2015 annual convention estate planning in the era of high...

2015 Annual Convention

Estate Planning in the Era of High Federal

Exemptions, Portability, and No Ohio Estate Tax/Should We Simply Use the

Suggested Statutory Financial Power of Attorney Form and the OSBA Suggested

Advanced Directives Forms?

Estate Planning, Trust, and Probate Law Section

1.5 General CLE Hours

April 29 – May 1, 2015 ♦ Sandusky

Speaker Biographies

Alan S. Acker Carlile, Patchen & Murphy Columbus, Ohio Mr. Acker received his BS from the University of Illinois and his JD from Chicago-Kent College of Law. His professional memberships include the Ohio State Bar Association (Estate Planning, Trust, and Probate Law Section; Estate Planning, Trust, and Probate Specialty Board) and the American College of Trust and Estate Counsel (Fellow). Mr. Acker is of counsel to Carlile Patchen & Murphy. He joined the firm after serving as Franklin County Probate Judge in 2010. Mr. Acker has practiced law for 35 years, and focuses his practice on estate planning, estate and gift taxation, income taxation of trusts and estates, charitable giving, and probate. He created Estate Drafter (www.trustandwilldraftingsystem.com), a web-based document drafting system for Ohio attorneys to help them draft trusts, wills, and financial powers of attorney (see www.trustandwilldraftingsystem.com for more information). In addition, Mr. Acker is an adjunct professor at Capital University Law School and Graduate Center, where he teaches federal income taxation of trusts and estates and drafting wills and trusts. He is the author of The Estate Planners’ Guide to Income in Respect of a Decedent, published by CCH, and five BNA tax management portfolios, the most recent of which is “Accounting for Trusts and Estates.” Mr. Acker has published numerous articles that have appeared in myriad tax and legal publications, including “Flexible Irrevocable Trust,” “Fixing the Broken Trust,” and “Death Bed Tax Planning.” He is a frequent lecturer for OSBA CLE and other professional groups. For additional information, please visit www.cpmlaw.com or www.law.capital.edu.

Ann M. Seller Kohnen & Patton Cincinnati, Ohio Ms. Seller received her BA from DePauw University, her MSc from the London School of Economics and Political Science, and her JD from the University of Virginia School of Law. She is an associate at her firm and concentrates primarily in estate planning and probate administration. As part of her practice, Ms. Seller focuses on international aspects of estate planning, including the creation of wills and trusts for multinational families, estate and gift tax issues that arise with the ownership of cross border property, and advising clients about the U.S. Expatriation Tax. Before law school, she worked as the Outreach Coordinator for the Greater Ohio Policy Center. For additional information, please visit www.kplaw.com/Attorneys/Ann_M._Seller.

http://www.trustandwilldraftingsystem.com/

http://www.trustandwilldraftingsystem.com/

http://www.cpmlaw.com/

http://www.law.capital.edu/

http://www.kplaw.com/Attorneys/Ann_M._Seller

Estate Planning in the Era of High Federal Exemptions • 1.1

Chapter 1: Estate Planning in the

Era of High Federal Exemptions, Portability, and

No Ohio Estate Tax Ann M. Seller Kohnen & Patton LLP Cincinnati, Ohio

Table of Contents

I. Historical Estate Planning Landscape .......................................................................................... 3

A. Estate tax. ............................................................................................................................... 3

B. Generation Skipping Transfer Tax. .......................................................................................... 3

C. Gift tax. ................................................................................................................................... 4

D. Ohio estate tax. ...................................................................................................................... 4

II. Current Status of Estate, Generation Skipping Transfer, and Gift Tax ....................................... 4

III. Basis Planning Opportunities ..................................................................................................... 6

A. Revise current estate plans – Marital/Credit Shelter Trust. ................................................... 6

B. Optimal asset allocation for basis planning. ........................................................................... 6

C. Strategies. ............................................................................................................................... 7

1. Portability. .......................................................................................................................... 7

2. Power of appointment in trust. .......................................................................................... 8

3. Grantor trusts. .................................................................................................................... 9

4. Reducing valuation discounts. .......................................................................................... 10

1.2 • Estate Planning in the Ear of High Federal Exemptions

IV. Asset Protection – Second Marriages and Keeping Assets in the Family ............................. 10

A. Asset protection – keeping inheritance in the family. .......................................................... 11

1. Determining available assets. ........................................................................................... 11

2. Disposition of tangible personal property. ....................................................................... 11

3. Estate planning strategies. ................................................................................................ 12

B. Ethical considerations. .......................................................................................................... 13

V. Planning for Minor Children: Guardianship Provisions; Trust with IRAs ............................. 14

A. Guardianship appointment. .................................................................................................. 14

B. Family trust for the benefit of children. ............................................................................... 15

C. Retirement benefits planning for minor children. ................................................................ 17

D. IRA trust provisions qualifying for stretch-out of IRA distributions. ................................... 17

VI. Smooth Transition of Assets – Probate Avoidance ................................................................. 19

A. Apportionment clause. ......................................................................................................... 19

