The Effect of Divorce on Your Estate Plan

By Attorney Ruth Tolf Ansell

March 2010

 

Ansell & Anderson does not represent clients on marital matters or divorce. Unfortunately, however, not all of our estate planning clients remain happily married after they have signed their documents. Accordingly, we are often asked to advise our estate planning clients of the steps which should be taken if they have filed for divorce.

 

Before we counsel our clients, we will need to determine whether we had previously represented the client individually, or the client and the client’s spouse jointly.

 

If we have individually represented the client, we recommend that the client prepare new estate planning documents, removing the spouse as a beneficiary, executor, trustee and agent. Under New Hampshire law, however, we cannot counsel our client to transfer any assets or property belonging to either or both of the parties after the filing of a divorce action, until the property rights of each of the parties has been determined or agreed upon.

 

It should be noted that assets owned by both parties in a divorce are subject to equitable division between them. In the absence of a binding prenuptial agreement, ownership of property by either spouse does not assure the owner that this property will be awarded solely to this spouse in the divorce action.

 

Also, if a client should die before the divorce has been finalized, the client’s spouse will have the right to elect against the client’s will to receive a statutory share of the deceased client’s estate, unless the parties have been living apart and the surviving spouse has been guilty of conduct which would constitute grounds for divorce. Fault grounds are extremely difficult to prove under these circumstances.

 

If we have represented the clients jointly, we cannot take any action which would be contrary to the interests of either client until the divorce has been finalized. In this case, the estate planning file will be open to both of the clients and their attorneys, without exception.

 

This does not mean that changes cannot be made to the estate plan, however. Under our standard durable general powers of attorney, the designation of a client’s spouse as an agent will be revoked if either spouse files a libel for divorce. A similar result will occur under New Hampshire law with respect to advance directives for health care. New advance directives for finance and health care can be signed for these clients, whether we have previously represented them individually or jointly, since the prior documents are no longer fully effective.

 

Wills and trusts will generally remain applicable until a divorce has been finalized. For jointly represented clients, we cannot represent either spouse to change a will or trust in order to remove the designated gifts to a spouse without his or her consent until the divorce has been finalized.

 

Further, under New Hampshire law, when the marriage has been terminated by divorce, all gifts to a spouse under a will or revocable trust and the designation of a spouse as the executor under a will or as the trustee of a revocable trust will automatically be revoked. At that time, our joint representation will also be terminated and we may thereafter individually represent each of the clients. Nevertheless, we will not be able to represent either client in relation to any action against a former spouse or the estate of a former spouse who was also our client.

 

After the divorce has been finalized, we remind our clients to change the beneficiaries on their retirement accounts, life insurance and payable on death accounts. Contingent beneficiaries under the will and trust should also be reviewed.

 

 

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Dealing with the Distribution of Personal Property in Your Estate Plan

by Attorney Christine S. Anderson

February 2010

 

When meeting with estate planning clients, the discussion occasionally turns to the disposition of furniture, jewelry, china, silver, collectibles and other personal property. When clients ask for advice, I tell them that there are three common approaches. The first and most simple approach is to indicate the group to receive the personal property and generally state that the recipients can divide the personal property equally among themselves, as they agree. If they do not agree, the fiduciary (executor under a will, or trustee under a trust) would make the final decision. An example would be leaving personal property to surviving children in approximately equal shares, or perhaps, to surviving nieces and nephews. The second and most involved approach is to provide a detailed list of virtually all personal property and assign each specific item to a specific beneficiary. Clients who follow the second approach go through their home, room by room, making a list of who is to get what. The third approach is a combination of the first two: a few items are specifically given, with the remainder to be divided approximately equally among a group of beneficiaries. A less common option is to direct that all personal property is to be sold with the proceeds to be distributed to a particular individual or group of beneficiaries.

 

While there is no correct formula for success, there a few helpful guidelines to consider:

 

1. We often advise clients who are making a gift of personal property to a group of beneficiaries to consider creating a tangible personal property memorandum. Many of our revocable trusts refer to a tangible personal property memorandum and provide that a trustee make division based on the client’s wishes as expressed in such a memorandum. The personal property memorandum is not binding on the trustee. If you create one of these documents, you must have faith that the trustee will follow your wishes, but recognize that the trustee is not bound to follow your wishes, as would be the case if you included a specific bequest of particular items. So why bother with a personal property memorandum? A personal property memorandum is prepared by the client and can be modified at any time by the client without coming back into the attorney’s office for a trust amendment. Also, it is possible for such a document to include not only a listing of who is to receive certain items, but also the history of the item given along with the reason behind its importance to the giver. For example, a personal property memorandum could indicate something like "my silver tea set, which I received from my grandmother Jane Smith, to my granddaughter Jane Doe, who was named after her"; or, "my 36" strand of pearls, which were given to me by my parents when I graduated from law school, to my friend, Attorney Lucille Brown." Providing an explanation of the importance of the item to the giver can greatly enhance the gift.

 

2. Some clients will make a detailed list of all items in their home and try to get their adult children to agree on the items which each child wants while the parent is still alive. Most adult children are reluctant to go through this process for a multitude of reasons. (It makes them focus on an unpleasant topic: the death of the parent; it is often a tedious process; and most adult children are extremely busy and consider this matter less than urgent, especially while the parent is alive.) However, if you are able to force your adult children through this process, perhaps it will minimize later disputes over who gets the antique cookie jar.

 

3. A professional appraisal of personal property following death is a good idea. The cost is typically less than five hundred dollars. The appraisal will not only provide the values of the particular assets which will help with an "approximately equal" division, but it will also provide a list of assets from which the beneficiaries can make selections. It is important to get the appraiser to the house right away, before the contents of the house begin to migrate to other homes. Once the personal property has been scattered, it is virtually impossible to collect it again, in order to get a complete appraisal prepared.

