Louis N. Teti, LL.M.

Our June newsletter included my article entitled the "Top 16" List of Common Misconceptions in Estate Planning. Here is a further analysis of Misconceptions #4 and #3.

Misconception #4:
"I don't need a 'Living Will' - my family knows that I don't want any 'extraordinary measures' if there is no hope."
It is usually dangerous and inadvisable to rely on what you may think your family "knows" about your intentions about end of life care, should you become gravely ill and unable to communicate your intentions yourself. Relying upon the family's "knowledge" of your intentions is not a recommended course of action, especially if there are several family members who might have a desire to be part of any decisions regarding your care. In fact, federal law requires that patients be asked upon admission to a hospital whether they have a Health Care Directive or "Living Will."

The term "Living Will" can take on a number of different forms and meanings. We generally advise clients to have a Durable Health Care Power of Attorney (in addition, of course, to a "financial" Durable Power of Attorney). The DHCPA contains fairly typical "Living Will" language regarding how you would want your care to be administered in the event of a persistent vegetative state or a coma where "life-sustaining treatment" is necessary in order to keep you alive. Many people still have the older form Living Wills that talk in terms of "extraordinary measures," "dying with dignity," and "heroic measures." These terms are difficult, if not impossible, to define, and could mean different things to different people. It is best to have a DHCPA drafted by a skilled estate planning professional who can discuss the document with you, arrive at various choices that you wish to make regarding your care in these situations, and then execute it properly in the presence of witnesses and a Notary Public, so that it meets all requirements of Pennsylvania law (or the laws of the state where you reside).

One only has to examine the facts of the Terri Schiavo case in Florida to realize that a person who does not have a written health care directive is at risk of creating a situation ripe for litigation. In that particular case, the argument boiled down to whether the patient would continue to have a feeding tube that provided sustenance keep her alive. The husband argued for termination of those procedures, whereas the parents argued for maintaining Ms. Schiavo on the feeding tube. Several years of pain, mental anguish and costly legal proceedings followed, all of which could have been avoided if the patient had executed a health care directive outlining her intentions with respect to life-sustaining treatment in a life and death medical situation.

A well-drafted DHCPA appoints an agent (plus one or two successor agents) to make health care decisions in the event a person is incapable of making those decisions.

If you do not have a DHCPA/Living Will, you should contact your estate planning attorney to assist you in preparing one. It is a document that you may need from time to time in the future, and it is best to periodically review it and update it whenever necessary. Also, make sure that family members know that you have one. In fact, it is generally wise to give copies of the DHCPA to key family members to avoid confusion and panic at an already difficult and emotionally stressful time.

Misconception #3:
"My children can handle their inheritances at age 21. They don't need a Trustee watching over their money."
The issue of whether or not a person can handle his/her own inheritance at a certain age is one which varies in each and every case. A well-drafted set of estate planning documents will outline what happens to the inheritance of a minor, and it will define the term "minor." There is a considerable amount of misunderstanding in terms of this particular issue. In Pennsylvania the age of majority is 18. Therefore, if a Will does not provide that a person's inheritance be held in some form of trust until a certain age, then that person is entitled to an outright distribution of his or her inheritance at the age of 18. If the person is under 18, the Will should provide for a guardian of the person and of the estate of a minor child, at least until he or she attains the age of 18.

In a substantial number of cases, clients do not want their children to have outright access to funds at the age of majority (i.e., 18). A comprehensive estate plan will provide for some form of trust if a child is entitled to an inheritance and has not attained a certain age. One common scenario, especially where there are multiple children, is to leave everything in a single trust until the youngest child reaches age 21 or 22. During that period of time, all funds are held in one trust and administered for the health, education, maintenance and support of each of the children, equally or unequally. Such an arrangement enables the younger children to receive the same benefits that the older children might have already received from their parents during the parents' lifetimes in terms of paying for education and other similar expenses. Once the youngest child reaches ages 21 or 22, then everything remaining in the trust is either distributed outright in equal shares to the children, or split into shares for each of the children and held in further trust for each of those children until they attain a higher age(s). Often clients give each child his or her share at various stages, such as ages 25, 30, and 35. In so doing, the client protects the child from his or her own inability to handle money at a younger age. If a child receives a partial distribution of his or her share at age 25 and spends it all, then there is still a residual trust fund available for that child which will be distributed to him or her at ages 30 and 35. Prior to attaining those ages, the child would receive monthly or quarterly income from the trust, thus serving as a sort of an allowance to the child. Also, the Trustee is empowered to utilize income and/or principal for the health, education, maintenance or support of the child until he/she reaches the age of final distribution.

If nature takes its normal course, it is unlikely that the children would be under the age of majority or some later age such as 30 or 35 prior to the time of a person's death. However, the Will provides for the unexpected situation where a person dies with minor children or young adults who may not be able to handle their own financial affairs. Choosing an appropriate Trustee is critical in this process. The choice should not be made based on sentimental reasons such as age, relationship, or some similar factor. You should choose a Trustee who has sound business and investment sense and judgment, and the time necessary to properly serve as a fiduciary for these children. The Trustee should not be afraid to make difficult decisions regarding the use of the trust funds should the Trustee receive pressure from a child or some other family member. The Trustee needs to have compassion, but also needs to be objective, with an understanding that his/her primary responsibility is to steward the trust funds and use them for the benefit of the child, until that child reaches an age when he/she is able to make decisions for himself or herself. Often, we recommend a corporate fiduciary, such as a bank, trust company or brokerage company to serve as sole Trustee or a Co-Trustee with another family member. Corporate fiduciaries provide objectivity and stability, and will generally always be there, even in cases where the individuals appointed as Trustee have either died or decided that they do not want to accept the responsibility of serving in this important capacity. Also, corporate fiduciaries have expertise in investing funds, which is a critical requirement for any person serving as a Trustee.

Trusts are frequently misunderstood. Consult your estate planning lawyer and ask him/her to explain how trusts work, so that you can make an informed decision, after reviewing your own particular family situation and any unique aspects that may exist in the family unit. Some children are fine with handling large sums of money at a very early age, whereas others are not capable of handling large sums until they reach an older age. In some cases, clients decide that children will never have outright access to their inheritances. In those situations, the inheritance will be held in trust for the child's lifetime, so that there will be assets left at each child's death for the benefit of his or her children.

Remember that a common thread throughout all of these misconceptions is that estate planning is not necessarily a "simple" process. You should meet periodically with your estate planning lawyer to review your own family situation, the size and nature of your estate, and your individual family dynamics, to come up with the plan that best suits your unique set of circumstances.

MacElree Harvey
17 West Miner Street
Post Office Box 660
West Chester, PA 19381–0660
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