B. Privacy through probate avoidance. ..................................................................................... 20

1. Ohio transfer on death beneficiary................................................................................... 20

2. Payable on death accounts. .............................................................................................. 21

VII. Overlooked Areas of Estate Planning Clientele ...................................................................... 21

A. Bringing women into the conversation. ............................................................................... 21

B. Digital assets. ........................................................................................................................ 22

C. Drafting for foreign clients. ................................................................................................... 24


Chapter 1: Estate Planning in the

Era of High Federal Exemptions, Portability, and

No Ohio Estate Tax Ann M. Seller Kohnen & Patton LLP Cincinnati, Ohio

I. Historical Estate Planning Landscape In 2001, President George Bush signed into law The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). EGTRRA made many changes to the estate, gift and Generation Skipping Transfer (“GST”) tax system, gradually lowering tax rates and increasing exemption amounts. EGTRRA eliminated estate and GST taxes in 2010. EGTRRA included a “sunset provision,” which stated that EGTRRA would not apply to estates of persons dying after December 31, 2010.

A. Estate tax.1

The Federal estate tax is a tax upon the estate of a deceased person for the privilege of transferring property. The Federal estate tax is based upon a decedent’s taxable estate (gross estate less deductions and adjusted for lifetime gifts) multiplied by the appropriate tax rate, and then reduced by the amount of tax on the applicable exemption amount and other credits. In 2001 through 2009, the estate tax exemption rose from $675,000 to $3.5 million. During that time, the maximum estate tax fell from 55% in 2001 to 45% in 2009. In 2010, EGTRRA called for a repeal of the estate tax.

B. Generation Skipping Transfer Tax.2

A generation skipping transfer is the transfer of property to a person (the skip person) who is two or more generations below that of the person making the transfer (the transferor). The purpose of the GST tax is to keep families from avoiding the estate tax that would be due 1 The Internal Revenue Code statutes pertaining to the Federal estate tax are located at 26 U.S.C. § 2001, et seq. 2 The Internal Revenue Code statutes pertaining to the Federal GST tax are located at 26 U.S.C. § 2601, et seq.


first when the oldest generation transfers property to their children, and then again when the children then transfer property to their children. Without the GST tax, a transfer of property by a grandparent to a grandchild would avoid one of these estate tax assessments since the child never received the property. The GST tax will only be imposed if the transfer avoids incurring a gift or estate tax at each generation level. The GST tax imposes a tax on the following:

• An outright gift or transfer in trust to or for the benefit of an unrelated individual more than 37.5 years younger than the transferor.

• An outright gift or transfer in trust to a related person more than one generation younger than the transferor. An example of such person is a grandchild.

In 2001 to 2009, the GST tax exemption rose from $1,030,000 to $3,500,000. During that time, the GST tax rate fell from a maximum of 55% in 2001 to 45% in 2009.

C. Gift tax.3

A gift tax is assessed against a person who gives money or an asset to another person without receiving fair compensation. With respect to gift tax, there are two exemptions. First, each person has an annual gift tax exclusion. The annual gift tax exclusion is the amount an individual may transfer to any other individual without such transfer being deemed a gift. This amount is currently $14,000, which is adjusted for inflation.4

Second, each individual also has a lifetime gift tax exemption. The lifetime gift tax exemption is the total amount an individual may transfer by gift during the donor’s lifetime without such transfers being subject to gift tax. In 2010, the $1 million lifetime gift tax exemption remained, but the maximum gift tax rate was reduced to 35% from 45% in 2009. In 2011, the lifetime gift tax exemption remained at $1,000,000, however, the maximum gift tax rate increased to 55%. The lifetime gift tax exemption is applied to gifts in excess of the annual gift tax exclusion.

D. Ohio estate tax.5

Decedents who died as a resident of Ohio on or before December 31, 2012 were subject to the Ohio estate tax. A decedent with a taxable estate of $338,333 were subject to the Ohio estate tax and were required to file an Ohio estate tax return within nine months of the decedent’s death. The Ohio estate tax was 6% tax rate on the taxable value between $338,333 and $500,000 and 7% on the taxable value over $500,000. The Ohio estate tax was a credit against any Federal estate tax owed.

II. Current Status of Estate, Generation Skipping Transfer, and Gift Tax On January 1, 2013, Congress passed the ATRA, which President Obama signed on January 2, 2013. ATRA affected tax rates by lowering the estate tax rate to 40%, increasing the income tax rate to 39.6% and the capital gain rate to 20% as well as imposing a 3.8% net investment

3 The Internal Revenue Code statutes pertaining to the Federal gift tax are located at 26 U.S.C. § 2501, et seq. 4 I.R.C. § 2503(b)(2). 5 The Ohio Revised Code statutes pertaining to the Ohio estate tax are located at O.R.C. § 5731.01, et seq.