 

4. In the planning context, I will often tell clients about how siblings may wage war with each other over personal property items worth much less than the amount spent for attorneys to fight about those items. Given this back drop, my advice to fiduciaries is that it is important to treat the disposition of the contents of the house with great respect and formality. The appraisal is an example of what may seem to be an extreme procedure for a typical family willing to "agree" to the division of the items in the house. Once the appraisal is prepared, provided that the document states that the beneficiaries are to divide the personal property equally, I will recommend that the beneficiaries draw straws to decide the order in which the beneficiaries will choose from the list of personal property. Once each person has made a choice, the first beneficiary can make his or her second choice and the selection process should go around again and again until there are no items left that any one wants. Some clients may choose to include this selection process in their estate planning documents.

 

5. Think about the people who will have access to the home after your death. If you are leaving the home to one person and the contents to a different person, this could present a problem. If you are concerned about access to the home after your death, instruct the fiduciary to have the locks changed promptly after your death.

 

Many times, clients do not give much thought to the disposition of personal property within an estate plan. Given the legal battles that can be waged over who gets Dad’s roll top desk or Grandma’s antique rocking chair, however, it makes sense to be thoughtful about the disposition of tangible personal property within your estate plan.

 

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New Year's Resolutions

by Attorney Christine S. Anderson

January 4, 2010

 

January.  It is that time of year again. Time to make promises about getting more exercise or losing weight. Why not make a promise to yourself to get your estate plan in order? Lots of us have in mind that we need to fine tune or overhaul our estate plans, but it is not a pressing matter until a health scare or travel plans motivate us to get it done. Before tax season is upon us and while the nights are long and dark, make a list of the estate planning revisions that you have been thinking about and then get in touch with Ruth or me. You would not believe how many times clients say to me "It is such a relief to have that accomplished. It was easy. I wish I had come in sooner."

 

Christine, what about your New Year’s resolutions, you say? Okay, okay, I promise that I will negotiate with my husband about the change in guardians that I have been considering. I will then prepare and we will sign new wills. In addition, I will finally get around to preparing that tangible personal property memorandum that I have been ruminating about for years. Will you?

 

Best wishes for a happy and healthy 2010.

 

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Estate Tax Law Update

by Attorney Christine S. Anderson

December 29, 2009

 

No news is good news? Not always. Estate planning is challenging when the estate tax law is in flux. At no time has the status of the estate tax been more difficult to predict than it is today. Before it adjourned last week, Congress failed to address the estate tax. As a result, on January 1, 2010, there will be no estate tax. That would seem to be good news, in and of itself, but the same legislation that repeals the estate tax for 2010 also reinstates the estate tax in 2011 with a 55% top rate and $1,000,000 exemption. Many experts had predicted that the 2009 45% rate and $3,500,000 exemption would have been extended by Congress, if not permanently, then at least through 2010. Indeed, the House passed a permanent estate tax relief bill on December 3, 2009, but it failed to get addressed by the Senate before the holiday recess. The gift tax is still in effect and there are new, complex basis rules for individuals who inherit while there is no estate tax. It is possible that when Congress next addresses the estate tax it will make the change retroactive to January 1, 2010. Some suggest that such action would be unconstitutional. So, for now, we stay tuned. At this time, we do not recommend that our clients make any changes to their estate planning documents in response to the current status of the estate tax, but we would be happy to review this issue with you if you have specific concerns about your estate plan. We will keep you advised of any developments in the estate tax arena. Happy New Year!

 

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           For the third consecutive year, Attorneys Ruth Tolf Ansell and Christine S. Anderson have been named to the New England Super Lawyers list.  Each year, only 5% of the lawyers in New Hampshire receive this honor.

    

       Super Lawyers recognizes outstanding attorneys in more than 70 areas of practice using a rigorous, multiphase selection process that includes peer nominations, evaluation of attorneys based on 12 separate indicators of professional achievement and peer recognition, evaluation by other lawyers with one's practice area and a final discipline check to verify that the attorney meets the highest ethical standards.  Attorney Ansell and Attorney Anderson were honored for their accomplishments in the areas of Estate Planning and Probate Administration.

     

       Every year, the national polling firm of Woodward-White performs an exhaustive search for the country's best attorneys and publishes their names in "The Best Lawyers in America."   New Hampshire Magazine reprints the New Hampshire Attorneys in its October issue.  Once again, Attorney Ansell was named as a top attorney in trust and estate law.  Attorney Anderson was again named as a top attorney in elder law and trust and estate law.

 

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Should you name your Attorney as the Executor of your Estate?

By Attorney Ruth Tolf Ansell

December 2009

 

Many clients ask if they should name their attorney as the Executor of their Estates. Although this practice has been commonly accepted in New Hampshire for many years, it is not required or even recommended for most clients.

 

In recognition of the potential conflicts of interest which can arise when an attorney drafts a Will for a client which designates the drafting attorney (or another member of the same law firm) as an Executor, a new ethics opinion has recently clarified the issues which need to be considered in this designation. (The same concepts apply to the designation of Trustees, Guardians, Agents and other fiduciaries.)

 

First, the attorney must have the requisite competence, including specific knowledge about this field of law. If you are considering the designation of your attorney as the Executor, you should confirm his or her experience in this practice area.

 

Second, designation of your attorney as the Executor should only be made after you have considered all available options. You should discuss whether or not your goals will be better served with the attorney as the Executor, in lieu of your family members, friends or professional fiduciaries, such as a bank or trust company. Consider the relative experience each person may have to perform the anticipated duties. Also consider if the actions of the attorney will be covered by professional liability insurance, or if the action of a professional fiduciary will be bonded. The relative costs of each choice should also be considered. Although professional fiduciaries generally publish a fee schedule for their services, New Hampshire does not have a standard commission for Executors. You should ask how your attorney will charge for services as the Executor.

 

Under New Hampshire law, Executor compensation is subject to Court approval. If an Estate is closed informally through a motion for summary administration, however, these fees will be subject only to the approval of the beneficiaries of the Estate. (Similarly, if the attorney is designated as a Trustee or agent, compensation is not automatically subject to Court approval, but may be reviewed by a Court if a beneficiary or other interested person objects to a proposed fee.)

