If I asked you to define “estate plan,” you would likely tell me that an estate plan is an arrangement for the distribution of your assets upon death. I would award you 1/3 credit. Truth is, all of my clients are generous, selfless individuals: they tell me who they want to pass their assets to when they die without reflecting on, or even considering, who should care for them in the event they are incapacitated.
A 2019 Merrill study found that only 18% of Americans age 55 and older have the three basic estate planning documents: a power of attorney, health care directive, and will. Given the progression of the COVID-19 pandemic, all Americans should take the selfless step of preparing an estate plan.
Unfortunately, the failure to properly plan for incapacitation or the inability to contemplate financial decisions can affect your estate and wreak havoc on your family dynamic.
Power of Attorney
A power of attorney is a document giving a person, or persons, broad control over your finances. While the creator ( known as the “principal”) is free to limit the powers granted to fit her needs, in its broadest form, it gives the named individual (known as the “attorney-in-fact”) the authority to handle all financial matters (e.g., access your bank accounts, sell real estate, make gifts, etc.).
Unlike the other documents discussed in this article, a typical power of attorney is effective upon execution; once you sign it and hand it to the attorney-in-fact, that attorney-in-fact has the ability to act on your behalf at any time after its execution. While the principal can specify that the document should only become valid in the event she becomes incapacitated, doing so can be complicated by the need for a legal proceeding to prove incapacity. It is worth noting, however, that naming an attorney-in-fact does not restrict the principal’s ability to continue managing her own finances. As such, it is a useful planning tool for individuals of all ages.
Given the sweeping powers typically authorized under a power of attorney, it is imperative to choose a trusted individual to serve as attorney-in-fact. For young and middle-aged individuals, the first choice is traditionally a spouse using a child as a backup. Family dynamics play a big part here, so the principal should consider not only who should be trusted with such authority, but how naming one person over another will affect the family unit. Examples of these situations include choosing one child over another, a second spouse over children from a prior marriage, or a spouse with diminished capacity (though not incapacitated). Consideration should also be given to where that person lives so that their ability to act on your behalf is not limited by geography or otherwise.
Let’s imagine the scenario where you fail to adequately plan and become incapacitated without having executed a power of attorney naming one of your fiscally responsible children as your attorney-in-fact. In order to pay your medical expenses, sell assets, access bank account information, among others, your child would need to initiate a legal proceeding requesting the court establish a conservatorship, the cost of which is paid from your assets. The cost of establishing a conservatorship can range from a few thousand dollars to tens of thousands if there is a legal contest over who is the best person to act on your behalf.
Such a scenario is best avoided by paying a nominal fee to have an attorney draft a power of attorney for you while you have full capacity to make the best decisions for you and your family.
Health Care Directive
If you imagine the human form of a power of attorney being a banker, then the health care directive is a doctor. A health care directive is a document whereby the principal authorizes another person, or persons (known as the “agent”), the power to make medical and end-of-life decisions when the principal becomes incapacitated. Such authority includes deciding whether to move the principal to a long-term care facility, making medical decisions, issuing “do not resuscitate” orders, and carrying out the principal’s funeral and burial wishes.
Unlike a power of attorney, your agent cannot use the health care directive to immediately call up your local skilled nursing facility. This is because the health care directive is only effective upon the principal’s incapacity, meaning a doctor will always want to get your input (if you can give it) before going to your health care agent.
Similar to the scenario where you find yourself incapacitated without a power of attorney, lacking a health care directive upon incapacitation will leave your family to pursue a guardianship, another expensive process requiring court involvement.
Will
Although a will is a useful planning tool, wills need one crucial element to bring them to life . . . death. Prior to your death, a will is of no effect. It does not authorize others to manage your financial and medical decisions, it does not instruct your family on your final wishes, and definitely does not care about you. Other than listing your name at the top and bearing your signature at the bottom, a will does not mention you.
What a will does provide is a very important tool for those wishing to ensure their assets descend to specific individuals. When you die without a will, or “intestate,” the laws of your state of residence decide who receives your assets without your say. For a detailed discussion of Minnesota’s intestacy statutes and procedures, read fellow Gislason & Hunter attorney Chris Kamath’s recent article on intestate succession.
Although the power of attorney, health care directive, and will are documents worthy of their own articles, the remainder of this article focuses on their statutory formalities when signing that, if not adhered to, could compromise their validity and leave your family in an adversarial proceeding.
Statutory Formalities and COVID-19
In the midst of the COVID-19 pandemic and the sudden quarantine and no-contact orders, estate planning professionals are left to grapple with the strict statutory formalities governing document execution.
Specifically, the Minnesota Short-Form Power of Attorney, the standard form available to the public and most popular form among practitioners, requires the principal execute the document in front of a notary public who acknowledges the principal’s signature. The health care directive and will must either be (1) notarized, following the immediately aforementioned procedure, or (2) signed in the presence of two individuals (i.e., witnesses), each of whom must sign the will within a reasonable time after witnessing the testator’s signature.
With social distancing rules, including the “six-feet” rule and Governor Walz’ “stay-at-home” order, self-quarantine initiatives, and business blackouts, it is now a challenge to find an attorney, a notary, and witnesses willing to gather in a room to sign a document, no matter how important circumstances may be.
Given this dilemma, the Minnesota State Bar Association’s Probate and Trust Council drafted preliminary proposals that, if approved, would request legislative action to allow: (1) valid execution of wills, powers of attorney, and health care directives by remote online notary procedures; (2) holographic wills (i.e., a completely handwritten will drafted and executed by the testator without acknowledgement by witnesses or a notary); and (3) allow a will to be probated (i.e., considered by a court rather than trigger the laws of intestate succession) despite execution defects where such defects are shown by clear and convincing evidence to be harmless errors. These are, for now, just proposals – the legislature has not acted on them.
For now, holographic wills in Minnesota will not be valid. Likewise, the rules regarding in-person witnessing and notary procedures for wills, powers of attorney and healthcare directives have not yet changed. Until the law changes, don’t think you can rely on the pandemic as some kind of exception.
Conclusion
With our attorneys working remotely during this crisis and helpful legislation possible, our attorneys are here to assist you with all of your estate planning needs.
This information is general in nature and should not be construed as tax or legal advice.