http://www.investorwords.com/4879/tax.html

http://www.businessdictionary.com/definition/person.html

http://www.investorwords.com/3100/money.html

http://www.investorwords.com/273/asset.html

http://www.businessdictionary.com/definition/receiving.html


income tax after a certain income threshold.6 Under ATRA, the estate tax and gift tax exemption (sometimes referred to as the “Lifetime Exemption”) rose to $5 million adjusted for inflation ($5.43 million in 2015).7 Further, the current annual gift tax exclusion is $14,000.8

In addition to the Lifetime Exemption, ATRA made permanent the so-called portability of the applicable exclusion amount between spouses. Portability allows the first spouse to die to transfer his or her unused Lifetime Exemption (“DSUE”) to the surviving spouse, who can then use it for his or her gift or estate tax purposes.9 The portability election applies to estates of decedents dying after December 31, 2010, if such decedent was survived by a spouse.10 An election is made by filing a “complete and properly- prepared” Form 706 estate tax return.11 Note that portability does not apply to the GST Exemption Amount. The GST exemption amount rose to $5 million, adjusted for inflation.12

As of January 1, 2013, the state of Ohio no longer imposes an estate tax on the transfer of assets from resident decedents (or on Ohio assets of nonresidents).13

In addition to the changes in the legal landscape whereby the focus has broadened to not only reducing the value of the estate at death to also taking into consideration income tax savings as part of the smooth transition of assets to the next generation, the traditional family model has morphed. The “normal” family structure is becoming more complex as divorce rates increase leading to more second marriages, new types of relationships are recognized under federal and state law, and traveling is more accessible leading to dual citizen marriages and multi-national families. More women are entering the workforce effectively increasing their contribution and control over family finances. The digital world is a predominant feature of people’s lives, as it is one of the primary methods of communication and access to personal and financial information.

These changes have created new areas of opportunities for estate planners to help clients who are no longer concerned about U.S. estate tax. This presentation will address five such areas including: (1) income tax saving through basis adjustment; (2) asset protection in second marriages; (3) planning for minors; (4) avoiding probate; and (5) overlooked and underdeveloped areas of estate planning, specifically, woman-focused estate planning, digital assets and international clients.

6 Yuhas, Michael and Carl C. Radom, The New Estate Planning Frontier: Increasing Basis, Journal of Taxation, Vol. 122, No. 01 (Jan. 2015). 7 I.R.C. § 2010. 8 Rev. Proc. 2014-61. 9 I.R.C. § 2010(c)(4). 10 I.R.C. § 2010(c)(2). 11 I.R.C. § 2010(c)(5). 12 I.R.C. § 2631. 13 The Ohio Revised Code statutes pertaining to the Ohio estate tax are located at O.R.C. § 5731.01, et seq.

http://en.wikipedia.org/wiki/Ohio

http://en.wikipedia.org/wiki/Estate_tax


III. Basis Planning Opportunities A. Revise current estate plans – Marital/Credit Shelter Trust. Prior to the passage of the American Taxpayer Relief Act of 2012 (“ATRA”), estate planning largely revolved around reducing the value of the decedent’s taxable estate through gift, estate and trust taxation. Strategies estate planners employed to achieve this reduction included: discount valuations, lifetime gifts, Grantor trusts, and credit shelter trusts. Income tax savings through techniques such as basis adjustment at the death of the asset owner were often outweighed by the reduction in estate tax.

Estate tax-sensitive trusts (trusts that take advantage of the marital deduction and the Lifetime Exemption), typically contain a formula that directs the decedent’s assets into two sub-trusts. The first sub-trust, a credit shelter trust, was funded with an amount equal to the decedent’s available applicable exemption amount. Such a sub-trust typically benefits the surviving spouse and children. The second sub-trust, a marital trust, is funded with the balance of the decedent’s assets. This sub-trust qualifies for the marital deduction, so there is no tax at the time of the decedent’s death. Upon the death of the surviving spouse, the assets held in the credit shelter trust are not included in the surviving spouse’s gross estate, however the assets held in the marital trust are included.

Trusts that use an automatic formula to fully utilize the applicable exemption amount could prove to be problematic. Typically, a surviving spouse’s beneficial interest in a credit shelter trust is more restrictive than the marital trust. At the time of setting up the estate plan, married clients may have had an expectation that some assets will fund the credit shelter trust and some assets will fund the marital trust. Depending on the size of the applicable exemption amount at the time of death of the first spouse, it is possible that the entire amount of the trust assets will fund the credit shelter trust, even though the surviving spouse’s own assets are expected to be far less than the applicable exemption amount. If the surviving spouse was anticipating that some assets would be held with limited or no restrictions in the marital trust, there could be quite a surprise upon the death of the first spouse when most or all of the assets fund the credit shelter trust. Further, the basis of assets that fund the credit shelter trust will not be adjusted upon the death of the surviving spouse.

B. Optimal asset allocation for basis planning. In the emerging era of large federal Lifetime Exemption and the elimination of the Ohio estate tax, estate planners are focusing on income tax advantages for their clients. For clients who are not concerned about estate tax, achieving a basis step-up at the death of each spouse on all or a substantial part of the couple’s assets would be an accomplishment.

