Estate Planning in Practice: When an Attorney Asks a Family Member to Leave the Room

by Jonathan A. Nelson

At all stages in life, our family members play an important role in supporting and assisting us. This can be especially true with respect to matters incorporated into estate planning documents, including emergency care, aging considerations, and ensuring that survivors are provided for financially and otherwise.  There are times when it is necessary or appropriate to use professional or corporate fiduciaries, of course, but most often, relatives who live nearby and who know our circumstances, are already involved in caring for us, and have a long history of trustworthiness are the ones named to these important roles. 

When I prepare estate planning documents, the person who will be signing the documents is my client.  In my experience, it is not unusual for a key member of the family to accompany a client to the attorney’s office for the meetings needed to set up and sign estate planning documents.  Sometimes their presence is helpful; at other times, the best way for me to serve my client is to have their family member step out of the room for a time.

Some of the reasons I might ask a relative to leave the room are below. These reasons often benefit the person being asked to leave, and may help them avoid civil or criminal liability down the road.

1. Clout (undue influence) – When a client wants to benefit a specific family member, I have to discuss this separately from that person.

2. Credentialing – Before taking information from a family member on behalf of the client, I need to find out independently the nature of that relationship.

3. Confidentiality – Attorney-client privilege is usually voided by having a family member in the room. Especially if there is a likelihood of conflict, I err on the side of caution. The last thing one wants is a family member put on the witness stand and compelled to repeat a conversation that could have been kept confidential.

4. Comfort – I may pick up an undercurrent during the meeting (e.g., a relationship has changed, previously unanticipated questions need to be asked, or unresolved disagreements exist) that are preventing my client from feeling completely secure discussing their documents or goals.

5. Competence – Similar to the undue influence reasoning, clients are best served by documents that will hold up in court. Sometimes that means confirming that the client has sufficient capacity on his or her own to execute the documents.

Most family members recognize that being asked to step out of the room for some or all of an estate planning meeting is necessary and helpful, and that ultimately they and I are both there to support the client.

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: Divorce

An estate plan can be as simple or as complicated as the assets involved and the people involved, and most divorces create additional complications.  Depending on the circumstances, there may even be differing phases the estate planning documents need to go through.

For example, if someone created estate plan documents with their spouse then entered a separation, they may particularly want to change their power of attorney and medical directive to protect against use by an angry spouse. A revised will can also be a good idea.  Virginia is traditionally unwilling to presume that a separation will end in divorce rather than reconciliation, so while there are certain provisions of a will that are automatically terminated by entry of a divorce decree (such as the spouse serving as Executor), during the separation period those are still operational and could even be dangerous (for instance, the Executor becomes the custodian of the decedent's attorney-client privilege and would have a right to access the divorce attorney’s files).

Upon divorce, the former spouse is removed by law from many aspects of estate planning documents even if they aren't changed, but new documents are helpful in documenting the changes, protecting against misuse of the old documents, updating to new trusted people, and filling contingencies that didn't have to be considered before.  In addition, there are times when re-including the former spouse makes sense, such as making the former spouse a successor owner of a shared child's 529 account; some changes may even be required to comply with a property settlement agreement or divorce decree, such as when a life insurance trust is mandated or a party negotiates for estate planning provisions in lieu of requiring liquidation of an income-producing asset.    

Remarriage creates a raft of new issues usually advisable to address in a premarital agreement.  Especially with a remarriage later in life, a trust may end up being necessary to allow a continuing balance after death between providing for a new spouse and for children from the prior marriage and trying to manage the inherent grounds for conflict between them.

Your estate planning attorney will probably need to see your divorce decree and property settlement agreement to ensure your new plan doesn't run afoul of your continuing legal obligations. If your attorney assisted with a joint estate plan before your separation, he or she may not be able to assist either party with planning during the separation or post-divorce, as confidential information shared in the joint plan creates a potential conflict of interest for the attorney.  

Next in this series: Retirement

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: 529s and Estates

by Jonathan A. Nelson

Education savings plans authorized by Section 529 of the Internal Revenue Code are a popular investment tool designed to make education more affordable by providing a series of tax benefits, when everything goes right.

Everything does not always go right.

By way of background, a 529 account is established by one or more Contributors (who upon providing the assets has made a completed gift which can thereafter grow tax free) and is held and administered by an Owner who does not have to be the Contributor.  The account has a Designated Beneficiary, and withdrawals from the account by the Owner are tax-free if then expended for qualifying education expenses of the Designated Beneficiary.  If the Designated Beneficiary ages out or does not need the funds, the Owner can change the Designated Beneficiary (usually to another family member to avoid tax consequences); thanks to a recent change in law, the Owner can now instead roll the account over to a Roth IRA for the Designated Beneficiary.  However, the Owner has full control of the account and can intentionally disregard the beneficiary designation if willing to pay the tax penalties for doing so.

One particular contingency is not well covered by law: if the Owner passes away and has not designated a successor Owner of the account, it becomes part of the deceased Owner's probate estate.  The Owner's Executor then has control of the 529 account, and not only can disregard the beneficiary designation, but may be required by state law to do so where creditors have not been paid or residuary beneficiaries have not consented to distribution of the account in a form continuing to benefit the Designated Beneficiary.

I suggest a few actions to help avoid this result:

1. Designate one or more successor Owners for any 529s you control.  This makes the change a non-probate transfer.

2. If you have a trust, consider making the Trustee the Owner or successor Owner.  Besides solving the succession problem, this allows greater continued control over the benefit the accounts provide, and it may be advantageous to have assets which can grow without the trust incurring income tax liability.

3. Include language in your will or trust specifically affirming 529 accounts continuing to be for the benefit of the Designated Beneficiary and giving the Executor or Trustee authority for Owner actions, including designating a new Owner.  (These provisions will be state specific and need to be tailored to how probate in your state needs to be concluded.)

Next in this series: Emptying the Nest

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: Young Families

by Jonathan A. Nelson

As mentioned in my post on nonmarital relationships, marriage is something for which Virginia law has default rules. These rules are mostly balanced and usually not bad rules, but they may be different from what you want or expect, and can be a bit cautious and therefore inefficient, particularly where potential conflict is involved. Estate planning documents can deal better with most circumstances. 

If you die married with no children and no planning documents, your spouse would get everything and be administrator of the estate (as long as he or she didn't delay qualifying). Even a bare-bones will, however, can reduce the time and expense of administration, avoid third parties’ ability to step in, and provide order in a difficult time.  In addition, the will can provide contingency planning, provide for other people or causes important to you, and avoid losses with assets requiring active management (such as a rental property or business entity) or which are complex or sentimental.

If you have a prenup or a prior marriage, you may need a will (or even a trust) to fulfill your obligations. Powers of attorney and medical directives are useful for spouses to assist one another with ordinary tasks and ensure that your rights apply easily in other states if you travel or move.

A will is necessary to appoint guardians for your minor children, and a will or a trust is useful for setting custodians and conditions for the resources they will need should something happen to you. It can even be helpful to name temporary guardians so the children can be placed with an in-state family you choose during the time between your passing and the court's confirmation of an out-of-state guardianship.  These terms in particular need periodic updates.

Started a college savings account for your kids?  That is great, but there are also a few things you need to make sure are taken care of — which I will address in the next article.

Next in this series: 529s and Estates

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.