“Routine” Documents—Don’t Take Them for Granted

(Last Updated On: January 24, 2017)

There is a perception among the general public and some of our clientele that there are documents arising in the course of business and in estate planning that are so common and simple that they can basically come off an assembly line.

We’ve seen and heard the ads—“You can download our wills and related documents and prepare them without a lawyer!” and “Download our documents and set up your corporation or LLC for $100!”  A later article will take up these claims in the context of wills, and another will address certain “routine” business documents.

A reasonably intelligent person can craft an adequate will, power of attorney, and advance medical directive without the intervention of a lawyer if he or she is aware of certain aspects of the law pertaining to these documents.  This article will try to alert you to some of these considerations.

Advance Medical Directive.  This document is a consolidation of what were once two separate documents, namely a “living will” and a medical power of attorney.  The AMD is designed to take accomplish two objectives.  The first, the living will, contains a direction that, should the person be incapacitated, extraordinary artificial life-prolonging procedures should be withheld if death is imminent or if the person is in a persistent vegetative state.  The second purpose of the AMD is to appoint a person to make medical decisions on one’s behalf should he or she be unable to do so. This is not to be taken lightly and it is important that you consult with the persons you have decided to entrust with this authority.

The directive should serve as a roadmap to help the agent make the decision.  The Code of Virginia provides a form, but that form is filled with alternatives that must be addressed.  For example, it is our experience that even married couples often have different wishes as to the disposition of remains.  Some are content to allow them to be used for any medical purpose, while others wish to remain intact.  The more usual course is the directive that remains be used for transplant purposes only.

A newly expanded Virginia form contains a number of choices. For example, the form can authorize commitment to a mental health facility, even perhaps when the signer of the document might object to the commitment.  Most clients tell us they  would not wish to be committed against their wishes.  The point is that an advance medical directive should be useful to decision makers and medical practitioners and must be approached in a thoughtful manner.

Powers of Attorney.  A power of attorney is designed to allow someone to act on one’s behalf in business and financial affairs during a period when the person might be mentally or physically unable to do so.  While often thought of as “throw in” with a will or trust, the fact is that medical advances make it increasingly likely that each of us will suffer a disability during our lifetimes that will render us at least temporarily incapable of handling our affairs.

The obvious key decision is the choice of an agent.  This should be someone with a knowledge of the principal’s affairs and the know-how to step into his or her shoes or at least consult persons with expertise.

The next decision is a matter of timing—when would you want someone to step in?  Often the power grants authority without reservation and makes the power immediately effective.  While it is anticipated that it will not be used, this allows the holder of the power to immediately act upon the principal’s incapacity without delay.  Typically, financial institutions will not act on a power without at least some due diligence in determining the principal’s incapacity, so a marauding plunder with a power of attorney is unlikely.

However, it is not uncommon for a client to insist upon a “springing” power, i.e., one that comes into effect only under stated circumstances, e.g., a determination by two physicians that the principal is no longer capable of handling his or her affairs.  The important thing is the grantor of the power must know he has this choice.

Finally, there is the determination of the extent of the power.  There are certain things that a power of attorney simply cannot do no matter how great the grant of authority.  Examples of these would be obtaining a divorce or writing a will.

There are certain other items that will not be deemed to be granted unless they are specifically listed in the power of attorney.  If the power says, “I, Joe Shlabotnic, grant to Eve Shlabotnic the power to do anything I could do” will not suffice for these items if they are not specifically listed.  The Virginia legislature has deemed these so crucial that they must be given specific consideration.  These should be looked at and considered very closely.  Upon consideration, a client may well decide to grant, say, his wife the power to do all of these things, but will want a proviso that, if someone else, say, a child, serves, those items will be withheld.  For example, a person may name a child as the successor to his wife under the power, but may not wish to grant one child only the ability to retitle joint banking accounts or make beneficiary designations of retirement plans and life insurance policies.  The most well-meaning child in the world may run into severe financial straits or may fall under the influence of a hostile person outside of the family.  The power, carefully thought through and properly drafted could say, e.g., “the powers granted in paragraphs a, g and h are granted only to the first named agent.”  The point is that the power of attorney is not simply a “form,” but can grant powers that can severely distort a person’s financial and estate planning.

Another example is the authority to make gifts, which must also be explicit.  This was formerly of great importance when the estate tax exemption was at lower levels, but now that it is due to be $5.34 million in 2014, making this consideration is less crucial than it was.  Nevertheless, the person may want to grant the authority to make gifts for nontax reasons; perhaps the continuation of an annual giving regimen where gifts are made to descendants and perhaps their spouses in amounts within the federal gift tax annual exclusion, currently $14,000 per donee.  The grantor of the power may also want the agent to continue to make medical and tuition payments on behalf of the objects of his bounty, since these do not enter into the gift tax calculation.  The point is that a person may want to grant the authority to make gifts, and it must therefore be explicit, but may want these gifts to be made within certain parameters, which also need to be set forth in the document.