 

The same considerations arise when the attorney is designated as a successor Executor or as a Co-Executor with a family member, friend or professional fiduciary.

 

Whether or not the attorney is designated as the Executor or as a Co-Executor, another attorney may be retained to represent the Estate. Most clients anticipate that the designated attorney will serve as both the Executor and counsel to the Estate, unless another attorney is needed for any reason, such as counsel to handle the ancillary administration of the Estate in another state, or when a conflict may arise between the Executor and the Estate.

 

In addition to potential conflicts over Executor compensation and/or attorney fees, other conflicts may arise from the designation of the attorney as the Executor, including potential conflicts with other family members who may also be clients of the attorney.

 

It is recommended that the attorney send you a written confirmation of your informed consent to the designation of the attorney as the Executor. In order to avoid the appearance of impropriety, the attorney may elect not to be a witness to the Will. In some cases, another attorney may be asked to handle the execution of the Will, or another notary public may be asked to acknowledge your signature.

 

Stricter disclosure rules will apply if an attorney solicits a designation as the Executor of your Estate. Attorneys cannot ethically include themselves as an Executor or successor Executor without your informed consent. Similarly, an attorney cannot require you to designate him or her as the Executor.

 

Of course, you may always execute a new Will at any time, whether or not you have previously designated your attorney as the Executor. As with all aspects of your estate plan, changes should be considered periodically as your circumstances change.

 

 

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Common Myths About Probate

By Attorney Christine S. Anderson

November 2009

 

In the course of advising clients about estate planning and probate, I have discovered that many clients have misconceptions about probate. Some of the most common misconceptions that I have come across include:

 

If I have a will, my estate will not go through probate, right?

 

Wrong. Probate is the court process that a decedent’s property goes through following death, if the property was owned by the decedent in his or her name individually. The probate process is designed to provide a system of taking inventory of the assets, allowing creditors to make their claims against the assets and once the creditors are paid, to provide for the distribution of the assets to the beneficiaries or heirs. If the decedent had a will, the assets pass to the beneficiaries named in the will, after probate is complete. If the decedent did not have a will, the assets pass to the heirs according to the state law that governs how a person’s property is to be distributed if the person does not have a will: the intestacy statute.

 

Even if you have a valid will, that fact alone does not mean that your estate will not go through probate. Additional steps must be taken to avoid probate. In order to avoid probate, assets need to be either (1) titled in a living trust (either revocable or irrevocable), (2) held in an account that is designated to "Transfer on Death" automatically to a designated individual, (3) jointly owned, or (4) bear a beneficiary designation, like a life insurance policy or a retirement account.

 

I will save estate taxes if I avoid probate, won’t I?

 

Estate taxes have nothing to do with probate. New Hampshire has no estate tax currently and the Federal Estate Tax applies to a decedent’s assets regardless of whether the assets go through probate. In order to minimize estate taxes, you may be advised to transfer assets into a revocable trust, which includes certain provisions designed to shelter the assets from estate tax at the time of the second spouse’s death, and which would serve the added purpose of avoiding probate. However, avoiding probate does not in and of itself minimize estate taxes.

 

Probate fees are a percentage of probate assets.

 

In other states, probate fees can be a percentage of probate assets. Years ago in New Hampshire, there were probate fee guidelines designed to limit the fees attorneys charged for probating an estate and which were based on a percentage of assets in probate. In 1992, the probate fee guidelines were abolished. A New Hampshire Supreme Court case stated that fees need to be reasonable based on all the facts and circumstances. Estate of Rolfe, 136 N.H. 294, 299, 615 A.2d 625, 628-29 (1992). While it is not essential that an executor retain an attorney to help get through the probate process, given the volume of paperwork involved and the various deadlines, many executors do hire attorneys. Fees are almost always based on hourly rates and while not insubstantial, they are not a percentage of assets in probate.

 

The cost of probate also includes the filing fees which get paid to the Probate Court and which are typically less than $200 plus the cost of the corporate surety bond set by the Probate Court. Regardless of whether a will states that the decedent wanted the executor to be able to serve without obtaining a corporate surety bond, most New Hampshire Probate Courts order executors to obtain corporate surety bonds on the full value of the probate assets. Bonds are costly. For example, a $500,000 bond costs approximately $1100 per year for every year that the estate is open; a $1,000,000 bond costs approximately $1800 per year.

 

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How Often Should I Update My Estate Planning Documents?

By Attorney Ruth Tolf Ansell

October 2009

 

Whether you created your estate planning documents with Ansell & Anderson or other attorneys in the past, you may be wondering whether you should update your estate plan at this time. The answer to this question depends on several factors.

 

Has your family situation changed dramatically since you signed your estate planning documents?

 

This past summer, a great deal of attention was focused on the designation and appointment of Executors and Guardians in the last Will of Michael Jackson. Although none of my clients are likely to face the same media attention in life or in death, the same issue may be applicable if their Wills are not periodically updated.

 

Marriage, divorce, disability, the birth of children, or the death of your spouse or another intended beneficiary may change your intentions. Your documents may have been drafted to anticipate some of these changes. For example, a Will or Trust generally indicates who will receive an intended gift if the designated recipient does not survive you. Similarly, you may have already designated alternate Executors and Trustees in your documents. Each of your documents should be reviewed periodically to be certain that the appropriate people are named. This review should include the beneficiaries designated on your life insurance policies, retirement accounts, annuities and other Apayable-on-death@ accounts. I recommend that you review your documents at least once a year to address changes in your family situation.

 

Has your financial situation or asset profile changed dramatically since your estate planning documents were signed?