Typically, the basis is the value of an asset at the time an individual acquires the asset. Under IRC §1410, the basis of property acquired from a decedent is the fair market value of the property at the date of the decedent’s death. In other words, the income tax basis of an asset is equal to the value as stated on the Federal estate tax return. Note that § 1410 provides for a basis adjustment, which means that the basis of the assets can receive a “step up” or a “step down”. The basis adjustment only applies to property acquired at the death of the asset owner. For lifetime gifts, the beneficiary will have the same basis in the asset as did the owner at the time of the gift.


Achieving a step up in basis at the death of the owner allows the beneficiaries to avoid capital gains taxes if those assets are immediately sold. In addition to the capital gains tax savings upon the sale or disposition of the assets, there are additional benefits to a step up in basis. For example, if a beneficiary receives a stepped up basis on a depreciable asset, the beneficiary can take advantage of future depreciation deductions based upon the new basis.14 Some assets, such as copyrights and similar property, are taxed as ordinary income assets in the hands of the owner but become long-term capital gain assets in the hands of the beneficiary.15

Estate planners should target certain assets for inclusion in the estate of the decedent while sheltering other assets. In general, the following types of assets have the greatest potential for basis step up: highly appreciated property; intellectual property, collectibles; low basis stock and “negative basis” real property interests.16 In contrast, basis planning opportunities do not exist for assets such as IRAs, cash and income with respect of the decedent.

C. Strategies. The overall goal with respect to basis planning for clients without an estate tax concern is for the client to make lifetime gifts of assets with a high basis so that the beneficiary receives a carryover basis, and to die with low basis assets. There are various strategies available to an estate planner to achieve a basis adjustment at the death of the assets owner, including but not limited to portability; trusts that include a power of appointment; and certain types of Grantor trusts. Note that many of these strategies will cause inclusion of the asset in the owner’s estate requiring a careful evaluation of the income tax savings against the estate tax savings in circumstances where the client’s worth may exceed the Lifetime Exemption.

1. Portability. The simplest way to achieve basis adjustment is through the use of portability whereby the first to die spouse leaves all assets to the surviving spouse outright or in a marital deduction trust (QTIP or GPOA). Using this technique, the assets receive a “double” basis adjustment: one at the death of the first to die spouse, and one at the death of the surviving spouse.

There are potential disadvantages to portability including: the loss of creditor protection and the loss of control by the first to die spouse over the disposition of the assets (unless the assets are placed in a QTIP marital deduction trust); and the risk that the appreciation of the assets after the death of the first to die spouse causes the surviving spouse’s gross estate to exceed the total exemption available because the DSUE amount is not adjusted for inflation. Further, portability does not apply to exemption available for GST tax.

14 Run the Basis and Catch Maximum Tax Savings—Part 1, Estate Planning Journal, Jan 2015, Estate Planning

Journal (WG&L). 15 I.R.C. § 1221(a)(3) but see I.R.C. § 1221(b)(3). 16 Run the Basis and Catch Maximum Tax Savings—Part 1, Estate Planning Journal, Jan 2015, Estate Planning

Journal (WG&L).


2. Power of appointment in trust. If a trust is part of a client’s estate plan, the use of a general power of appointment is one way to cause inclusion of the assets at the death of the surviving spouse while still allowing the grantor some control over the disposition of the assets. A general power of appointment is defined as a power exercisable in favor of (1) the power holder; (2) the power holder’s estate; (3) the power holder’s creditors, or (4) creditors of the power holder’s estate.17 If any one of these criteria is met, even if the power is never exercised or if the power is testamentary, the assets subject to the power will be included in the power holder’s estate.18

a. Limited – general power of appointment. The use of a general power of appointment to trigger a basis adjustment at the death of the surviving spouse requires the grantor of the trust to forfeit some control over the disposition of the assets as the surviving spouse will have the ability to bypass the trust by exercising the general power of appointment. However, the general power of appointment could be limited to only one of the four criteria. For example, if creditors of the surviving spouse are not a concern, the general power of appointment could be a testamentary power given to the surviving spouse in favor of the creditors of the surviving spouse’s estate. This prevents the surviving spouse from appointing assets to unintended people, but could be an issue if the surviving spouse dies with creditors.

If creditors are a concern, the trust could require the consent of a non-adverse, non-interested third party before the surviving spouse can exercise the limited-general power of appointment.19

b. Convert a limited to a general power of appointment. The surviving spouse could also have a limited power of appointment exercisable in favor of the Grantor’s descendants, which could be converted into a general power of appointment by the trustee. Here is sample language that gives the Trustee power to grant to the surviving spouse a Limited-General Power of Appointment:

Testamentary Limited Power of Appointment. Upon Grantor’s spouse's death, the Trustee shall distribute all or any part of the Trust, as Grantor’s spouse may appoint to any one or more of the Grantor's descendants as Grantor’s spouse may designate in her will. In addition to this § , the Trustee shall have the power to grant to Grantor’s spouse a testamentary general power of appointment to appoint all or a part of her share, to any one or more of Grantor’s spouse’s creditors as Grantor’s spouse may designate in her will; provided, however, if the Trustee grants Grantor’s spouse a testamentary general power of appointment, the Trustee shall have the power to revoke its assignment of the testamentary general power of appointment prior to the death of Grantor’s spouse. The Trustee shall give written notice of such grant, or its revocation, to the Grantor’s spouse.

