Legal Issues

What to Consider When Planning End of Life Issues

From the perspective of an elder law attorney
- Sherri S. Reed

As an elder law attorney, I find that clients approach me with two main objectives: to control disposition of their assets at death and to provide for their health care decision making in the event they become incapacitated. The legal document they request most frequently is a will. While a will is an important estate planning tool because it enables a client to direct disposition of assets at death, a will can only dispose of the assets the client actually has left at death. No matter how carefully he or she plans the specific provisions of the will or how competently a lawyer drafts the will (or an accompanying trust to be funded at death), the fact remains that, during periods of the client's mental or physical frailty in his end-of-life years, someone else may become formally or informally in charge of the assets. If that person has dishonorable intentions or good intentions but is inept at financial management, the client's will and/or trust are in serious danger of being emasculated because the assets may be totally depleted prior to his death.

The same result can occur even if the client contractually earmarks assets for certain loved ones by designating those persons as his beneficiaries on insurance policies or investment accounts or by placing assets in a revocable living trust for them. These methods simply do not offer the client full dispositive control. If the wrong person takes charge of his affairs, through a power of attorney or a conservatorship/guardianship appointment, for example, that person may be able to change the client's contractual beneficiary designations or even revoke a trust established by the client.

Imagine, for example, the following hypothetical situation involving an “unscrupulous” second wife. Despite a father's great efforts to provide an inheritance for his children from his first marriage by designating them as his life insurance beneficiaries, establishing a revocable trust for them and leaving them real estate under his will, his second wife could completely alter his planning measures upon his incapacitation. She could pressure him, in his weakened state, to appoint her as his representative under a power of attorney, and, if such document authorized her to, she could change his beneficiary designations, revoke his trust and deed away his property, even if it were titled in his name only. If she did so, the children he yearned to protect could inherit nothing and might not even realize it until their father's death.

This hypothetical represents just one of many devastating scenarios which can arise if an individual fails to arrange in advance for a trusted fiduciary to manage his assets should he become unable to do so himself. By planning in advance, a person can most readily secure a high quality end-of-life existence, as well as peace of mind that he will, at death, still own the assets he wishes to leave his loved ones.

The document I often recommend for protection in this area is a durable power of attorney (DPOA). A well-drafted, comprehensive DPOA allows a client to designate a representative he sincerely trusts to act just as that person could act regarding his financial affairs and daily living matters. This is important because the client may, during the later years, experience a temporary or permanent mental or physical disability which hinders his ability to manage his affairs.

A DPOA can take effect immediately upon execution, or the client may prefer that it spring into effect only if and when a physician determines incapacitation. The DPOA can empower the client's chosen representative to handle banking, investment, tax, insurance and legal matters; to hire in-home caretakers and companions for the client in order to avoid, or at least delay, nursing home placement; to complete the application, admission and payment process for nursing facility placement when it is absolutely necessary; to apply for governmental or other benefits for the client; and to sell or otherwise convey assets of the client when it is critical to do so for Medicaid eligibility, tax planning or estate planning purposes, etc. The list of powers given to the representative can be as expansive, or as narrow, as the client desires based on the level of trust he has in his representative and the types of decisions the client wants the representative to make for him if incapacitation occurs.

Without a DPOA, if a client can no longer safely and prudently act for himself, the only alternative may be the formal court appointment of a conservator and/or guardian. This process is costly, particularly if contested by opposing family members or others seeking control of the incapacitated client and his assets for improper purposes.

A conservatorship/guardianship proceeding can also be emotionally difficult for the incapacitated client because he is required by law to undergo an incompetency evaluation and receive formal service of process. He may even be required to attend the mandatory hearing on his incompetency, which involves listening to others testify as to his alleged inadequacies and disabilities. The entire experience can be overwhelming for an elderly person and his loved ones. In most instances, this situation can be prevented by a comprehensive DPOA, the preparation fee for which is only a tiny fraction of the cost of a conservatorship/guardianship proceeding.

Because a DPOA is revocable, the client may want to consider having his execution of the document video-taped as well as witnessed. That way, if anyone subsequently attempts to pressure the client into revoking his DPOA and turning control of his assets over to that individual, clear and tangible evidence would exist of the client declaring that his DPOA representative is the person he trusts and wants to act as his fiduciary.

If an individual wants to exert even more control over the disposition of his assets, he can establish an irrevocable living trust and place his assets in it prior to his death or incapacitation. While an irrevocable trust is practically immune from alteration—absent litigation and a very good argument to the court to modify the trust—there is a severe downside to this form of planning.

Once assets are placed in an irrevocable trust, a client is unlikely to have further rights to them. Thus, while a client can fund an irrevocable trust with the assets he chooses for the beneficiaries he chooses, this action, in all practical effect, is essentially equivalent to him giving those assets away. He is unlikely to have access to the assets should he need them in his later years. However, he may consider such severance of his rights an acceptable trade-off for ultimate dispositive control.

