Basic Will & Durable Power of Attorney Planning
I. Checklist for Gathering Client Information
A. In compliance with the Code of Professional Conduct- This is a brief summary of the rules and is not exhaustive or a comprehensive analysis of the subject and its application. The Code is available at www.texasbar.com under the “client assistance and grievance” listing.
1. Rule 1.05. Duty of Confidentiality- prohibits the knowing use of disclosure by an attorney of confidential information of a client or former client.
Exceptions to the rule are listed and include
(a) with client’s consent
(b) in compliance with a law or court order
(c) enforcement of an attorney’s claim or defense in malpractice
(d) to prevent crime or fraud by a client
2. Rules 1.06-1.13. Conflicts of Interest- prohibit an attorney from representing clients with conflicting interests. Examples addressing a particular type of situation: Intermediary; Prohibited transaction; Former Client; Successive Government and private Employment: Adjudicatory Official or Clerk; Organization as a Client; Conflicts: of Public Interest Activities.
3. Rule 1.06. Generally- An attorney should not represent:
- Opposing parties to a suit
- A party in a substantially related matter
- A party where representation by the attorney reasonably appears to be adversely limited by the attorney’s responsibilities to another or his own interests
Exception: An attorney may represent a client under the second and third situations if:
(i) The attorney has a reasonable belief that there will be no material effect upon the representation of either client; and
(ii) All clients involved give informed consent to such representation after full and exhaustive disclosure of the problem, it implications and consequences.
A written disclosure of the conflict and consent to representation signed by each affected client is advisable. Always discuss in detail any such conflict with all parties involved. It is not always easy to recognize a conflict. Generally, if the question arises, there may be a problem.
4. Rule 1.07. Intermediary- Where an attorney represents several clients with a common goal but potentially different interests or concerns. Estate Planning for a married couple is a good example of this. An attorney’s obligation is not to act as an advocate for either side, but rather to mediate between the parties to reach an acceptable solution.
An attorney must be very careful to avoid any situation where there will be conflicts between the parties he is representing. When it appears as if there will be material conflict then the attorney should decline representation or withdraw.
5. Rule 1.08. Conflict of Interest: Prohibited Transactions
Set forth below are types of transactions and relationships an attorney is forbidden to have with a client. The most relevant situation pertains to the client that is not the person paying the attorneys fees. Certain states do not allow an attorney to accept compensation from anyone other that the client. Certain states allow for consent by the client, or where there is not interference in the lawyer's independence of judgment and the lawyer client relationship, and where duty of confidentiality is maintained.
Often an elderly client will come for assistance accompanied by a spouse or child, who has a vested interest in maintaining the integrity of the estate. Often one or more of the children will pay for the planning. It must be made clear to all parties who you are representing, preferably in writing. You must also take into account the mental state and capacity of your elderly client. Many children are the caretakers of their parent, and the client has not been legally declared incompetent, or are legally declared the guardian of the parent. Again, you must be careful to remember and remind who you are representing to all parties as frequently as possible.
Avoiding Conflict Between Spouses’ Interests
In Estate Planning, typically, a husband and wife are jointly represented by one attorney to perform the estate planning. However the case could end up as a conflict of interest where one spouse becomes incompetent and the other spouse needs to obtain guardianship or where there is a conflict regarding whether property should be classified as the separate property of one spouse or whether it is community property. Second or more marriage situations are rife with potential or actual conflicts of interest.
It is at this point that a material conflict could arise, whereby the inability to represent both jointly would be precluded and separate representation would be required. If the couple continues to agree on joint representation, obtain a written consent in an attorney/client agreement unless the situation is so problematic that withdrawing from representation is required.
Clients who are incompetent do not have the power to execute contracts, wills, trusts, powers of attorney or to give property away.
