How Do I Store Estate Planning Documents?

It’s a common series of events: an elderly parent is rushed to the hospital and once children are notified, the frantic search for the estate planning documents starts. It’s easily avoided with planning and communication, according to an article from The News-Enterprise titled “Give thought to storing your estate papers.” However, just because the solution is simple doesn’t mean most people address it.

As a general rule, estate planning documents should be kept together in a fire and waterproof container in a location known to and accessible by fiduciaries, and copies of some documents should be given to the fiduciaries in advance.

Most people think of bank safety deposit boxes for storage. However, it’s not a good location for several reasons. Individuals may not have access to the contents of the safe deposit box unless they are named on the account. Often a court process is necessary for permission to open a safety deposit box if no one is named on the account.

Even with their names on the account, emergencies don’t follow bankers’ hours and access may be difficult. Further, what if the Power of Attorney giving the person the ability to access the safe deposit box is inside the safe deposit box or the principal has died and the Will is in the box.   Bank officials are not likely to be willing to open the box to an unknown person and proof of that person’s authority is in the box.  This is like locking the key in the safe.

Even further, COVID and the economy have led many banks to close or not offer safety deposit boxes.  Banks don’t want to maintain as many brick and mortar locations, so that means safety deposit boxes have to go.

When you store estate planning documents, a well-organized binder of documents in a fire and waterproof container at home makes the most sense.

Certain documents should be given in advance to certain organizations or individuals.  For instance, health care documents, like a Medical Power of Attorney, Directive to Physicians (Living Will) and HIPAA authorizations, may be given to your agents, as well as to your primary care physician or to the medical facility if you go in for a procedure.  This way, agents have the necessary documentation should an emergency occur, and medical systems can add the documents to their file for you.  This way everyone (especially medical providers) are on the same page about your wishes and who will speak on your behalf.

Mary touched on other items that shouldn’t be kept in a safety deposit box in this article.  https://www.galliganmanning.com/things-you-should-not-keep-in-your-safe-deposit-box/  

Financial Powers of Attorney should be given to each financial institution or agency in preparation for use, close in time to when you expect to need it.

This may feel onerous, however, imagine the same hours spent communicating with banks plus the immense stress if the need to use it is time sensitive. Banks often want to review POA’s in advance of their use before accepting them, and that may take several weeks.

If your estate plan includes a trust, you’ll want your trustees’ to have a copy when you are ready to give it to them, and the original can be kept safe with your documents.

Wills are treated differently than POA documents. Wills are usually kept at home and not filed anywhere until after death.

Also, with all documents, especially the Will, it is important to track and keep safe the originals.  You may sometimes be able to probate copies of Wills, but it’s better to keep the original secure and avoid the need to probate a copy.  This is less critical for other documents, but the same policy holds.

Having estate planning documents properly prepared by an experienced estate planning attorney is the first step. Step two is ensuring they are safely and properly stored, so they are ready for use when needed.

Reference: The Times-Enterprise (June 11, 2022) “Give thought to storing your estate papers”

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Common Estate Planning Terms

There is a current legal trend to avoid using legal terms and to make the language of law accessible for clients.  For example, lawyers use less Latin than they used to.  However, there are some terms that are unavoidable, and it helps to be familiar with them when considering your estate planning, a sentiment echoed by the recent article, “Learn lingo of estate planning to help ensure best outcome” from The News-Enterprise.

Accordingly, I wanted to define some common estate planning terms.  If you are on the fence about creating an estate plan but found this article to get started, you may also want to review this article on the important of having a will.  https://www.galliganmanning.com/understanding-why-a-will-is-important/  

Fiduciary – the person you named to a role in your estate plan and who acts with your best interest in mind.  They owe you a fiduciary duty to act with prudence and loyalty to you.

Principal – the person who creates the fiduciary relationship, especially in a power of attorney.

Agent or Attorney-in-Fact – this is the person named to act on your behalf under a power of attorney.  They aren’t your “power of attorney,” they are your agent.

Within a last will and testament, there are more: testator or testatrix, executor, administrator, beneficiary, specific bequest, residuary beneficiary, remote contingency and even more. There are also many variations on these terms based upon location and common practice.

Testator – (Testatrix is the feminine version of it) is the person who makes a will.

Executor – the person who is appointed in a will to administer an estate.  Note, in Texas you often see “Independent Executor” or references to an independent administration.  This is because Texas has grades of executors, and independent executors largely work free of court supervision.  Most states don’t have this distinction.

Administrator- generally stated, this is the person who administers an estate just like an executor, but who wasn’t named in the will.  So, for example, if you name John Smith, and if he can’t then Kevin Horner to be your executors, and neither serves after you pass away, a third person may be granted permission to administer your estate.  They will be an administrator, and not an executor, because you didn’t name them.

Beneficiaries are individuals who receive property from the estate or a trust. Contingent beneficiaries are “backup” beneficiaries, in case the original beneficiaries are unable to receive the inheritance for whatever reason.  Sometimes you see the phrase per stirpes or by representation or something similar.  These indicate who the contingent beneficiaries if the original beneficiary is deceased.  Generally speaking, these indicate the original beneficiary’s children.