17 I.R.C. §§ 2041(b)(1) and 2514(c). 18 I.R.C. § 2041(a)(2). 19 I.R.C. § 2041(b)(1), Treas. Reg. 20.2041-3(c)(2).


The downside of this strategy is that it requires the trustee to be involved in the administration of the trust and in the life of the surviving spouse so that the trustee can time the conversion correctly, and ensure the general power of appointment is not exercised in favor of unintended creditors.

c. Formula general power of appointment. Another strategy would be to include in a trust a formula providing the surviving spouse with a general power of appointment over trust assets that have the largest capital gain to the extent that the income tax savings from basis adjustment exceed the estate tax attributable to such assets as calculated at the death of the grantor. The formula would be equal to the surviving spouse’s Lifetime Exclusion amount plus any DSUE amount available to the surviving spouse minus the value of the estate of the surviving spouse taking into account any charitable deductions. This amount could not exceed the value of assets in the trust that, if sold, would result in a capital gain. The formula would also have to consider the application of the surviving spouse’s GST exemption if the trust involved GST exempt assets. While a formula provides for the highest possible tax savings while affording the grantor the most amount of control over the assets, it is complex and would require a sophisticated Trustee to ensure the allocation was done properly. Further, there is a possibility that the IRS would not respect a general power measured by a formula arguing that the power is not valid as it is subject to a contingency that had not occurred prior to decedent's death.20

3. Grantor trusts. Generally, a trust is taxed as a separate entity for income tax purposes. Under the Tax Reform Act of 1986, trusts began to be taxed more heavily than individuals. Under the grantor trust rules, a trust can be characterized as a grantor trust whereby the grantor, not the trust, is taxed on the trust income.21 The strategies discussed below utilize some of the grantor trust rules to achieve basis adjustment at the death of the owner of the assets.

a. Power of substitution. Under the Grantor trust rules, the grantor of a trust is treated as the owner of any portion of a trust over which the grantor has the power to reacquire the trust corpus by substituting other property of an equivalent value.22 While the assets inside of the trust are not subject to basis adjustment, this strategy allows the grantor immediately prior to death to place high basis assets into the trust in exchange for low basis assets, which will then be includable in his or her estate and receive a step-up in basis.

Substitute Property. At any time during the lifetime of the Grantor, the Grantor shall have the power, exercisable in a non-fiduciary capacity, (either personally or by an attorney-in-fact under a power of attorney expressly referring to this power) without the consent or approval of any person in any capacity, to reacquire any property held by the Trust by substituting other property having the same fair market value (determined without regard to the nature of the assets or the interests or desires of any beneficiary

20 See Treas. Reg. 20.2041-3(b). 21 See I.R.C. §§ 671-677 and 679. 22 I.R.C. § 675(4).


(including the relative value of any asset to any person or persons having an interest in this trust)). The Grantor intends that the Grantor shall be treated as the owner of the entire Trust for income tax purposes under Subpart E, Part I, Subchapter J, Chapter 1 of the Internal Revenue Code during the Grantor’s lifetime.

b. Power to control beneficial enjoyment. Under I.R.C. § 674, the grantor shall be treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the income therefrom is subject to a power of disposition exercisable by the grantor without the consent of an adverse party (subject to certain exceptions). 23 A trust could be drafted to give a special Trustee of the trust the power to grant the grantor of a trust the control over the beneficial enjoyment, which would trigger estate inclusion upon the use of such power by the special Trustee.24

4. Reducing valuation discounts. In addition to employing strategies to cause inclusion, estate planners must also consider the client’s assets that are subject to valuation discounts. As discussed above, prior to the passage of ATRA, estate planners sought valuation discounts with respect to closely held businesses and fractional ownership of real property in order to reduce the value of the gross estate. A minority discount reflects the inability both to compel liquidation of the underlying asset and to control its management. A lack of marketability discount reflects the fact that the asset being transferred is not readily marketable.25 While valuation discounts reduce the value of the assets in the gross estate, they also reduce the amount of basis step up available. Estate planners should review the client’s assets and consider amending the operating agreement to reduce or remove the potential applicability of these discounts.

If possible, the entity could be dissolved or restated to allow parties to withdraw from the entity for fair value or to remove restrictions on transferability.26 Another option in a partnership setting is to remove limitations on a partner’s ability to sell or redeem his or her partnership interest, assuming that this was in line with the owner’s goals.

