All occupations have their own industry-speak, and lawyers may be among the biggest offenders.
In our defense, some of the language of the law is in fact Latin. But understanding the terminology is important when it comes to knowing what documents you need in place and what is necessary to accomplish your estate planning goals.
Will vs. trust
I regularly get phone calls from clients wanting to update their wills, or beneficiaries wanting to know what their relative’s “will” says. In most cases, they’re really talking about the trust.
Wills: In California, if at the time of your death you have more than $166,250 in assets (with a few exceptions), your estate must go through probate in order to transfer those assets to your heirs. This is true even if you have a will that carefully dictates who is to receive your estate. The terms of the will, and the process for carrying those out, are overseen by the probate court and are public.
Trusts: It is very common to implement a living trust to hold title to your assets during your lifetime and for some period thereafter. Living trusts are called this because they are implemented during your lifetime, and they continue to “live” past your death.
Assets titled in the name of the trust will not be subject to probate proceedings. Instead, your named successor trustee will be charged with carrying out the terms of your trust, including the distribution of assets. The terms of your estate distribution are set forth in the trust itself, not in a will. Thus, the terms are private and not subject to court supervision.
Pour-over wills. Even with a trust in place, a will is necessary. The will provides that, in essence, if you forgot to title an asset in the name of the trust or recently acquired an asset in your individual name, such asset is to be “poured over” into the trust.
Not surprisingly, this is called a “pour-over will.” Thus, the will does not say who gets what or when—it says simply “give my assets to the trustee of my trust and let him/her deal with it” (only in fancy legal terms often involving Latin). The substantive stuff—the things people really want to know about—is in the trust, which is not a public document.
There is often much confusion regarding powers of attorney and conservatorships as well. In many cases, a duly activated power of attorney is all that is required. However, a court-;conservatorship may be necessary in more serious cases.
Power of attorney: A power of attorney is a document that authorizes a party to act on behalf of another. The power of attorney can be given voluntarily by the principal party—for example, an elderly parent who has the mental capacity but not the desire to continue managing financial affairs. Or, the power of attorney is activated when the principal is determined (usually by a physician) to be unable to handle their own financial affairs.
The agent named in the power of attorney only has the powers specified in the document and must act in good faith for the benefit of the principal. A power of attorney is not valid after the principal has passed away. Importantly, the execution of the power of attorney by the principal, even when the principal is declared incapacitated by a physician, does not take any rights away from the principal. The principal may still act on their own behalf; it’s just that the agent can also act on the principal’s behalf.
Conservatorship: Where it is necessary to prevent a person from acting against their own interest, or in more serious cases of incapacity when a person is incapable of acting on their own behalf, a legal conservatorship is necessary.
A conservatorship is a legal proceeding wherein a determination of the need for a conservatorship of the person and/or the person’s estate is made, along with the appointment of the person(s) to act as conservator. Once a conservatorship is in place, the power of attorney is no longer valid, and the conservatee loses the right to act on their own behalf.
Health care documents
Another area of confusion is health care directives versus health care powers of attorney, “DNR” orders, and “POLST” documents.
Health care directive. This is the same thing as a health care power of attorney — it’s called an “Advance Health Care Directive” in California and a health care power of attorney in some other states. Whatever the name, it is a document that states who can make health care decisions for you if you are unable to, and, in general terms, what sorts of decisions you’d like made (pertaining to matters such as pain relief, life-sustaining treatments, and hospice care). The agent named in the health care directive is also the party responsible for decisions regarding post-death matters (organ donations, autopsies, choice of mortuary, cremation, burial, etc.)
DNR: A “do not resuscitate” order, known as a DNR is signed with your medical provider, although the agent named in your health care directive can be authorized to sign a DNR on your behalf.
POLST: Finally, a “POLST” is a “physician’s order for life sustaining treatment.” This is a document (frequently it’s pink) signed by a person, usually seriously ill and frail, and his or her physician.
This is a document relied upon by emergency medical personnel (who will not read or interpret the health care directive) because it includes a doctor’s orders based on the patient’s preferences for medical care. A POLST often includes a “DNR” order. Keep a POLST handy and visible in the event emergency personnel respond to a 911 call.
Each of these documents serves a specific purpose and should be discussed, implemented, and reviewed with legal counsel and medical personnel on a regular basis.
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. You can reach her at Teresa@trlawgroup.net
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