It is best to take the effort to interview the client to determine the clients mental state prior to performing the legal work. If you have any doubt regarding competency of the client, you should require that the client obtain a written medical opinion regarding his or her competency prior to commencing representation. It may also be useful to have the witnesses sit down and talk to the client for a period of time so that if called to testify at a later date, they can give some statement beyond simply stating the client appeared of sound mind to them. Good notes during a client interview are also a good policy. The standard is , a client must, at the time the document is signed, be capable of understanding and does understand what he or she signing.
Topics to be covered on an initial interview - The goal is to ascertain the client’s situation.
Information to be gathered:
(a) Personal information
1. Identity and contact information
2. Relatives, heirs' names and addresses, and children’s birthdates
3. Special burial requirements
4. Personal concerns which brought the client to your office
(b) Assets and Liabilities
1. Community and separate property
2. Real Estate- Mortgage amounts, property descriptions, form of ownership
3. Investments- CDs, Bonds, Stocks, Negotiable instruments, etc.
5. Safety Deposit Box contents
6. Debts owed by the client and owed to the client or by or to the beneficiaries
7. Income and expenses
1. A candid conversation with the client regarding the nature and extent of impending health concerns. Difficult topics of life expectancy and declining capacity must be discussed in order to make appropriate recommendations
2. A successful estate plan assesses the client’s wishes and intentions and provides for them. An unsuccessful one ignores a client’s goals.
3. An intake assessment form is an important tool in determining the client’s wishes. The best tool is listening to the client and then asking questions. The client usually has specific reasons in mind for coming to your office. By listening to the client’s description of his family structure and comments on the various family members, you can determine and address concerns that the client may not even be aware of.
4. It is important to determine if any of the family members are of special concern, either negatively or positively, to the client.
5. It is important to gauge the capacity of your client to understand what you are doing and to participate in the plan you are drawing up.
6. In complicated estate plans, it is important to know the lengths to which the client will plan and pay for tax and probate avoidance.
7. Some clients want to be actively involved in the planning and others just want the attorney to handle it. This is important to determine and document.
8. The initial intake document should include and be discussed:
(a) Basic identifying information: Name, address, phone numbers, birth date, social security number, license number
(b) Basic family information: Names, addresses, phone numbers, birth dates, of family members and other parties who will be named beneficiaries.
(c) General information about income and expenses.
(d) General information about the health of the client and his family
(e) Purpose of the client in coming to the attorney’s office
(f) Previous marriages, divorces, deaths and the identifying information for spouses and children by those marriages.
(g) Special concerns of the client’s family i.e. disabled family members, family members of whom the client is wary, family members who are prone to credit problems, or those who may have conflicts with the family members.
(h) Other financial information- a list of investments, real estate, brokerage accounts, retirement accounts and plans; a listing of any companies or businesses owned, trusts owned of which the client is the beneficiary or creator, list of monies owed and debts owed, and if estate planning for a married couple, distinguish between community and separate property.
9. Determine and discuss possible conflicts of interest.
10. If there are minors in the family discuss the advisability of trust provisions to govern the inheritance of assets by a minor.
11. While some clients will have tax concerns, other clients will have simple estates that require only basic planning. It is important to keep the estate plan proportional to the estate of the client.
12. It is important to familiarize the client with the basic applicable tax laws so that the client can tailor their expectations and goals accordingly. It helps to explain the difference between Income, gift and estate taxes. Then discuss the following basic terms:
(a) Marital Deduction
(b) Annual Exclusion Amount
(c) Unified Tax Credit
(d) Gift Tax
(e) Generation- Skipping Transfer Tax
(f) Gifts to Charities
Other matters concerning assets
1. Real Estate-homestead verses non- homestead, community verses separate property. Note that a surviving spouse and minor children are entitled to occupy the homestead; however, real property taxes and property and casualty insurance will need to be maintained by the person exercising his or her homestead rights.
