Substantive Legal Questions - All Estate Planning Documents

 

What does health, education, maintenance and support mean, and why do you use these terms? 

The IRS in Section 2041of the Internal Revenue Code sets out ascertainable standards for distributions from a trust where the trustee and the beneficiary are the same person, as is often the case with a trust for a surviving spouse.  The IRS says that such a Trustee can only use the Trust funds for themselves for certain reasons, including distribution of all income, and distributions of principal  for "health, education, maintenance and support." The Treasury Regulations provide some assistance in knowing what these terms mean. "Health" for example includes "medical, dental, hospital, and nursing expenses" as well as "health maintenance and comfort" (“HEMS”). The trustee can probably make distributions that are not strictly medical in nature, such as food supplements or an item of comfort. 

"Education" is more narrowly defined to include college and professional education.  Our documents typically expand this definition to include most kinds of school and education, travel expenses to and from school, etc..

The terms " support" and "maintenance" are essentially synonymous. They include "support in reasonable comfort" and "support in the accustomed manner of living."  This allows a trustee to pay or apply so much of the principal as is necessary for the support of the beneficiary.  In such a case, the beneficiary cannot compel the trustee to give him more, or apply for his benefit more than the trustee in the exercise of sound discretion deems necessary for his education or support.  Sometimes clients ask "May I take the money (from the trust) and travel around the world?"  The response is, if you were not doing that when the trust became irrevocable, no, you generally may not.  A trustee who is also a beneficiary may not make distributions that exceed the HEMS amount or which satisfy their own support obligation for someone else.  The "maintenance" and "support" portion of the HEMS standard is generally interpreted to mean the beneficiary's accustomed standard of living.

 

Why does it say I (or my spouse) only get $5,000 or 5% from the Trust?

This is actually an expansion of the HEMS standard discussed above.  What this provision provides is that in addition to the funds allowed under the ascertainable standards, the surviving spouse can take up to 5{93997c19cca2413204031df21c26e128a46aabe0f65d6d1b886d87d0d40a7681} of the total principal each year for any reason at all - including the around the world trip.

 

What is an “Independent Trustee”?

Where someone is the trustee for a trust of which they are the beneficiary (not including the grantor of a revocable trust), they are limited to using the funds for themselves for HEMS, as noted above.  When they want to use it for more than that, or they want to use the funds in such a way that it would discharge theirown legal obligations (support for a child, etc.), they can appoint a temporary independent trustee to make those distributions for them.  The independent trustee then would decide whether or not to make such distributions.

 

What do “per stirpes” and “per capita” mean?

We sometimes use "per stirpes" to describe a method of distribution among issue (in other words children, grandchildren, great grandchildren etc.) For example, a document might direct the trustee to give what is left of an estate after paying debts and funeral expenses to “those of the Grantor’s issue who survive him per stirpes.”  When we use per stirpes, it means that your estate will be divided equally among your children, but if a child has died before you, that child’s share will be divided equally among those of his or her children (your grandchildren) who are alive at your death.  If both a child and one of that child’s children die before you (“your deceased grandchild”), then those of your great grandchildren who are the children of your deceased grandchild will share the portion that would have gone to their parent.

This method of distribution can be contrasted with a “per capita” distribution. If you give your estate to “those of your issue alive at your death equally per capita,” then all of your children, grandchildren, and great grandchildren etc. who are alive at your death would receive an equal share.  If you leave three children, six grandchildren, and four great grandchildren and no great great grandchildren alive at your death, each one would then receive one thirteenth of your estate.

 

Are “situs” “situate” and “personalty” real words?

Yes, they are real words.

Situs (and situate) is the place where a particular event occurs.  For example, the situs of a crime is the place where it was committed; the situs of a trust is the location where the trustee performs his or her duties of managing the trust.  As an example, real estate always has a fixed situs, while personal estate has no such fixed situs and, therefore, the personal estate, or trust estate, can change situs.

Personalty means goods, chattels; articles, movable property, whether animate or inanimate; movable assets (including animals) which are not real property, money, or investments.  We are generally moving towards referring to such property as tangible personal property but personalty will still appear in our documents from time to time.

 

My Will says I may have a property Memorandum.  Do I need to do one? 

Even though your Last Will and Testament has provision for a property memorandum, you are not required to do one as part of your original Will and may do one, with all the formality of a Will, after you have executed your Last Will and Testament.

 

Why is there so much power given in the Power of Attorney, Last Will and Testament and/or Revocable Living Trust?

As discussed at the very beginning of the FAQ, the more options we want to provide to the individuals who are doing the work for you, the more power we need to give them.  Because we deal with all of the different improbabilities here, we want your fiduciary to have all of the power and authority necessary to deal with many different situations, including unpredictable situations.  If, at any point, you are uncomfortable with a grant of power, we can always restrict it, limit it or remove it.

