property, then such property shall be sold by the Executor, and I give and bequeath the net proceeds thereof equally to *REMAINDER BENEFICIARY.
The beneficiary of the life estate granted herein shall have no responsibility or liability for waste, and shall have no duty to account to any remainder persons. Such life beneficiary shall have the authority to sell such property and invest and reinvest the proceeds without the consent of the remainder persons and any purchaser may deal with such life beneficiary as if such beneficiary owned title in fee interest in such property. To the extent not inconsistent with the estate tax marital deduction, if such deduction is to be claimed for the life estate granted herein, I request, but do not require, that the life beneficiary pay for all principal payments due on any mortgage or loan that is a lien on the property that is the subject of the life estate granted herein."
When planning a life estate for a client, consider carefully defining the parameters, funding the maintenance of the property, and determining if something less than a life estate should be used (e.g., a termination upon the entering of the surviving spouse to a long term care or other facility), etc.
C. REVOCABLE LIVING TRUST
Too often living trusts are created to avoid or minimize probate costs only. A primary benefit that living trusts can offer is lost when such a limited approach is used. Living trusts can be an ideal vehicle for planning for the management of a client's affairs during a period of disability or advanced age. When this more comprehensive approach is used, consider including express provisions governing the client's residence, tailored to express the client's personal wishes. The following provisions are illustrative:
"During Grantor's disability, the Trustee shall administer the Trust Estate for the care of Grantor, and shall expend any amounts of Trust income or principal as the Trustee, in the exercise of discretion, shall deem necessary or advisable in accordance with the following provisions.
Grantor directs that Grantor have the best medical and health care provided to Grantor, including but not limited to private duty 24 hour in-home nursing care, and that the Trustee shall distribute Trust income and principal accordingly.
Grantor directs that every effort reasonable be made to enable Grantor to continue to reside in Grantor's personal residence for as long as possible, and that every reasonable effort be made to accommodate Grantor's health care needs in such home rather than relocating to a health care facility."
"Disability" is often defined by reference to an independent trigger or definition, such as the successor trustee receiving or obtaining letters from two physicians certifying that the grantor is unable to handle his or her own financial affairs as a result of disability. In light of the disclosure requirements of the Health Insurance Portability Accountability Act ("HIPAA") practitioners should consider including in the revocable living trust (and the power of attorney above) an express authorization by the grantor for medical providers to make disclosures to the trustees (agents).
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