How Old Is Too Old?

Clients often ask me how often then should update their estate planning documents.  The common estate planning documents are a last will and testament, a financial power of attorney (commonly referred to as a “power of attorney”), and an advanced health care directive (commonly referred to as a “living will”).

When I use the phrase “estate planning documents,” I am not talking about planning for the super-wealthy.  When people hear the phrase estate planning, they think you are talking about something that the elite 1% engage in, not the common man.  This is untrue.

Estate planning is any type of legal planning concerning disability planning (power of attorney/living will) or planning for the disposition of your assets (a Will). The rich, the poor, and all of those in between should have a properly drafted estate plan.  The rich may need a more complicated and complex estate plan than the not-rich, but everyone needs a plan in place in the event of their passing or in the event they can no longer make decisions for themselves due to disability.

It’s not easy to talk about your estate planning. No one wants to think about the day they will die or the day they can no longer handle their affairs.  There may never come a day when you cannot handle your affairs; you may be perfectly capable and competent right up to the moment of your passing.

But you never know, and if you plan with an attorney experienced in these matters, putting a well-drafted plan in place can be quick and easy. Planning with the right attorney means that you won’t have to dwell on this unpleasant issue for very long, yet the plan will be there when you or your family needs it to be.

How often though should you reevaluate your estate plan? Does a Will become too old?  Does a power of attorney or living will become too old?

Unless your Will was drafted before 1980, I recommend that you change your Will only if there is a change in your circumstances. For instances, if you change the people to whom you are leaving your estate, then you need to change your Will.  If you change your mind as to who should serve as the executor of your estate, then you need to change your Will.

The passing of time, in and of itself, does not warrant a new Will. A change of address also does not equate with the need to draft a new Will (or any of the estate planning documents for that matter).

I say that if your Will pre-dates 1980 you should have a new Will drafted because most Wills drafted before 1980 were not self-proving, meaning that the signature of the individual making the Will was witnessed by two people and all of the signatures are notarized. If a Will is not self-proving then the executor must find one of the witnesses to the Will in order to admit the Will to probate.

With powers of attorney and living wills, I believe that the passage of time does warrant your having to draft new documents. I recommend that powers of attorney and living wills be updated every ten years, even if you are naming the same individuals to make financial and healthcare decisions for you in the event that you cannot make those decisions for yourself.

With healthcare decisions, there is always the chance for someone to claim that a living will fails to reflect your current preferences if the document is very old. For instance, you may have signed a living twenty years ago and someone could claim that the old document fails to reflect your current wishes with respect to your health.

With powers of attorney, banks often impose arbitrary timeframes on how long the document is effective. The workers at the bank might say they don’t honor powers of attorney that are older than one year or five years or some other arbitrary number of years.  There is a provision in the power of attorney statutes that permits banks to refuse to honor powers of attorney that are older than ten years, so I recommend updating powers of attorney every ten years.

The Dangers of Dynasty Trusts

            Many estate planning attorneys tout the advantages of a “dynasty trust.” There are several benefits that are commonly mentioned when these trusts are discussed.  In this article, I will discuss a potential downside to these trusts.

Before discussing this issue, I wanted to provide some background on trusts, in general, and dynasty trusts, in particular. A trust is a fiduciary relationship through which one person holds assets for the benefit of another person.

A fiduciary is a person or entity who owes a high duty of care to another person. A trustee owes the beneficiary a high duty of care with respect to the assets being held in the trust for the benefit of the beneficiary.

A person can establish a trust to accomplish many different purposes.  A person might establish a trust to hold assets for a minor child.  A person might establish a trust to hold assets of a disabled person.

The name given to a trust is irrelevant. If Mr. Smith establishes a trust for his minor child, Mary Smith, he might called the trust “The Smith Family Trust” or “The Mary Smith Trust.”  The name is unimportant.

There is no such thing as a “dynasty trust,” but what an estate planning attorney is trying to convey when he uses the phrase dynasty trust is that it is a trust through which a family member passes his assets to future generations of his family.  By harnessing the elder family member’s wealth in the trust, the elder family member is creating a dynasty.

Of course, the use of the word dynasty implies that millions of dollars are being held in the trust.  For the vast majority of the people in the world who do not have millions of dollars, the use of the word dynasty can be intimidating and off-putting.  The average person might feel that a dynasty trust isn’t right for him simply because he isn’t rich.

That impression is incorrect.  Even someone with an estate worth several hundred thousand dollars might consider establishing a dynasty trust for his family.

The benefits of a dynasty trust are as follows:  The trust protects the assets held in the trust from the creditors of the beneficiary.  If the beneficiary is sued, the assets of the trust can be protected from his creditors.  The trust protects the assets of the trust from the beneficiary’s potential divorce.  If the beneficiary gets divorced, the assets held in the trust are less likely to be entangled in his divorce.

But there are disadvantages to any trust, and in particular, there are disadvantages associated with a dynasty trust that by its very terms is designed to last for many years.  A typical trust exists for the benefit of the beneficiary.  The assets of the trust are there to be used to help the beneficiary.

Let’s say that Mr. Smith dies and creates a dynasty trust for his family.  His four children are the initial beneficiaries of the trust and after one of Mr. Smith’s children dies, that child’s share of the trust continues to be held in the trust for the benefit of that deceased child’s children for the remainder of their lives.

Let’s assume that one of Mr. Smith’s sons enters a nursing home.  One of the questions on the Medicaid application is whether the applicant is the beneficiary of a trust.  The son would have to say that he is the beneficiary of a trust.

The assets being held in the trust could now disqualify the son from Medicaid benefits leaving the son with no assets to pay the nursing home unless the assets of the trust are used to pay for his care.  At the very least, the assets of the trust could cause a significant issue as to whether or not the son is eligible for Medicaid benefits.

It’s important to realize that by restricting the use of your assets for decades through a trust, you might essentially trap your assets.