IV. Asset Protection – Second Marriages and Keeping Assets in the Family The dynamics of the transitional family are changing in the U.S. Not only are people waiting longer before entering into marriage, they are joining assets prior to marriage: in 1965 through 1974, about 11% of marriages were preceded by cohabitation,27 whereas that

23 I.R.C. § 674(b). 24 Blattmachr, Johnathan G., Teresa L. Busch and Michael L. Graham, Searching for Basis at Death: Tricks, Traps, and Alaska Community Property, 25 The New Estate Planning Frontier: Increasing Basis, Journal of Taxation, Vol. 122, No. 01 (Jan 2015) Journal of

Taxation (WG&L). 26Run the Basis and Catch Maximum Tax Savings—Part 2, Estate Planning Journal, Jan 2015, Estate Planning

Journal (WG&L). 27 Bumpass, Larry L. and James A. Sweet. 1989. “National Estimates of Cohabitation.” Demography 26(4): 615-


percentage rose to 56% in 1990 through 1994.28 This means that couples are becoming joint owners of assets without the certainties provided by the U.S. marriage scheme. Further, the divorce rate is higher - half of first marriages end in divorce29 - and second marriages are more common - 36% of marriages in 2004 involved at least one spouse who was remarrying.30

These changes to the family structure create the need for more complex and thoughtful estate planning that account for the client’s wish to maintain control over pre-marital and marital assets to ensure his or her children from a previous marriage receive an inheritance while also providing for the surviving spouse from the second marriage. Concerns that arise in second marriage situations that may not be present in first marriage situations include: Premarital Agreements and Divorce Agreements; Tangible Personal Property Planning; Updating Beneficiary Designations; Outright gifts to children from the previous marriage at the death of the first-to-die-spouse.

A. Asset protection – keeping inheritance in the family. 1. Determining available assets. When taking inventory of a couple’s assets, an estate planner must consider whether any of the assets are subject to a divorce agreement, and whether the couple entered into a prenuptial agreement. Estate planners should request copies of both documents so that they know which assets cannot be incorporated into the clients’ estate plan. This is especially important when updating beneficiary designations for each client. Clients often have assets such as retirement accounts, life insurance policies and bank accounts, which initially designated their spouse from the first marriage as the beneficiary. It is vital that estate planners know the client’s assets in order to help the client update the designations, but also understand which of these assets pass to the previous spouse by means of a divorce agreement. Also, clients who have entered into a prenuptial agreement may require three “mini” estate plans, a plan for each spouse’s separate assets, and an estate plan for joint assets.

2. Disposition of tangible personal property. Tangible Personal Property is often overlooked in estate plans but can become of source of discord among the family if not properly addressed when working with second marriage clients. Many clients will have accumulated property during their first marriage, which often has sentimental value to the children of that marriage. However, this property will bypass such children if the estate planner uses standard Wills whereby all of the tangible personal property goes to the surviving spouse, and then to his or her children. Clients should be encouraged to give some thought into whether they have certain assets that should pass to a child, and, if appropriate, discuss with their children their plans for the property. Some questions that can arise with respect to this property include: 625. 28 Bumpass, Larry and Hsien-Hen Lu. 2000. “Trends in Cohabitation and Implications for Children’s Family

Contexts in the United States.” Population Studies 54(1): 29-41 29 CE Copen, K Daniels, J Vespa, WD Mosher. First marriages in the United States: data from the 2006–2010

National Survey of Family Growth. Natl Health Stat Report. 2012;49:1–21 30 Kreider, Rose M. (2006). Remarriage in the United States. Presented at the annual meeting of the American

Sociological Association. Montreal, Canada, August 10-14.


• If the document provides that the artwork is to be given to a specific individual, who decides what is included in the term “artwork”? Are photographs artwork? What about an original illustrated manuscript?

• When describing a particular item of jewelry what if the description says “my wedding ring?” The wedding ring from which marriage? Is that the engagement ring, the wedding band, or both? What if the description includes a carat weight, and none of the rings found matches the exact weight, but one comes close?

• What are personal and household effects? Does that include appliances? What about farm equipment?

• What does the phrase “to be divided equally” mean? Is it equal by financial value?

• By number of items? By emotional significance? How are collections to be treated—as one item or multiple items? If the financial values are unequal, should there be cash equalization?

• How is the order of selection to be decided? Does the same individual go first for each round?

• What if the children are unable to agree? Can the fiduciary force a sale?

• What if no probate estate is opened, and the trust does not contain a provision regarding the tangible personal property?31

3. Estate planning strategies. One goal of the estate planner should be to create an estate plan that creates the least amount of friction between the second spouse and the children from the previous marriage.

For clients that set up a martial trust for the surviving spouse, the client should consider giving outright gifts to children from the previous marriage upon his or her death instead of waiting until the death of the surviving spouse. This will help to reduce tension between the spouse and the children, especially in situations where the second spouse is much younger that the other spouse. In this vein, a trust set up for the benefit of the children from the first and second marriage funded for the benefit of multiple beneficiaries should be avoided so that older children from the first marriage are not required to wait for their inheritance until the younger children from the second marriage attain a certain age.32

When there is Qualified Terminable Interest Property Trust (“QTIP Trust”) set up for the benefit of the second spouse, with the remainder to the children, an inherent tension exists between remainder beneficiaries (e.g. the children from the first marriage), whose focus is on the growth of the assets of the trust, and the lifetime income beneficiary (e.g. the second spouse), whose focus in on investments that generate more income. For reasons such as this, clients should consider how much of the trust resources should be available to the surviving spouse during his or her lifetime. One strategy to reduce this tension and to benefit