 

Significant changes in your wealth may affect your current intentions. Specific gifts may need to be adjusted or deleted if the value of your estate has declined significantly. Alternatively, if your estate has increased appreciably, a continuing Trust may be considered in lieu of an outright gift to individual beneficiaries. The purchase of real estate in another state may also prompt a review of your estate plan in light of the application of the other state=s laws. The purchase of a sizeable life insurance policy might prompt a review of your estate plan, to determine appropriate ownership and beneficiary designations. Similarly, changes in your estate plan may be needed when you retire and lose a significant group term life insurance policy. I recommend that you review your estate plan whenever your financial situation changes dramatically.

 

Do your documents need to be revised as a result of changes in the applicable law?

 

Although we routinely advise our clients of changes in federal and state law which affect estate planning in general, we do not review a client=s documents unless we are expressly asked to do so. Often, the application of new laws needs to be considered in conjunction with changes in the personal and financial situation of our clients. Accordingly, I recommend that you meet with your attorney for this review every few years.

 

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Getting Organized: an Estate Planning Attorney’s Perspective

By Attorney Christine S. Anderson

September 2009

 

            If you have ever had to handle the affairs of a friend or family member who was not well organized, you will most likely promise yourself that you will not leave your own friends or family in a similar mess.  Getting your affairs organized to make it easier for someone to pick up the pieces in the event that you are in an accident, become sick or pass away, is a real labor of love. 

 

            Think about what would happen if you were in a terrible accident on the way home today.  How would your spouse, child, sibling or friend figure out where your checkbook is?  Would they be able to get access to your bank account if you pay your bills online?  What if you die?  Would your family know what you want for final arrangements?  Would they know if you have estate planning documents or life insurance? 

 

            OK. So you want to get organized, but don’t know where to begin.  One way to tackle this task is to assemble a loose leaf binder.  The binder will include a wealth of information about you, and should be kept in a secure location.  It could be kept in a locked drawer of your desk or in a safe or safe deposit box, but make sure that your family or friends know where to find it and where the key or combination is to be found.  Certainly keeping this information stored in your computer is not a bad idea, but access to the computer and location of the file within the computer will need to be given to your loved ones.  If you choose to keep the information in your computer, printing a hard copy from time to time is a good idea.

 

            We are all trained to not write down the passwords to our computer.  However, in this context, it is appropriate to include the password to your computer, on-line banking, and various on-line accounts and keep this information in a secure location that can be accessed by your designated family member or friend.  

 

            Many people keep a net worth statement that lists their assets and liabilities.  If you expand on this, listing account numbers, your net worth statement can be an excellent resource.  If you have long-term care insurance, disability insurance and/or life insurance, let your loved ones know.  Be sure to include your liabilities: your mortgage(s), line of credit, automobile loan(s) and credit cards.  Include the account number, creditor’s telephone number and payment address.                     

 

            You should include with this information the name of the person who you have designated to act as your attorney-in-fact for financial matters to pay your bills, cash checks and handle your finances in the event of your incapacity.  Leave instructions about who is designated as your agent and how the power of attorney is to be released.  Indicate if your bills are paid on-line, or by check or by automatic debit.  Include a list of bills that are paid monthly. 

 

            Provide a list of your team of advisors.  List your financial planner and/or stock broker, your accountant and your estate planning attorney.  Consider including a copy of your most recent tax return.  

 

            You might also want to include the names of your various medical specialists and a list of your prescriptions.  If you do not buy all of your prescriptions at one pharmacy, this information could be quite useful to your health care agent, in the event of your incapacity.    

        

 

           Some people feel that funerals are for the living and should be actively planned by them to help them begin the grieving process.  This may be good advice in general, but it would be hugely helpful for your family to know if you have a cemetery lot or if you have a preference for cremation.  It is possible to visit a funeral home and select the services and products you would like at the time of your death.  The funeral home will keep a file on you.  You do not need to prepay for the arrangements, although you can.  If you do engage in planning your final arrangements, let your loved ones know which funeral home to contact. 

 

            It is important to review and update this information at least once a year.  After your personal income tax return is filed is a good time to do it.  You will have just reviewed the income reports from your various accounts, so this information will be fresh in your mind. 

 

            It is never easy for a loved-one to have to take over for you either because of illness or death.  Concern for your well-being or grief over your passing will likely sap the mental energy of the person handling your affairs.  You can make it easier on them by getting organized. 

 

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Click on the link below to read an article about estate planning that was featured on Good Morning America recently

 

http://abcnews.go.com/GMA/Story?id=8396359&page=1

 

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Planning Opportunities in a Down Economy

By Attorney Leila E. Dal Pos

August 2009

 

So many of us have seen our investment values plummet, our real estate values dwindle and our incomes decline or become stagnant. For those of us who have managed to remain financially stable, we may have companions, children and grandchildren whom we’d like to assist, both during our lifetimes and after our deaths. As the unemployment rate rises and credit markets freeze, we worry that our children’s futures will be more difficult to navigate than our own.

 

Despite grim economic news, however, planning opportunities are available in a down economy. Rather than wait for the storm to pass, we should evaluate our current financial circumstances and take appropriate action to preserve and leverage our wealth, not only for our own benefit, but for the benefit of our families.

 

Fortunately, there are relatively simple steps we can take to protect our wealth from certain events, such as our disability and future assisted living costs. Short and long term disability insurance is a relatively inexpensive way to replace lost income in the event we become disabled and are unable to work. Further, we have all heard stories about the depletion of family wealth due to prolonged nursing home costs. A long term care insurance policy is a viable option to minimize such costs.

 

For those of us who are in high risk professions or who own our own businesses, there are various asset protection techniques available to protect assets from depletion by future creditors. These techniques may be simple or complex, depending upon our circumstances, and may involve purchasing adequate professional and personal liability insurance, transferring assets to a spouse or other loved one, restructuring the family business for personal liability protection and/or creating a self-settled asset protection trust.

