Additional Estate Planning Documents
Pour-Over Will
A full estate plan that is built around a living trust also usually includes a pour-over will. The creator (the “testator”) of a pour-over will uses it to direct that if any of the testator’s assets are not already in the trust, they shall be “poured” into the trust at the testator’s death, to be distributed according to the instructions in the trust. Although a trust explains how property should be distributed, assets have to be placed into the trust before the trust can control what happens to them. The pour-over will is intended to cause any property not specifically named in the trust to be included and administered as part of the trust.
For example, suppose a couple had just bought a new house, and had not yet transferred it into the trust, when one of the spouses died unexpectedly. The pour-over will would still allow the trust provisions to determine the new owner(s) of the house.
In a pour-over will, an individual designates an executor to oversee the distribution of the assets included in the will. The executor may be the same person as the successor trustee but the role is different. If the amount that was not in the trust is over the probate threshold, a probate proceeding may be necessary to review the pour-over will and trust, and then to administer the distribution of the assets that were outside of the trust. (For more detail in this area please refer back to “Trusts vs. Wills.”)
Durable Power of Attorney for Finances
In a durable power of attorney the creator of the document (the “principal”) appoints another person (an “agent” or “attorney-in-fact”) to act on the principal’s behalf. A Durable Power of Attorney for Finances (DPAF) allows the principal to appoint an agent to manage the principal’s financial affairs.
A DPAF can be useful if an individual becomes unable to manage financial affairs. The word “durable” in the title of the document means that the document remains in effect even if the principal loses capacity. Through a DPAF, the principal’s financial affairs will be managed in the interests of the principal by the agent. The agent’s authority to act on behalf of the principal can be effective either immediately or only in case of the principal’s incapacity. A DPAF that takes effect only on the principal’s incapacity is said to be “springing,” in the sense that the power springs into effect as a result of an incapacity finding.
This type of document is sometimes referred to as a “DPA”. We tend to use the longer “DPAF” acronym to distinguish the DPAF from a Durable Power of Attorney for Personal Care, which confers powers over non-medical personal and household matters, such as living arrangements, household furnishings, daily necessities, clothing, hair and nail care, care for a pet or service animal, housekeeping, non-medical caregiving, etc. At clients’ option, a Durable Power of Attorney for Personal Care can be folded into the DPAF as an extra paragraph, or expanded into a separate document naming separate fiduciaries.
Although these documents often refer to health care arrangements, they are different in focus from an Advance Health Care directive in that they refer to practical arrangements such as hiring a caregiver or organizing a move to assisted living complex, while an Advance Health Care Directive refers to medical decisions such as whether to authorize surgery. Sometimes the two kinds of documents overlap, though, so it is important to know that if two documents delegate the same decision to different people, generally the more recently signed document controls.
Advance Health Care Directive
An Advance Health Care Directive allows individuals to indicate their health care wishes in case they become incapacitated. Through this document people appoint agents to make medical decisions on their behalf. Individuals can also specify directly what decisions they want to be made in their medical treatment. One decision frequently made ahead of time is whether, in the event of a terminal illness, an individual would prefer to be kept on life support systems or would rather have treatment be discontinued.
DeeD(S)
A deed should be drafted for each piece of real property (land or a building) that is added to a trust. The deed transfers the property from the current owner as an individual person, to the owner in their capacity as trustee of the trust (the trustee is the person who manages the trust assets). Although the owner is still the same person, a deed is required to document that the owner has a different formal relationship to the property. However, if the trust is revocable, and if the creator of the trust is also the initial trustee of the trust and the owner of the property to be transferred, then that person has the same power over the property as a direct owner. The power relationship only changes substantively when the initial trustee dies or becomes incapacitated and a successor trustee takes over management of the property.
Funding Letters
Whenever a trust is established, in order to obtain the benefits of a trust, the assets of the owner must be transferred to the trust. This is done by transferring the property ownership from the name of the owner, to the owner as trustee of the trust. Some types of assets that are transferred include bank accounts, stocks, and mutual funds. The funding letters are accompanied by a certification of trust and the relevant provisions of the trust that stipulate the power of the settlor to manage those assets.
Certification of Trust
The certification of trust is a shorthand version of the trust that makes it easier to shift bank and investment accounts into the trust without submitting a thick stack of paperwork or disclosing family details unnecessarily. Banks and investment companies should accept a certification of trust instead of the whole trust document. The certification summarizes significant information regarding the trust and attaches important sections of the trust. Typically attachments may include the first and last pages, the list(s) of trustee powers, and the page(s) identifying the current trustee(s).