 

In the Trust created for my spouse under my Will or Revocable Living Trust, while my spouse is the primary beneficiary, my document names my spouse’s preference as his trustee, and his document names my preference as my trustee.  Why isn’t that reversed?

When you create a trust for your spouse, generally, we are making the trustees for that trust people who are comfortable caring for him or her, and vice-versa.

 

My Health Care Directive names my spouse as my Agent, but also names him or her to be consulted regarding my health care by the Agent, or to have access to my health care information in addition to me Agent.  That does not make any sense.

Although your spouse is normally named as your primary Agent under your Health Care Directive, it is also possible for him or her to be alive, able to be consulted, but not be your Agent.  They may not be your Agent because they choose not to be, or because they are injured or impaired, but not so much that they cannot be consulted about your health care.

 

I don’t understand this paragraph in my Last Will and Testament, what does it mean? 

Notwithstanding anything else provided under this Last Will and Testament, a Trustee may not participate in the exercise of any discretion to distribute principal to himself or herself, other than for his or her health, education, maintenance and support, or any of them, nor may any Trustee participate in the exercise of any discretion to distribute or expend principal or income in a manner that would discharge a Trustee's personal obligation to support a beneficiary.  If this paragraph precludes all then-serving Trustees from exercising a discretion otherwise granted them, an independent person may be named by the Trustee as an additional Independent Trustee, with the sole authority to exercise these discretions.  Such Independent Trustee may receive advice and input from the disqualified Trustee(s), but may not act at his or her direction.

The first part of that provision details restrictions that are set out by statute in Maryland, DC and Virginia, that limit what a trustee (who is not also the grantor) can do for themselves when they are a trustee and a beneficiary of trust.  These are statutory limits that we are repeating here.  The second part of that paragraph is the work around, so that the limitations can be overcome.

 

What is the Rule Against Perpetuities and why am I waiving it?

The definition for the Rule Against Perpetuities is deceptively simple:

An interest in real or personal property is invalid unless it is certain to vest or terminate no later than twenty-one years after the death of an individual then alive.

The impact of the rule is draconian.  If the rule is violated the transfer (meaning usually the trust created and the asset transferred) is void ab initio - as if it never happened.

However, the rule in application has bedeviled lawyers for hundreds of years. Interpretation of the rule usually depends not upon whether the facts as they actually exist or are known to exist would violate the rule, but whether any possible facts, no matter how improbable, under the instrument would violate the rule. In testing this, the law requires consideration of examples such as the “fertile octogenarian” or the “unborn widow.” It is common practice to put waivers or savings clauses in Wills and Trusts to prevent running afoul of the rule, Essentially, such clauses state that if the interest created is deemed to violate the rule against perpetuities the interest shall terminate one day before twenty-one years after the last life in being has passed, or will incorporate a state law waiver statute, such as exist in Maryland, DC and Virginia.

 

There is a paragraph about “joint accounts” in my Will - what does it mean and why is it there?

This paragraph is in every Will, and reads as follows:

I hereby confirm my intention that the beneficial interest in all property, real or personal, tangible or intangible (including joint checking or savings accounts in any bank or savings and loan association), which is registered or held, at the time of my death, jointly in the names of myself and any other person (excluding any tenancy in common), shall pass by right of survivorship or operation of law and outside of the terms of this, my Last Will and Testament, to such other person, if he or she survives me. 

It is there to establish that if you create a joint account, that is an account with someone else that is owned joint with rights of survivorship, you did so on purpose and intend for that designation to control.  The idea is to prevent fights over whether a joint account was intended to be a joint account, or was only joint for “convenience” and should pass through probate.

 

There is an Article in the Will that is single spaced and full of “boilerplate” provisions.  My question is - who is my “Fiduciary?”  Is that the same as my Trustee or Personal Representative?  Do I need all these things in here? 

This Article is full of basic and not so basic boilerplate.  Most of these provisions apply equally to your Trustee and or your Personal Representative.  Some of may apply to only one or the other. We define both as your “Fiduciary,” so that at the beginning of each paragraph we do not have to write “My Personal Representative, as to my estate, and/or my Trustee, with respect to any trust created hereunder.”  The use of Fiduciary here is just a shortcut definition.

In regard to the boilerplate in this article, you may have questions regarding some of the provisions, and some of the provisions can be easily modified. For example, clients often wish to remove the ability of the fiduciary to “borrow on margin,” preferring instead that they not be able to do so. However many of the provisions in this article are necessary “tools” that a Fiduciary may need in the future, for some unexpected or on the likely event.

 

There are provisions in my documents that talk about what happens if my kids, or a beneficiary, is under 21, and talks about using the Uniform Transfers to Minor Act. All my stuff already goes into a trust for my young kids, who are currently under 21, and holds it for them until they are much older.  So shouldn’t we take those provisions out? 

Usually those provisions deal with distributions to someone outright and not in trust.  So if you have minor children, the provisions dealing with the generic under 21 year old does not apply.  If you have adult children, it won’t apply to them either, but could conceivably apply to their children, or the children of some “worst case” beneficiary.  Without this language such a distribution may require a court petition and the appointment of a guardian for even relatively small amounts of money.