Specific Bequest – these are clauses giving specific property to a beneficiary.  So, for example, “I leave the real property known as 123 Main Street to my daughter” is a specific bequest.  In most cases, it is distributed first.

Residuary beneficiary – these are beneficiaries of the “residuary” or the “residue.”  This means all of the property in an estate or trust that isn’t already distributed.  So, using my above example, if your will says 123 Main Street to daughter, but you also own stock, another house, a car, bank accounts and items in your home and don’t otherwise address those items in your will, then everything except for the 123 Main Street goes to the beneficiaries you list as a residuary beneficiary.  These are often dealt with by percentages or shares.  So for example, “all of the rest, residue and remainder of my estate to my children, by representation.”  If you have three children, they are splitting the residuary in thirds.

In the world of trusts, you often have trustor, trustee and then beneficiaries which are very similar to the beneficiaries described above.

Trustor – Many states have different names for this, we just happen to use trustor.  This is the person who creates the trust.  Other names for it are grantor, settlor or trustmaker.  I’ve even seen founder and originator in my career.  If the trust is created by will, which is often called a testamentary trust, then the trustor is the testator.

Trustee – this is the person who administers a trust.

There are more terms than this of course, but these are some of the most common estate planning terms. Getting comfortable with the terms will make the estate planning process easier and help you understand the different roles and responsibilities involved.

Reference: The News-Enterprise (Jan. 18, 2022) “Learn lingo of estate planning to help ensure best outcome”

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Do TOD Accounts Mean I Don’t Need an Estate Plan?

Many people incorporate a TOD, or “Transfer on Death” into their financial plan, thinking it will be easier for their loved ones because it will avoid probate.  They often do this at the suggestion of bankers or financial professionals, and they believe it avoids the need for having a trust or even a will.  However, the article “TOD Accounts Versus Revocable Trusts—Which Is Better?” from Kiplinger explains how it really works.

The TOD account allows the account owner to name a beneficiary on an account who receives funds when the account owner dies. The TOD is often used for stocks, brokerage accounts, bonds and other non-retirement accounts, and is akin to having a beneficiary named on the account.  It’s worth pointing out that I’m using TOD as a general term here, the specific term might be different for different types of assets.  For example, a POD, or “Payable on Death,” account is usually used for bank assets—cash.  You can find more information about pitfalls of beneficiary designations here.  https://www.galliganmanning.com/common-mistakes-made-on-beneficiary-designations/ 

The chief goal of a TOD or POD is to avoid probate. The beneficiaries receive assets directly, bypassing probate, keeping the assets out of the estate and transferring them faster than through probate. The beneficiary contacts the financial institution with an original death certificate and proof of identity.  The assets are then distributed to the beneficiary. Banks and financial institutions can be a bit exacting about determining identity, but most people have the needed documents.

There are pitfalls. For one thing, the executor of the estate may be empowered by law to seek contributions from POD and TOD beneficiaries to pay for the expenses of administering an estate, estate and final income taxes and any debts or liabilities of the estate. If the beneficiaries do not contribute voluntarily, the executor (or estate administrator) may file a lawsuit against them, holding them personally responsible, to get their contributions.

If the beneficiary has already spent the money, or they are involved in a lawsuit or divorce, turning over the TOD/POD assets may get complicated. Other personal assets may be attached to make up for a shortfall.

Very frequently, naming a TOD/POD beneficiary in an estate that otherwise expects to go through probate (i.e. a will-based estate plan) leads to having non-liquid assets such as a house which cost money to administer, and no money with which to do so.

If the beneficiary is receiving means-tested government benefits, as in the case of an individual with special needs, the TOD/POD assets may put their eligibility for those benefits at risk.  This is a very, very common problem when a loved one has a disability.

Very simply too, beneficiaries under TOD/POD accounts can predecease an owner with no meaningful way to handle contingencies.  If that happens, the asset will be subject to probate which will negate their advantage, and may not go to the proper beneficiaries.  Utilizing trusts can solve that problem.

These and other complications make using a POD/TOD arrangement riskier than expected.

A trust provides more benefit to the trustor (creator of the trust) and in fact can work in conjunction with TODs as part of a complete, integrated plan.  Trusts address control of assets upon incapacity because trustees will be in place to manage assets for the trustor’s benefit. With a TOD/POD, a Power of Attorney would be needed to allow the other person to control of the assets. The same banks reluctant to hand over a POD/TOD are even more strict about Powers of Attorney, even denying POAs, if they feel the forms are out-of-date or don’t have the state’s required language.  People often don’t think of trusts as part of incapacity planning, but this is often a benefit to a trust-based plan.

Similarly, trusts (whether an asset named the trust as beneficiary of a TOD/POD or if it owns the assets themselves) can address contingencies.  So, if a beneficiary has a disability, potential divorce, creditors, predeceases the owner, or virtually any other reason for them not to directly receive money, the trust can provide for what happens under all of those contingencies.

Creating a trust with an experienced estate planning attorney allows you to plan for yourself and your beneficiaries, and if you chose to avoid probate, to do so in a way that will work for all of your assets and to avoid problems created by solely using TOD/POD accounts.

Reference: Kiplinger (Dec. 2, 2021) “TOD Accounts Versus Revocable Trusts—Which Is Better?”

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