31 Singer, Stacey E. Mistakes Fiduciaries See All the Times and How to Avoid Them, Estate Planning Journal Vol. 39

No. 11 (Nov. 2012). 32 Manterfield, Eric A. Estate Planning for Couples Entering Second Marriages – Part 2, Estate Planning Journal, Vol. 42, No. 01 (Jan 2015).


all beneficiaries is for the grantor of the Trust to waive the prudent investor statute allowing the Trustee to invest in high growth stocks with the understanding that the surviving spouse shares in the appreciation of the QTIP Trust assets.33 Another method to achieve the same result would be to define the income interest to be at least a set percentage of the value of the marital trust assets determined at the beginning of each year. As the value of the assets increase, so do the distributions to the surviving spouse.

Further, while some flexibility is automatically forfeited by maintaining control over the disposition of the assets, clients still need to consider how much control, if any, a surviving spouse should have over distributions of the trust assets. One way to allow the spouse to make lifetime gifts to children while still limiting his or her control would be for the grantor to designate a child from the first marriage as special trustee of the trust with the sole discretion to make distributions from the QTIP Trust to the surviving spouse equal to the current annual gift exclusion multiplied by the number of all of the children. The intention would be for the surviving spouse to then make gifts of the annual exclusion amount to each child. While it is possible the surviving spouse would keep the money or only distribute money to his or her children, the special trustee could simply stop making such distributions.34

Another way to add flexibility in the QTIP Trust is to grant the surviving spouse a testamentary limited power of appointment over the trust assets to a certain subsection of the Grantor’s descendants. For example, if a child of the grantor does not need his or her share of the trust, has creditor issues, or is close to the Lifetime Exemption, the surviving spouse could designate such share to that child’s issue, thereby bypassing inclusion of those assets in the child’s estate and avoiding creditor claims. Note that exercising the power of appointment could have generation skipping transfer tax consequences.

The grantor also needs to determine the most appropriate person(s) to act as Trustee(s) of the Trusts. In situations where the children from the first marriage are older, it is generally not a good idea to designate one of them as Trustee of the Trust for the surviving spouse, and vice versa. In these situations, a corporate trustee that has no vested interest in the trust may be most appropriate.

B. Ethical considerations. Joint representation for couples for estate planning is usually desirable to reduce costs and to develop a coordinated plan. Married couples have a special relationship in the law, and generally have mutual goals and aspirations. The Rules of Professional Conduct (“RPC”) permit joint representation if the potential for conflict is raised with the clients, and the clients agree, in writing, to such representation.35

Before entering into an agreement with potential clients, estate planners must address with such clients certain issues involved with joint representation. When drafting their estate plan, the attorney is representing both people in the relationship, as opposed to one person, which carries possible disadvantages. Having separate lawyers would insure that each client would have his or her own advocate to provide independent advice and to assure that all 33 Tiernan, Peter B. Creating an Amicable Estate Plan for the Decedent’s Children and the Second Spouse. Journal of Taxation, Vol. 94, No. 02 (Feb. 2001). 34 Id. 35 Model Rules of Professional Conduct, Rule 1.7.


communications to the separate attorney would remain privileged and confidential, including from the other spouse. While the couple is currently happy, future circumstances could arise in which their financial or legal interests diverge. If such circumstances arise, the estate planner must re-evaluate and determine whether it is appropriate to continue with the joint representation.

Additionally, an estate planner should make it clear to the clients that because of joint representation the estate planner cannot serve as an advocate for one of clients against the other or negotiate on behalf of either client. Instead, the estate planner is assisting both clients in developing a coordinated, overall estate plan that is beneficial for both of them. Each client must be completely candid in advising the estate planner of all relevant information that may impact their estate plan. Consequently, any information that the estate planner receives from either client and which may affect the estate plan of the other will be subject to being disclosed by the estate planner to the other client.

In the event that the jointly represented clients divorce, the estate planner should not take any action regarding the couples’ estate plan on behalf of one client without informed consent by the other client if it might damage his or her economics interest. If one of the clients wishes the estate planner to represent him or her in the divorce action, RPC 19.1 requires the estate planner to obtain informed, written consent from the other client.36

V. Planning for Minor Children: Guardianship Provisions; Trust with IRAs Children are the major driver for many people to create an estate plan. Once a couple starts having children, two major concerns arise: care of the minor child, and passing assets to the minor child in the event something happens to the parents.