 

There is a “Marital Trust” and a “Family Trust” in the documents for my spouse and I.  Are we creating 4 different trusts?  Isn’t that to many?  How will they work together? 

Although you each have a “Marital” trust and a “Family” trust, remember that they are testamentary, that means they do not come into existence until someone’s death.  The general flow for these trusts is as follows: 

Marital Trust

  • Activated and funded at the death of the first spouse.  The corresponding “marital” trust in the surviving spouse’s documents becomes moot and will never be activated.
  • Generally will be funded up to the limit of the lower of the federal or state estate tax exemption and generally (almost always) with non-retirement assets.
  • Always for the benefit of the surviving spouse, and sometimes for the benefit of children as well.
  • Surviving spouse is almost always the trustee unless incapable of performing this function.
  • Generally will be rolled into the Family Trust upon death of second spouse.

Family Trust

  • Activated and funded at the death of the second spouse to die.
  • Generally will be funded with non-retirement assets, depending on the age and issues of the children.
  • For the benefit of the surviving children or their children (per stirpes) if any of them has failed to survive, or dies during the term of the Family Trust.

 

In the Health Care Directives, There Are a Lot of Medical Terms Regarding My Health Condition - What Do They Mean?

Maryland, Virginia and the District of Columbia all have some definitions for the way they describe a medical condition.  Although these are defaults, you are entitled to define the terms in any way you choose.

Maryland:

Terminal Condition: An incurable condition that makes death “imminent.” The term “imminent” is not defined, so the determination is left to reasonable medical judgment.

End Stage Condition: An advanced, progressive, irreversible condition caused by injury, disease, or illness: (1) that has caused severe and permanent deterioration indicated by incompetency and complete physical dependency; and (2) for which, to a reasonable degree of medical certainty, treatment of the irreversible condition would be medically ineffective. Death need not be “imminent.”

Persistent Vegetative State: An irreversible loss of consciousness, despite reflexive nerve and muscle activity.

Virginia:

Incapable of Making an Informed Decision: The inability of an adult patient, because of mental illness, mental retardation, or any other mental or physical disorder which precludes communication or impairs judgment and which has been diagnosed and certified in writing by his attending physician and a second physician or licensed clinical psychologist after personal examination of such patient, to make an informed decision about providing, continuing, withholding or withdrawing a specific health care treatment or course of treatment because he is unable to understand the nature, extent or probable consequences of the proposed health care

decision, or to make a rational evaluation of the risks and benefits of alternatives to that decision. The second physician or licensed clinical psychologist shall not be otherwise currently involved in the treatment of the patient, unless such an independent physician or licensed clinical psychologist is not reasonably available. For purposes of [the act], persons who are deaf, dysphasic or have other communication disorders, who are otherwise mentally competent and able to communicate by means other than speech, shall not be considered incapable of making an informed decision.

Life-Prolonging Procedure: Any medical procedure, treatment or intervention which (i) utilizes mechanical or other artificial means to sustain, restore or supplant a spontaneous vital function, or is otherwise of such a nature as to afford a patient no reasonable expectation of recovery from a terminal condition and (ii) when applied to a patient in a terminal condition, would serve only to prolong the dying process. The term includes artificially administered hydration and nutrition. However, nothing in this act shall prohibit the administration of medication or the performance of any medical procedure deemed necessary to provide comfort care or to alleviate pain, including the administration of pain relieving medications in excess of recommended dosages in accordance with §§ 54.1–2971.01 and 54.1–3408.1. For purposes of §§ 54.1–2988, 54.1–2989, and 54.1–2991, the term also shall include cardiopulmonary resuscitation.

Persistent Vegetative State: A condition caused by injury, disease or illness in which a patient has suffered a loss of consciousness, with no behavioral evidence of self-awareness or awareness of surroundings in a learned manner, other than reflex activity of muscles and nerves for low level conditioned response, and from which, to a reasonable degree of medical probability, there can be no recovery.

Terminal Condition: A condition caused by injury, disease or illness from which, to a reasonable degree of medical probability a patient cannot recover and (i) the patient’s death is imminent or (ii) the patient is in a persistent vegetative state.

DC:

Incapacitated Individual: An adult individual who lacks sufficient mental capacity to appreciate the nature and implications of a health-care decision, make a choice regarding the alternatives presented or communicate that choice in an unambiguous manner.

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Norman B. Handler's Profile Image
Norman Handler started his legal career with the IRS, auditing estate tax returns and, in its National Office, developing estate tax policy. He moved into private practice, first as an associate and later as a partner in a large Montgomery County law…

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Marc S. Levine has been practicing law since 1992, all with Handler & Levine, LLC, and its predecessor firms.  Marc regularly assists individuals and families in preparing their estate plans, including drafting their wills, revocable trusts, tru…

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