 

Business owners may have a unique opportunity to transfer ownership interests to family members at a lower tax cost (due to depressed values and valuation discounts) while retaining control of their businesses. One way to accomplish this is to restructure the family business to create voting and non-voting interests. The business owner then sells or makes gifts of non-voting interests to family members and retains voting (or controlling) interests in the business. When the economy eventually turns around and business is booming, the business owner will have taken advantage of the economic slump by shifting substantial business interests to his family at a lower tax cost than would otherwise be available.

 

Like business interests, real estate interests can be transferred to family members at a lower tax cost in a down economy. For instance, a parent or grandparent may wish to take advantage of depreciated real estate values by transferring ownership of a vacation home to family members. For those who wish to retain use and enjoyment of the home, the property can be transferred to a qualified personal residence trust ("QPRT"). The grantor (i.e., the person who creates the trust) retains the right to occupy the property rent-free for a term of years. At the end of the term, ownership in the property will pass to the grantor’s children or other family members. The grantor makes a gift equal to the present value of the remainder interest in the property. Even if the value of the real estate increases substantially during the QPRT term, the gift tax value of the remainder is based on the value of the property as of the date it is transferred to the QPRT. Note that the potential gift tax savings is lost if the grantor dies during the QPRT term. For transfer tax purposes, it is as if the property had never been transferred to the QPRT. A QPRT is only appropriate for the family that intends to own the property for many years. If the family intends to sell the property soon after the grantor’s death, a QPRT may not be appropriate since the property will not receive a step-up in basis. Note also that the grantor can use the property beyond the trust term if he pays fair market value rent to the new owners (e.g., his children). While many clients balk at the thought of paying rent to their children, it is an efficient way to transfer additional wealth to the next generation without incurring gift taxes.

 

A unique opportunity exists for clients to assist children or grandchildren with high interest rate loans. Parents may wish to offer assistance but may be concerned about jeopardizing their own financial security or sending the wrong message. For instance, an otherwise responsible child may be struggling to repay a high interest rate mortgage. The child is unable to refinance at a lower interest rate due to frozen credit markets and depressed real estate values. The child’s parents could pay off the child’s high interest rate mortgage in exchange for a low-interest rate mortgage that is secured by the child’s residence. As of August of 2009, the applicable federal interest rate for mid-term loans (over 3 years and no more than 9 years) is 2.8% and the applicable federal interest rate for long-term loans (more than 9 years) is 4.26%. In this scenario, the child’s monthly debt obligations would be substantially reduced and the parents would exchange one asset (i.e., cash and securities) for another (i.e., a mortgage that is secured by the child’s residence). Further, the mortgage debt can remain an obligation of the child after the parents’ deaths or it can be forgiven by the parents through a provision in the parents’ wills or trusts.

 

Finally, life insurance remains a cost-effective way to replenish wealth and provide estate liquidity for the payment of expenses and taxes. There are many insurance products available to meet short and long-term insurance needs, such as college funding and estate liquidity. The insurance policy may be owned personally or by an irrevocable life insurance trust. An irrevocable life insurance trust, if structured and administered properly, will ensure that the death benefit is not included in the insured’s estate for federal estate tax purposes and may continue to benefit multiple generations in a tax-efficient way.

 

As demonstrated above, viable opportunities exist in a down economy to protect and replenish wealth and to leverage transfers of property to family members. Before implementing any of the options mentioned here, however, it is important that you meet with an experienced legal and financial advisor to tailor a plan that is appropriate for you and your unique financial circumstances.

 

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Creating your own Documents 

A Recipe for Disappointment? 

By Attorney Ruth Tolf Ansell

July 2009

With the proliferation of on-line document production systems and do-it-yourself estate planning books, you may be wondering whether you should create your own documents, instead of paying an attorney to prepare your Will, Trust and/or Power of Attorney. The on-line systems appear to be easy to complete. The estate planning books claim to be valid in all states. You may be tempted to try your hand at the paperwork to save some of your children's inheritance.

 

We understand the temptation. Unfortunately, our experience has shown that self-prepared estate planning documents are all too often either ill conceived or poorly drafted.

 

By analogy, when you decide to cook something, you find a recipe, buy the ingredients and follow the directions. Upon completion, your success can easily be measured. Some recipes will be enjoyed many times. Others will never be tried again. Still others will be altered to meet your tastes.

 

With estate planning, you create documents which are designed to be used when you are either incompetent or deceased. At this point, since you will be unable to make any changes, mistakes can be very difficult and costly to correct. Estate or income taxes may be paid unnecessarily. Even if everyone in the family agrees on the intended distribution of estate assets, court action is often needed to implement the intended plan. If the estate recipients do not agree on a proposed correction, however, the resulting litigation can last for many years, significantly reducing the value of the estate ultimately passing to the beneficiaries, and often irreparably damaging family relationships. Only the lawyers seem to benefit from the botched plan. In this case, the poorly drafted estate planning documents are the legal equivalent of food poisoning.

 

Most importantly, estate planning documents need to be tailored for your personal circumstances and financial situation. The documents which may perfectly suit your neighbor may be inappropriate for you and your family. As in cooking, the foods which your friends enjoy may not be to your taste or in your diet. Although the estate planning books and systems may offer many choices at minimal cost, there is limited direction to select the most appropriate provisions to meet your needs or intentions. The advice of a professional is needed to select the appropriate choice for your estate plan, to explain the legal and practical implications of the various options.

 

Admittedly, the New Hampshire Advance Directive for Health Care is a statutory form, available to download and sign without cost at http://www.gencourt.state.nh.us/rsa/html/X/137-J/137-J-20.htm

This form includes both a Durable Power of Attorney for Health Care and a Living Will. Originally adopted in 1991, this form was expressly redesigned in 2007 to be easier for individuals to complete and properly execute without professional advice. Nevertheless, for many of our clients, the choices in this document require further explanation.

 

Continuing with the food analogy, the New Hampshire Advance Directive for Health Care can be compared to a peanut butter and jelly sandwich, being both simple to create and offering limited options. By comparison, a Will would be a simple meal or a small dinner party, and a Trust would be a holiday banquet. The complexity and content of these documents will vary significantly from one person to another. For these reasons, it is critical that you seek competent legal advice before implementing an estate plan.