2. Bank Records, Safety Deposit Box, Cash, Notes.
3. Trusts- determine if there are any inter vivos (living) trust, or if a post mortem trust will be created.
4. Stocks and Bonds and Employee Benefits- In the case of stocks and bonds determine whether such assets are held in a brokerage account or client has certificates. Determine if there are employee benefits that survive the decedent’s death and pass through the estate or to a named third party beneficiary
5. Joint Tenancy with Right of Survivorship property and Community Property with Right of Survivorship- This type of property poses many problems for an estate. It is important to determine if property is held with the right of survivorship because it will also pass outside the will and defeat the estate tax planning that was provided for in the will.
6. Insurance- may also pass outside of the estate depending on who owns the policy and who are the beneficiaries. It is also important to discuss the tax implications of being the beneficiary of the insurance proceeds.
II. Must have provisions- drafting DO’s and DON’T’s
There is no all-encompassing statement in the Texas Probate Code as to the content of a will, although it does specify the minimum formalities.
1. Texas Probate Code 59 details the requisites of a will.
2. In writing - nuncupative- oral (usually dictated on the death bed), Holographic, written not wholly in the hand of the testator.
3. Signature - by the testator, or a third party under instruction from the testator in front of witnesses.
4. Witnesses - if not wholly in the hand of the testator, requires two credible witnesses.
5. Self Proved.
6. Intent - expresses the testator’s testamentary wishes.
7. Revocation Clause - statement which revokes previous wills and codicils.
8. Independent Executor Clauses - an appointment clause, a clause defining the powers of the Executor, and a clause waiving the statutory bond.
9. Testamentary gifts - A competent person may bequeath their property under a will; they may also disinherit an heir and dispose of property or of an interest under the will.
10. Testamentary Capacity - at least 18 years of age, legally married, member of the armed forces, and of sound mind.
III. Building flexibility in the plan- checklist of special provisions.
1. Payment of Debts, Taxes and Expenses- is provided under the Texas Probate Code Sec. 37 and the order of payment is set forth therein. Often included is the provision for payment of specified debts, from a particular source, or sale of a particular property. The estate will be liable for taxes, but the source of payment can affect the amount of property a beneficiary receives.
2. Devises- clauses may leave various interest or portions thereof from life estates and remainders fee simple. In general they fall into four general categories.
(a) General Devises- passes all property to beneficiary
(b) Specific Devises- testator intended to pass a particular, so specified property to beneficiary
(c) Demonstrative Devises- sums of money or a number of items with pecuniary value or measure
(d) Residuary Devises-passes the remainder of the testator’s probate estate after all other devises are fulfilled
3. Powers of Executor.
4. Wills not contractual.
5. Guardianship and minor provisions.
6. Trust clauses- for maximizing tax savings ( such as marital deduction trust, or credit shelter trust)
7. Contingent Clause- the will is effective only on the occurrence of a contingency
8. Powers of Appointment.
9. Miscellaneous Clauses- no- contest clause, choice of law clause, definitions, and interpretative provisions.
IV. Keeping clients current on their wills
1. The client’s situation and concerns change from year to year, through divorce, addition of children to the family, marriages in the family, deaths in the family, and changed circumstances.
2. Uncertainty and the Economic Growth and Tax Relief Reconciliation Act
(a) Estate Tax Credit verses Gift Tax Credit
(b) Income Tax Basis of Property Received at Death verses by Gift
(c) Annual Exclusion Gifts
3. The client’s health will vary over time and the estate planning scheme which was best at one age, may cause problems at a later stage.
V. Educating your client on the harm of writing someone out of the willchallenging the will
1. A will contest can be expensive.
2. If a beneficiary has accepted benefits under the will, he or she cannot later contest it.
3. Standing- the contesting party has the affirmative obligation to plead and prove that he has standing to bring in action.
4. Limitations- establish whether filing the contest is within the statute of limitations, two years after the will has been probated
5. Unnatural disposition- raises the question as to whether the disposition was the result of undue influence, or lack of testamentary capacity.
