Every person of legal age should have a basic estate plan in place. A basic estate plan is comprised of three (3) documents: a Last Will and Testament, a General Durable Power of Attorney and an Advance Directive and Power of Attorney for Health Care (“Living Will”). As our mortality is assured, so is the need for a Will. While our incapacity prior to death is not as much a certainty, a prudent individual will establish a framework to handle his or her financial affairs and health care decisions upon the occurrence of disability or incapacity.
The Last Will and Testament
The Last Will and Testament ("Will") is the best known and most traditional legal instrument of the three. Without one, upon death, the law of intestate succession in the state of domicile of the deceased ("decedent") will control the distribution of decedent's estate. "Intestacy" is the status of having died without a Will. In addition, an administrator will need to be appointed by the Surrogate's Court as the legal representative of the estate to perform the duties and tasks that an executor would otherwise have performed had a Will been executed and an executor named in the Will. Intestate distribution may bear no resemblance to what decedent's intentions might have been -- not only as to who the heirs are, but also with respect to what and how much of the estate they receive. For example, even in the instance of a surviving spouse, the New Jersey intestacy statute precludes distribution of the entire net estate to the surviving spouse in cases in which decedent's parents or children of a prior marriage than that to the surviving spouse also survive. In the instance of an unmarried individual, particularly without surviving parents, children, grandparents or siblings at death, the degree of consanguinity, or "bloodline", under the intestacy statute determines next-of-kin as heirs, to the exclusion of significant others and close friends unrelated by blood to decedent. It also does not distinguish among heirs of equal degree or account for individual financial need.
A Will appoints, preferably in order of priority, the persons who will serve as fiduciaries for the estate. The first of these fiduciaries is the executor, whose obligation it is to accumulate decedent's assets, satisfy the debts (including filing tax returns and paying tax due and payable) and distribute to the beneficiaries. Without a Will, an appointment will be made by the Surrogate's Court, in accordance with the bloodline established by the intestacy statute, of an administrator to serve in lieu of an executor. Where there is more than one person of equal degree of consanguinity to decedent, there will be any number of co-administrators -- which can be unwieldy and unmanageable --unless renunciations are signed by those relinquishing their entitlement to participate in administration of the estate. Where there are minor children, a Will typically appoints guardians and trustees for them. The guardian is responsible for the physical custody of the minor children. Without such a designation by the decedent in his or her Will, any minor child, if over the age of fourteen (14), may select his or her own guardian; if under such age, an appointment will again be made by the Surrogate's Court in accordance with the bloodline as per the intestacy statute. The trustee is responsible for managing and distributing assets designated for the minor children for their benefit and distributing to the beneficiaries under the distribution provisions set forth in the trust. It is not unusual for these outright distributions to be phased in as the beneficiary attains certain age levels or achieves certain educational guideposts (e.g., a baccalaureate degree). Without a Will establishing a trust and parameters for distributions, these minor beneficiaries will receive the shares reserved for them automatically upon attaining the age of majority – currently eighteen (18)..
Taxable estates are now quite few, subject to a federal estate tax rate topping out at forty percent (40%) on estates in excess of $11,500,000 -- $23,000,000 combined for spouses. New Jersey estate tax is now history, but transfer inheritance tax is exacted upon Class C and Class D beneficiaries (those not a surviving spouse or in the direct line of consanguinity, including siblings) on gross estates, but at a maximum tax rate of sixteen percent (16%).
The General Durable Power of Attorney
The General Durable Power of Attorney ("POA") serves as an empowering document enabling another or others (preferably in order of priority) to manage and handle one's financial affairs. The absence of such a legal document in the event of an individual's disability or incapacity will result in a freezing of the assets in the name of the disabled person until appointment by means of a court proceeding of a guardian or conservator -- requiring filing, attorney's and expert witness' fees to prove disability or incapacity. Delays reasonably may be anticipated to extend for months and the costs and fees to accumulate into the thousands of dollars.
Such legal proceedings can successfully be avoided merely by having an executed POA. These are of two (2) general types: presently effective and springing. A presently effective POA grants immediate authority to the appointee (the "attorney-in-fact") upon signing. While this may subject the POA to abuse by the attorney-in-fact in acting under the document when there is in fact no disability or incompetence of the signatory, it eliminates the need to establish to the financial institution the disability or incapacity of the signatory upon presentation of it to the institution by the attorney-in-fact. In the instance of the springing POA, which "springs" into effect at an indeterminate time in the future after execution only upon the signatory's having become disabled or incapacitated, disability or incapacity must be proven to the institution upon presentation. A presently effective POA is also a matter of convenience when the signatory may be unavailable due to an extended absence for business, military obligation or otherwise. It can also facilitate access to marital assets in the case of a husband and wife who, for old law tax planning purposes, may have allocated between themselves individually those assets formerly held jointly.
The "Living Will"
The "Living Will" takes decision making authority for medical treatment out of the hands of physicians and health care institutions in the event in which the patient is unable to communicate his or her own instructions to the provider. This document was born of the case in New Jersey of Karen Ann Quinlan, the comatose young woman whose fate was decided a quarter century ago by the New Jersey Supreme Court. The "Living Will" may take any number of forms, two of the most common being the Proxy and the Advance Directive and Power of Attorney for Health Care.
The Proxy simply designates an individual ("attorney-in-fact") or individuals (preferably in order of priority) by whom the signatory's health care decisions are to be made if they cannot be made or communicated by the signatory. It is akin to the voting proxy for shareholders in corporation law.
The Advance Directive and Power of Attorney for Health Care not only designates an attorney-in-fact as does the Proxy, but, in addition, sets forth any number of expressions of instruction to be followed by the proxy in any number of medical circumstances in which the signatory may later find himself or herself. These typically may include the withholding of extraordinary measures of life-sustaining treatment (e.g., cardiopulmonary resuscitation and mechanical respiration, nutrition and hydration) and administering of pain-relieving drugs, when the patient is considered incurable or terminal and in an irreversible state of unconsciousness. Conversely, it may direct that any and all heroic measures be implemented to preserve life in any and all circumstances. It may address the issues of organ donation, funeral arrangements and disposition of bodily remains (formerly these could not appropriately and effectively be stated in a Will, which under law cannot formally be probated until the passing of ten (10) days from the date of death); however, the recent passage of a statute allows for effectively naming a Designated Funeral Representative in either the Will or the Living Will providing for authority over funeral arrangements. It may subscribe to or disavow conformity with religious doctrines or beliefs of the religion of which the signatory is a member or adherent.
The foregoing represents merely the briefest of summaries of the most basic elements of an estate plan. Each estate plan must be tailored to the specific and individualized situation of each person and to his or her wishes, intentions and desires.
In addition, the establishment of testamentary (effective upon death) and inter vivos (during life) trusts must also be considered within the context of tax planning in order to maximize the net estate distributable to the heirs and to minimize the impact of federal estate and/or state transfer inheritance taxation.
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Christopher G. Weigl is an attorney at law who resides in Ridgewood and maintains his law office at 123 Prospect Street in Ridgewood. He is admitted to the bars of New Jersey and New York. He has served as Chairman of the Solo and Small Firm Section, formerly the General Practice Section, of the New Jersey State Bar Association, and is a member of the Probate and Estate Planning committee of the Bergen County Bar Association. This article was published in the September 27, 2002 edition of The Ridgewood News and has been updated to reflect statutory amendments and current estate tax law.
Christopher G. Weigl
Attorney at Law
123 Prospect Street
Ridgewood, New Jersey 07450
(201) 689-7772
(201) 788-0534 (cell)
(201) 689-7885 (fax)
cgwesq@verizon.net