 

Most attorneys advertise that their services include estate planning. Some of these attorneys also counsel clients on a range of other issues, including divorce, real estate, corporate issues and criminal matters. These attorneys generally practice in all areas of the law and do not choose to concentrate on estate and trust law. With only a general understanding of estate planning, their documents may be similar to the self-prepared documents and not appropriately tailored to your unique family and financial circumstances.

 

The attorneys at Ansell & Anderson are not general practitioners. Each of us elected to focus our practice in trust and estate law, and related matters, many years ago. We will refer our clients to other attorneys for other complex legal issues. Most importantly, we will help you to create an estate plan which is appropriate for your family and property.

 

The documents which implement your estate plan are only a part of the process. We will help you to understand the choices which are available to you and the consequences of your decisions. At the end of the day, like the porridge selected by the fabled Goldilocks, your estate plan will be "just right."

 

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Asset Protection Trusts in New Hampshire

By Attorney Leila E. Dal Pos

May 2009

Asset protection strategies are most often used by affluent individuals and those in high-risk professions to shelter property from creditor claims and lawsuits. Historically, these strategies were limited and often involved transferring property to a spouse and/or irrevocable trust and giving up both control over and access to the property.

 

In this difficult economic environment, many more individuals and business owners are searching for methods to protect their assets from potential creditors. Fortunately, it is now possible under New Hampshire law to transfer assets to a trust, retain most of the benefit of the transferred property and still protect the property from certain creditors.

 

The New Hampshire Legislature recently enacted the Qualified Disposition in Trust Act, RSA 564-D (the "Act"), which applies to trusts created after January 1, 2009. New Hampshire joins at least nine other states (Alaska, Delaware, Missouri, Nevada, Rhode Island, South Dakota, Tennessee, Utah, and Wyoming) which have enacted similar legislation.

 

The Act allows an individual ("grantor") to transfer property to an irrevocable trust for the grantor’s benefit (and for the benefit of the grantor’s family) while sheltering the assets from certain creditors of the grantor. This type of trust is called a "Self-Settled Spendthrift Trust" or "Asset Protection Trust" ("APT").

 

Under prior law, creditors could reach the maximum amount of trust property that a trustee could distribute to a grantor. For example, if a trustee had a discretionary power to distribute all of the trust property to or for the benefit of a grantor, then the grantor’s creditors could reach all of the trust property even though the grantor could not demand distributions from the trustee. Under the new Act, the same creditors could not reach the assets of the APT as long as the requirements of the Act were met.

 

Note that the following types of creditors may reach the property held in an APT:

(1) a prior creditor whose claim arose before or on the date assets were transferred to the APT and who files suit against the grantor within four (4) years of the transfer or, if the creditor files suit later, within one (1) year after the transfer was, or could reasonably have been, discovered by the creditor;

(2) a future creditor whose claim arises after assets are transferred to the APT and who files suit against the grantor within four (4) years of the transfer;

(3) a spouse who was married to the grantor before or on the date assets were transferred to the APT and who is entitled to alimony or property division;

(4) a child who is entitled to support; and

(5) a claim that arises as a result of death, personal injury or property damage caused by the grantor and occurring before or on the date assets are transferred to the trust.

 

If there is evidence that a grantor intended to defraud a creditor whose claim existed at the time property was transferred to an APT, the creditor may reach the assets under the New Hampshire Uniform Fraudulent Transfer Act.

 

Certain requirements must be met for the trust to qualify as an APT. The grantor may, but is not required to be, a New Hampshire resident. The trust must be irrevocable, contain a provision that the trust assets cannot be transferred, assigned, pledged, or mortgaged (whether voluntarily or involuntarily) by the grantor, and state that it is governed by New Hampshire law. The Trustee also must be located in New Hampshire and have custody of some or all of the trust assets. If an institution serves as trustee, it must have trust management powers in New Hampshire. Note that the grantor cannot serve as the sole trustee of an APT, but can be a Trust Advisor.

 

The Act permits a grantor to retain certain rights to income and principal of the trust while sheltering the property from creditors, including, but not limited to, the right to receive trust income or a 5% annuity or unitrust amount annually. The Trustee also may be given the power to make distributions for the health, support, maintenance and education of the grantor and to make distributions to the grantor in the Trustee’s sole discretion. Please note, however, that the rights retained by the grantor may disqualify the grantor and his or her spouse from receipt of Medicaid assistance. The grantor’s spouse and children may also be beneficiaries of the APT.

 

The Act allows the grantor to retain some control over the APT. For instance, the Act allows the grantor to retain the right to remove and replace the Trustee so long as the replacement trustee is not related or subordinate to the grantor. The grantor may also appoint trust advisors to make distribution and investment decisions. Finally, the grantor may retain the right to veto distributions to other beneficiaries, consent to investment decisions and direct, in his or her will, how the trust property will be distributed at the grantor’s death.

 

For individuals and business owners who are not in financial distress, an APT may be appropriate to shelter property from potential creditors while allowing the grantor to continue to benefit from such property. It should not be considered in isolation, but as part of a comprehensive asset protection plan. Careful consideration should also be given to the income and transfer tax consequences of establishing an APT.

 

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Powers of Attorney: Who Do You Trust?

 

By Attorney Ruth Tolf Ansell

New Hampshire Bar Journal

December 1997

 

A BRIEF HISTORY

 

Under common law concepts of agency, Powers of Attorney have long enabled an individual (the Principal) to delegate authority to another individual or entity (the Agent or Attorney-in-Fact).  Traditionally, such Powers were limited to certain designated transactions, such as the power to transact business on a particular bank account, the power to enter a safe deposit box, or the power to manage or sell certain real estate or securities.