6. No contest clause- be sure to include unless your client tells you otherwise
7. Some exceptions to the No Contest Clause:
(a) An action to remove an executor
(b) Request for a partition or accounting
(c) Filing a single application to probate a will concurrently with an alternate application to probate an earlier will
(d) Any request for turnover relief that does not oppose the will or attempt to invalidate any of its provisions
(e) A suit to construe a will or will
(f) A suit to ascertain the testators intent
(g) A suit to determine whether property is community or separate
(h) An action to determine the validity of the debt allegedly owed by the estate.
Grounds for a will contest
1. Contest - a number of possible grounds upon which a will may be contested
2. Invalidity - elements required to prove due execution of a will and self - proved wills.
3. Mistake - regarding the identity or the contents of the instrument executed is a valid reason to contest the will. Also, mistake on the inducement maybe claimed. Mistake, while not enough alone to overturn the will, may also give added weight to the claims of undue influence or fraud.
4. Undue influence - more than an opportunity to exercise such influence must be shown, you must show the existence and exertion of an influence, and the effective operation of an influence.
5. Lack of capacity - Prior to probating, this burden of proof is upon a proponent to prove a testamentary capacity. After the will is probated, the burden is on the contestant.
5. Lack of capacity - Prior to probating, this burden of proof is upon a proponent to prove a testamentary capacity. After the will is probated, the burden is on the contestant.
6. Fraud - where a person is induced to sign a will by deception or misrepresentation, it can be denied probate.
Durable Power of Attorney
1. GENERAL - Texas Probate Code Sec. 482. A durable power of attorney (“DPOA”) is defined as a written , legal instrument that:
(a) designates another person(agent) as the attorney in fact . Commonly used to delegate authority for property, financial or legal decisions;
(b) is signed by an adult, called the principal; and
(c) indicates the principal's intent that the authority conferred on the attorney in fact or agent, shall be exercised notwithstanding the principal's subsequent disability or incapacity
2. FORM. The statutory form of DPOA is non-exclusive and other forms may be used. The form provides that it be notarized but does not require witnesses.
3. EXECUTION. Capacity is frequently an issue when executing a durable power of attorney. Many leave the execution of a DPOA until such time as such person actually has a need for it. By then it may be too late as the principal may be incompetent to execute such a document.
4. DURATION. A DPOA does not lapse because of the passage of time unless the instrument creating it specifically states a time limitation. A DPOA can survive the principal’s incapacity, or incompetence or become effective upon that date. The DPOA does terminate upon the death or revocation of the principal, or qualification of a guardian of the principal’s estate.
5. REVOCATION -
(a) A DPOA is not revoked until the third party receives actual notice of revocation. Because a DPOA must be recorded with the county clerk, a revocation would also be required to be recorded with the county clerk. The revocation must be notarized.
(b) A DPOA may be suspended by the court appointment of a temporary guardianship, and is terminated by the qualification of a permanent guardian.
(c) A DPOA to a person’s spouse is terminated upon the date a divorce or annulment is granted by the court.
6. LIABILITY. Situations where third parties such as banks or brokerage firms are hesitant to honor a DPOA, an agent may provide an affidavit that will act as conclusive proof between the agent and third party of the disability or incapacity of the principal at that time.
7. RECORDING. For real property transactions, a DPOA must be recorded in the office of the county clerk of the county in which the property is located prior to the use of the document in such real property transactions. Such transactions include a release, assignment, satisfaction, mortgage, security agreement, deed of trust, encumbrance, deed of conveyance, oil, gas, or other mineral lease, memorandum of a lease, lien, or other claim or right to real property
8. SPRINGING POWERS. A DPOA may be immediately effective, or it may be “Springing”. Springing indicates that the DPOA will become effective upon the certification ( in writing) after the date of execution of the Power of Attorney, by a physician who has examined the principal that based upon that examination, the principal is mentally incapable of managing his or her financial affairs. A Springing Power of Attorney is closely scrutinized. Due to HIPAA, a Springing DPOA may be problematic if an agent needs to act quickly