Estate Planning Documents: Provisions Affecting Your Home – Drafting Tips

DRAFTING CONSIDERATIONS OF ESTATE DOCUMENTS RELATING TO
HOMES

A. POWER OF ATTORNEY

A durable power of attorney is one of the most basic and
obvious estate and financial planning documents. When drafting the power,
consider some of the following points when tailoring your standard form to meet
a particular senior’s wishes concerning his home:

1. Many powers are vague about the powers and rights of
the agent. The following sample clause can assure the agent has authority, and
the awareness to exercise that authority, to maintain the grantor’s home:

“The Agent is hereby authorized and directed to perform
all acts reasonable and necessary to maintain Grantor’s customary standard of
living: to provide living quarters by purchase, lease or other arrangement, or
by payment of the operating costs of Grantor’s existing home or living
quarters, including interest, amortization payments, repairs, taxes, and so
forth; to provide for the retention and payment of reasonably necessary
domestic help for the maintenance and operation of Grantor’s household. “

Consider expanding the above to provide for any specific
requests or requirements of the client.

2. Selling, financing, and otherwise dealing with the
Grantor’s residence should be addressed. If the client does not want their
house sold or financed, the following sample language could be modified to
address that concern:

“Exercise or perform any act, power, duty, right or
obligation that Grantor now has, or may acquire, including the legal right,
power, or capacity to exercise or perform in connection with, arising from or
relating to any person or property, real or personal, tangible or intangible,
or matter whatsoever, however, expressly excluding with respect the residence
located at *ADDRESS the following: the right to execute a deed or security
agreement; or to release a security agreement; to enter into a mortgage or
similar arrangement; to enter into a contract of sale and to sell any real
property on Grantor’s behalf.”

Consider in the appropriate circumstances an express
prohibition against the sale of the client’s house, or the specification of
certain requirements or conditions before the house can be sold. If the client
is likely to need modifications made to the house, consider authorizing such
improvements.

B. LAST WILL AND TESTAMENT

A common situation in many wills is to provide a life
estate in the client’s residence to the surviving spouse. This is often done in
a second or subsequent marriage when the client wants to assure the later
spouse of the right to live in the residence for her lifetime, but on her later
death, to transfer the house to his children from a prior marriage, or other
desired heirs. Before using a life estate, practitioners should consider the
option of bequeathing the house to a QTIP trust instead. If a life estate is
selected, the following sample clause can serve as a starting point to address
the drafting issues involved:

“I give, devise and bequeath to *LIFE ESTATE BENEFICIARY,
the *LIFE ESTATE PROPERTY (including any furniture, furnishings and household
effects appurtenant thereto, and any insurance policies related thereto, if
any), if I should own such property at the time of my death, to have and to
hold the same for and during such beneficiary’s lifetime, without the necessity
of paying rent or furnishing bond or other security therefore, but subject to
and upon the condition that he pay all real property and similar taxes (but
excluding estate or inheritance taxes), assessments, carrying charges
(including fire and extended coverage insurance premiums for the full insurable
value thereof), and normal costs of maintenance and repair in respect
thereof.

On the death of *LIFE ESTATE BENEFICIARY, or upon such
life estate beneficiary’s earlier renunciation or disclaimer of the interest in
said property, or on my death if such life estate beneficiary does not survive
me, I give, devise and bequeath said real property to *REMAINDER BENEFICIARY
upon such terms and conditions as the Executor may direct and appoint by a
written instrument delivered to each appointee with respect to such property. I
direct that if, after the death of *LIFE ESTATE BENEFICIARY, or upon such life
estate beneficiary’s earlier renunciation or disclaimer of any interest in said
property, or such life estate beneficiary’s earlier disability that prevents
such beneficiary from occupying and maintaining the property subject to the
life estate herein granted, and if either (i) such property is not effectively
appointed, or (ii) the Executor shall determine that it is preferable to sell
such property, then such property shall be sold by the Executor, and I give and
bequeath the net proceeds thereof equally to *REMAINDER BENEFICIARY.

The beneficiary of the life estate granted herein shall
have no responsibility or liability for waste, and shall have no duty to
account to any remainder persons. Such life beneficiary shall have the
authority to sell such property and invest and reinvest the proceeds without
the consent of the remainder persons and any purchaser may deal with such life
beneficiary as if such beneficiary owned title in fee interest in such
property. To the extent not inconsistent with the estate tax marital deduction,
if such deduction is to be claimed for the life estate granted herein, I
request, but do not require, that the life beneficiary pay for all principal
payments due on any mortgage or loan that is a lien on the property that is the
subject of the life estate granted herein.”

When planning a life estate for a client, consider
carefully defining the parameters, funding the maintenance of the property, and
determining if something less than a life estate should be used (e.g., a
termination upon the entering of the surviving spouse to a long term care or
other facility), etc.

C. REVOCABLE LIVING TRUST

Too often living trusts are created to avoid or minimize
probate costs only. A primary benefit that living trusts can offer is lost when
such a limited approach is used. Living trusts can be an ideal vehicle for
planning for the management of a client’s affairs during a period of disability
or advanced age. When this more comprehensive approach is used, consider
including express provisions governing the client’s residence, tailored to
express the client’s personal wishes. The following provisions are
illustrative:

“During Grantor’s disability, the Trustee shall administer
the Trust Estate for the care of Grantor, and shall expend any amounts of Trust
income or principal as the Trustee, in the exercise of discretion, shall deem
necessary or advisable in accordance with the following provisions.

Grantor directs that Grantor have the best medical and
health care provided to Grantor, including but not limited to private duty 24
hour in-home nursing care, and that the Trustee shall distribute Trust income
and principal accordingly.

Grantor directs that every effort reasonable be made to
enable Grantor to continue to reside in Grantor’s personal residence for as
long as possible, and that every reasonable effort be made to accommodate
Grantor’s health care needs in such home rather than relocating to a health
care facility.”

“Disability” is often defined by reference to an
independent trigger or definition, such as the successor trustee receiving or
obtaining letters from two physicians certifying that the grantor is unable to
handle his or her own financial affairs as a result of disability. In light of
the disclosure requirements of the Health Insurance Portability Accountability
Act (“HIPAA”) practitioners should consider including in the revocable living
trust (and the power of attorney above) an express authorization by the grantor
for medical providers to make disclosures to the trustees (agents).