 

In 1977, New Hampshire adopted RSA 506:6 specifically authorizing durable limited Powers of Attorney.  Under this statute, a limited Power would be durable if it expressly provided that it would survive the subsequent disability or incapacity of the Principal.  Since durable general Powers of Attorney were not similarly authorized, it was customary practice between 1977 and 1986 for attorneys to draft very comprehensive, limited durable Powers of Attorney, in lieu of general Powers.

 

In 1986, durable general Powers of Attorney were authorized, spawning increased popularity in their use as a cost effective alternative to the guardianship or conservatorship of an incapacitated adult’s estate.  Coupled with the use of Revocable and Irrevocable Trusts to avoid probate of a decedent’s estate at death, Powers of Attorney become commonly executed to avoid probate court supervision of an incapacitated adult’s affairs during lifetime incapacity.

 

Unlike guardianship, a person need not be adjudicated incompetent for an Agent to act on the Principal’s behalf.  A durable general Power may expressly provide for immediate effectiveness, allowing concurrent authority by both the Agent and the Principal.  This is particularly helpful when a principal may be able to handle some of his or her own affairs, while allowing the Agent to be of assistance in the management of the Principal’s finances.  Alternatively, the Power may expressly become effective upon the future disability or incapacity of the Principal.  This is called a “springing” Power.  I recommend the execution of an immediately effective Power, coupled with a directive letter or escrow, withholding the delivery of the Power to the Agent until some disability or incapacity of the Principal.

 

In 1991, New Hampshire legislators further encouraged the use of Powers of Attorney in adopting RSA Chapter 137-J, Durable Power of Attorney for Health Care.  Although limited to health care decisions, this statute has promoted widespread execution of these Powers through the standardized form which can be signed without the assistance of counsel at hospitals, nursing homes, adult day care centers, and elder law seminars.  A mandatory disclosure statement outlines the legal implications of the Power, expressly stating that a person does “not need a lawyer’s assistance to complete this document” unless the person needs a further explanation.

 

The authority of an Agent under a Power of Attorney for Health Care is effective “only when the principal lacks capacity to make health care decisions, as certified in writing by the principal’s attending physician and filed in the principal’s medical records.”  Similarly, the physician may note when the Principal has regained capacity to make decisions.  To a limited extent, the Agent’s authority is concurrent with that of the Principal since the statute expressly provides that “[n]otwithstanding that a durable power of attorney for health care is in effect and irrespective of the principal’s lack of capacity to make health care decisions at the time, treatment may not be given to or withheld from the principal over the principal’s objection.”

 

SELECTION OF THE AGENT

 

            The popular use of durable general and health care Powers of Attorney does not negate the tremendous import of these documents.  Extreme care should be exercised in the selection of appropriate Agents.  In some cases, the designated Agent for health care decisions may not be the most suitable choice for financial decisions, and a distinction is warranted.

 

            Of course, the agent must be a competent adult.  An Agent for health care decisions cannot be the Principal’s health care or residential care provider or a non-relative of the Principal who is an employee of the Principal’s health care or residential care provider.

 

Action in Accordance with Principal’s Wishes or Best Interests

 

            The Agent for health care must make decisions “in accordance with the agent’s knowledge of the principal’s wishes and religious or moral beliefs” to the extent known by the Agent, after consulting with the Principal’s attending physician and other health care providers.  If such wishes are unknown by the Agent, then the Agent must act “in the Principal’s best interests and in accordance with accepted medical practice.”

 

            In all cases, the Principal must trust the Agent to act in accordance with the Principal’s instruction and in the Principal’s best interests.  This is particularly important since the use of the Power will not be subject to judicial review, in the absence of a Petition to the Probate or Superior Court, as hereafter discussed.

 

Family Members as Agents

 

            In most instances, the Principal will select close family members to act as Agents.  A husband and wife will often select each other.  Adult children may be selected as Agents by unmarried individuals, or as alternate Agents for married Principals.  These are the most logical choices, but the do not come without risk.  Further consideration should be given to the selection of the spouse or children as Agents when a married Principal has children from a prior marriage.

 

The Effects of Divorce

 

Difficulties in the marriage may arise after the execution of Powers.  While a durable Power of Attorney for health care is revoked by the filing of an action for divorce, a durable general Power of Attorney is not revoked unless the Power expressly states that it will be revoked or terminated under such circumstances.  In general, a Principal should reconsider his or her selection of an Agent before filing an action for divorce.  Attorneys drafting durable general Powers should consider the inclusion of a terminating provision, in the event of a divorce or legal separation. 

 

CHANGING AGENTS

 

            Circumstances arising after the execution of Powers may periodically require a change in the designation of Agents.  An Agent may suffer an incapacity through advanced age or illness.  Children may reach an age of maturity suitable for designation as an Agent for a parent.  The Agent or Principal may move to another state, making the designation of another suitable Agent more desirable.  Life changes for the Principal or the Agent, including marriage, birth of children, divorce, death of a spouse, or financial pressures, may also cause the Principal to re-examine the Agent’s selection.  The Agent and Principal may, over time, develop other, closer relationships.  For these reasons, the Principal should reconsider the choice of suitable Agents every few years.

 

            In selecting health care Agents, the Principal should recognize the emotional issues which may result if the Agent has express authority to terminate life support.  This decision can impose a tremendous psychological burden on the Agent, unless the Principal has also directed the termination of life support in a Living Will, or the Agent has the consensus of other family members.

 

OTHER CONSIDERATIONS IN SELECTING AN AGENT

 

            The Principal should consider the competence of the Agent to handle the Principal’s affairs, without unnecessary disclosure to third parties or the creation of family tension.  In some case, multiple Agents may be designated, to act jointly, concurrently or consecutively, in an effort to assure continued family harmony during the period of incapacity.  Caution should be exercised, however, since Co-Agents need not necessarily agree on the most suitable action.  These issues usually arise when a parent questions whether to designate one or more children as the parent’s Agent, to act together, independently, or successively.  Of course, the answer will vary from family to family for various reasons.