For health care decision-making, there are two documents of interest to clients: the medical power of attorney (MPOA) and the living will. The MPOA enables an individual to designate the representative he wants to make health care decisions for him in the event he is unable to do so himself. In a living will, the individual specifies his own views and pre-made decisions regarding whether he does or does not want to undergo certain procedures and treatments, such as tube feedings, dialysis, resuscitation, liberal administration of pain medication, etc. The client records such wishes in a living will in the event he is unable to communicate them to health care professionals and loved ones in the future.

If a client wishes to list his own views and treatment desires and also name a representative to make all health care decisions which he does not expressly address, I prepare a combined MPOA/living will document. On the other hand, one or both of these documents may not be appropriate for a client who is uneasy about burdening a particular loved one with making such decisions or who fears that, by delineating specific procedures he wants or rejects for himself, he is somehow boxing himself into an inflexible course of treatment when the particular facts of his health situation may logically warrant otherwise.

Each client, in conjunction with his own personal situation and beliefs, must weigh the benefits and risks of attempting to settle his health care matters in advance versus leaving those matters to the judgment of his treating health care professionals and the loved ones those professionals consult at the time decisions need to be made. If a person has not executed a health care advance directive, West Virginia law currently requires his health care professionals to confer with his spouse, adult children, parents, adult siblings, adult grandchildren and close friends, in that priority order, for such decision-making.

From the Perspective of a Tax Attorney
-Michael T. Whitesell

Estate planning involves balancing an individual's desire to retain maximum control over his or her assets with the goal of minimizing estate and gift taxes. The federal estate and gift taxes are almost identical sister taxes designed to work together to subject all lifetime and at death transfers of property to federal tax. While there is a cumulative lifetime exemption from the gift tax for transfers up to $1 million, for tax years 2004 and 2005 an individual may transfer up to $1.5 million upon death free of tax. There is an offset for any gift tax exemption used during life. The exemption from the estate tax increases to $2 million in 2006 and $3.5 million in 2009. In 2010, the estate tax, but not the gift tax, is scheduled to be repealed; however, under current law, the estate tax returns in 2011 with a permanent unified estate and gift tax credit of $1 million. Additionally, each individual can give an unlimited number of people up to $11,000 per year which will not be counted toward either the estate or gift tax exemptions. This $11,000 is referred to as the "annual gift tax exclusion." Moreover, certain gifts (i.e., transfers to spouses and payments of tuition or medical expenses) may be made without the incurrence of any gift tax.

With proper estate planning, a married couple can completely avoid the estate tax upon the death of the first spouse and may combine to transfer $3 million or more to their beneficiaries without the incurrence of a single dollar in estate tax. However, estate planning concerns much more than simply minimizing taxes. Estate planning covers every aspect of a family's financial well-being. Given the unique nature of each individual's situation, consult a tax advisor prior to making any arrangements or decisions with such an important objective as providing for your family's financial security.

About the Authors:
Ms. Sherri S. Reed, Esquire, is an of council attorney who has practiced with Steptoe & Johnson PLLC since 1990 and concentrates her practice in the areas of commercial litigation and estate and trust matters.  Ms. Reed's experience includes a significant amount of research and brief-writing for state and federal courts at trial and appellate levels.

Ms. Reed's commercial litigation experience includes breach of contract, Uniform Commercial Code, fraudulent conveyance, equitable subordination, banking and collection matters. Ms. Reed also handles conservatorship and guardianship proceedings and general elder law matters, including Medicaid planning. She researches and litigates challenges to and interpretations of trust documents and wills. She also drafts various estate planning instruments and has experience with title work.

Ms. Reed is a member of the West Virginia Bar Association and has participated in local Quota Club and American Cancer Society activities. She is also a member of the National Academy of Elder Law Attorneys.

She may be contacted at 304/624-8114 or via E-mail at reedsss@steptoe-johnson.com .

Mr. Michael T. Whitesell is an associate with Steptoe & Johnson's Morgantown and Clarksburg offices. He concentrates his practice in the area of taxation and estate planning.

Mr. Whitesell is involved in all aspects of taxation including the preparation of wills, trusts and other pertinent estate planning documents; counseling clients on Federal estate, gift, generation skipping transfer and income tax matters; assisting personal representatives in the settlement of estates and advising them on tax considerations associated therewith, including valuation; representing taxpayers before the Internal Revenue Service and state tax departments; and creating family owned entities.

Mr. Whitesell received his law degree from West Virginia University in 2001, where he was awarded the Tom M. Chamber Award in Taxation. He subsequently received a master's of law in taxation from the University of Florida in 2002. Mr. Whitesell graduated magna cum laude from West Virginia University in 1998 with bachelor's of science degrees in accounting and finance.

He may be reached at 304/624-8117 or via E-mail at:
WhitesellM@steptoe-johnson.com.