 

            The financial interests of the Agent may conflict with the interests of the Principal.  This is particularly true when the durable general Power of Attorney authorizes the Agent to make gifts on behalf of the Principal, including gifts to the Agent, or authorizes the Agent to expend the Principal’s funds for the support of the Agent and/or of the Principal’s spouse.  It may also result when the Agent is the joint owner of certain assets with the Principal, or a legatee under the Principal’s Will or Trust.  The Agent may be tempted to conserve those assets which may eventually pass to the Agent, while expending the assets which would pass to others.

 

            Similarly, a health care Agent’s decision may be affected by financial considerations if the Agent will receive the balance of the Principal’s estate upon death, to the extent the Principal’s funds are not expended for the Principal’s medical care during a last illness.  Alternatively, if certain financial benefits exist only during a Principal’s lifetime, such as retirement or annuity payments, the health care Agent may want to prolong the Principal’s life artificially.

           

            Conflict of interest may also result when non-family members are designated as Agents.  If an attorney, investment advisor, accountant or other professional is designated as an Agent to make financial decisions for the Principal, the Agent must determine an appropriate fee for professional services.  The potential for abuse is clear.  This conflict is avoided for health care powers since the Principal’s residential and health care providers may not simultaneously act as Agent for the Principal.

 

            An Agent under a general Power of Attorney holds a fiduciary responsibility to the Principal.  This is particularly true when the Agent is also the Principal’s attorney.  Unfortunately, breaches of this trust have occurred.  In re Estate of Ward involved an attorney who supervised a client’s finances under a general power of attorney.  After the incapacity and subsequent death of the client, the Probate Court determined that the Agent has misappropriated $116,820 from the Principal, and charged $8,575 for legal fees of no benefit to the Principal.  The Court ordered repayment to the Principal’s estate, with interest and legal fees.

 

COURT PETITIONS ON POWERS OF ATTORNEY

 

            While the Ward case involves an extreme example of malfeasance, most cases involve more subtle questions of financial conflict of interest.  Fortunately, RSA 506:7 permits a petition to be filed with the Superior or Probate courts with a respect to the use of Powers.  Enacted in the RSA chapter on Prevention of Frauds and Perjuries, this statute provides significant protection to the Principal for the unauthorized use of Powers.

 

            A petition with respect to a Power of Attorney may be filed by any person who has an interest in the Principal’s affairs, specifically including an Agent, Principal, spouse, child, parent, person who will inherit from the Principal’s estate or under the Principal’s will, treating health care provider or office of the ombudsman, or any other interested person.  Such petition may be filed to determine whether a Power is in effect or has been terminated; to determine the legality of acts, proposed acts or omissions of the Agent; to compel an accounting of the actions of the Agent; or to terminate a Power.  The Agent may be compelled to pay attorney fees relating to the petition if the Court determines that the Agent “clearly violated his fiduciary duties under the power of attorney or has failed without any reasonable cause or justification to submit accounts or reports after written request.”  The Agent must maintain good records of his actions on the Principal’s behalf, in order to satisfy this standard if a petition is filed.  This proceeding is closed to the public and the records presented will remain confidential.

 

REVOCATION OF POWERS

 

            The designation of an Agent may be revoked, suspended, or terminated by the Principal.  I recommend written notice to the Agent and to all financial institutions in which the Principal hold assets if the Power has become effective or released to the Agent.  A Power of Attorney is also revoked by the death of the Principal, when known by the Agent.

 

            The guardian or conservator of a Principal may similarly revoke, suspend or terminate a Power (unless the guardianship Order directs otherwise.)  For this reason, a Principal may also nominate a Guardian under RSA 464-A:10 to assure that the Agent will not be replaced by a person not selected by the Principal to handle his or her affairs.  The Probate Court is directed to consider whether a health care Power should be suspended or revoked when appointing a guardian for the Principal.  The Probate Court has exclusive jurisdiction over Powers of Attorney for Health Care.

 

            A Power of Attorney for Health Care may be revoked by notification, orally or in writing, by the Principal to the Agent or to the Principal’s health or residential care provider.  It may also be revoked “by any other act evidencing a specific intent to revoke the power,” such as physical destruction of the Power, or by the execution of a subsequent Power.

 

            An action to revoke a Power of Attorney for Health Care may be filed by any near relative or responsible adult who is directly interested in the Principal by personal knowledge and acquaintance, if the Principal was not of sound mind, or was under duress, fraud or undue influence at the time the Power was executed.  All rights and remedies applicable to an action under RSA 506:7 for a durable general Power will be applicable in this action.

 

            Generally, a Principal would revoke a previously granted Power, in order to select a new Agent to handle the Principal’s affairs.

 

GUARDIANSHIP OR CONSERVATORSHIP

 

            After careful consideration of the alternatives, a person may not have sufficient confidence in another of appoint an Agent.  In such cases, the individual may nominate a Guardian under RSA 464-A:10, or appoint a conservator under RSA 464-A:13 to manage his property and financial affairs.  The cost of Probate Court supervision and fiduciary bond would be warranted in the absence of a trusted Agent.

 

SELECTED CRITERIA FOR DESIGNATING AGENTS

 

1.                  Do you trust the Agent to act in your best interests in all events, even is the action is contrary to the interests of the Agent?

2.                  Is the Agent capable of handling your financial affairs in a timely manner, keeping adequate records of his actions, and making the requisite decisions?

3.                  Will the designation of this Agent create disharmony with other family members?

4.                  Will multiple Agents be able to act without significant disagreement?

5.                  Will the Agent maintain your confidences, without unnecessary disclosure to third parties?

6.                  Is the Agent emotionally prepared to make health care decisions which you authorize?

 

SUMMARY

 

            Notwithstanding the potential for abuse, Powers of Attorney remain efficient and effective tools for the private administration of an incapacitated person’s affairs.  I recommend them to my clients.  I have signed them for myself.  With careful selection of Agents, and the potential for Probate or Superior Court review, Powers of Attorney are routinely used without incident.