A. Guardianship appointment. In the event that both parents die leaving behind a minor child, the probate court will establish a guardianship for the minor child. Ohio law provides for two types of guardianships; a guardian of the person, and a guardian of the estate. The probate court will appoint the same person as both guardians unless the interests of the minor will be promoted by the appointment of different persons as guardians of the person and of the estate.37 A guardian of the person protects and makes decisions for the benefit of the minor children based upon their best interests. The guardian of the person is also responsible for providing suitable care and education for the minor children, taking into consideration the assets held by the guardian of the estate.38 A guardian of the estate collects and inventories the property left to the minor children. Any and all funds the guardian receives must be placed in an Ohio bank.39

36 Manterfield, Eric A. Estate Planning for Couples Entering Second Marriages – Part , Estate Planning Journal, Vol. 41, No. 12 (Dec 2014). 37 O.R.C. § 2111.06. 38 O.R.C. § 2111.13. 39 O.R.C. § 2111.14.


The court will give priority to the person named in the Wills of the parents, or if the minor is over 14, to the person chosen by the minor.40 However, the naming of a guardian in a Will is only a suggestion to the court as to the appropriate person to serve as guardian of a child whose parents are deceased. Under Ohio law, the court may appoint a non-Ohio resident guardian of the estate of a minor such as a grandparent for the children of a client from another state if that person is designated in the parents’ Wills or the minor is over 14 years old and chooses a non-Ohio resident guardian.41 Otherwise the court shall name a resident of Ohio.42

The court may appoint either a resident or non- Ohio resident as the guardian of the person of the minor.43

If clients wish to name a married couple as guardian for their minor children, they should consider what should happen in the event the couple is divorced at the time the guardianship is established. While the guardian is responsible for the care and growth of the child, if the clients set up a trust for the benefit of the child (discussed below), they will also need to consider whether the guardian of the children should also be the Trustee, who is in charge of the finances of the Trust. While there is nothing to prevent clients from naming the same person as both fiduciaries, clients must be aware that this would limit the amount of oversight over the financial decisions and use of the trust assets.44

B. Family trust for the benefit of children. Clients with a minor child should consider drafting a Will that pours into a simple Family Revocable Trust upon the death of the surviving parent. The Family Trust controls the disposition of their assets upon their deaths. During the lifetime of the parents, the Family Trust is fully amendable and may be terminated at any time. Any assets and accounts transferred into the parents’ names as “Co-Trustees” of the Trust will avoid probate upon their death. As long as one of the parents is alive, the Family Trust is disregarded for tax purposes.

Upon the death of the surviving parent, the remaining trust estate divides into equal shares: one share for each living child and one share to be further divided equally among the descendants of a deceased child, if any. A share allocated to a child who is over an age designated by the parents receives his or her share outright, free of trust. A share allocated to a child younger than the designated age is held in a Descendant’s Trust for the benefit of the child or descendant. The parents can designate the standard under which the trustee of the Descendant’s Trust may distribute income and principal to the beneficiary. Further parents can also direct the Trustee to distribute a certain percentage of the value of the Descendant’s Trust to the beneficiary as the beneficiary attains designated ages. In lieu of giving the child the ability to take his or her share outright upon attaining a specific age or ages, the Descendant’s Trust can contribute for the lifetime of the beneficiaries to provide for asset protection.

40 O.R.C. §2111.12. 41 O.R.C. § 2109.21. 42 Id. 43 Id. 44 Supra n. 33.


Trusts require flexibility as circumstances change and it is impossible to predict the future. It is important to provide a way for the beneficiaries to remove and replace the Trustee. Trustees are given substantial power over the beneficiary in how the trustee chooses to exercise the trustee’s discretionary authority. Often a trustee’s exercise of discretion may be viewed by the beneficiary as harsh, arbitrary and unfair, but would not be viewed by a court as a breach of fiduciary duty that could serve as the basis for court removal of the trustee. By giving the beneficiary the ability to remove the trustee and designate a corporate trustee in its place, the beneficiary has some leverage to ensure that the trustee is fair in its administration of the trust. An example of language allowing a beneficiary to remove and replace a trustee is below:

Removal of Trustee. The current income beneficiary of any trust, who is a U.S. person (or if there shall be more than one current income beneficiary, *a majority of the then current income beneficiaries of any trust, who are U.S. Persons *all of the then current income beneficiaries of any trust, who are U.S. Persons, by unanimous vote), may remove a Trustee and may also remove all designated successor Trustees with or without cause by delivering to said Trustee a written instrument signed by said beneficiary or beneficiaries. If the removal causes a vacancy in the trusteeship, the notice of removal shall concurrently appoint a successor corporate Trustee pursuant to the provisions of § _____ (Appointment of Successor Trustee) of this Article _______. *If none of the current income beneficiaries are U.S. Persons, then _________ ____________ of _________ __, __________, who is a U.S. Person (or his or her designated successor who is a U.S. Person), shall have the power to remove the Trustee and appoint a successor Trustee.

Appointment of Successor Trustee. In the event of a vacancy in the trust for which there is no successor Trustee designated pursuant to Article _______, or in the event of the removal of a Trustee and all designated successor Trustees under § _______ (Removal of Trustee) of this Article _______, the current income beneficiary of such trust (provided such income beneficiary is a U.S. Person), or if there shall be more than one current income beneficiary, then a majority of the current income beneficiaries of such trust, who are U.S. Persons, shall appoint a successor corporate Trustee (or an individual appointed pursuant to § _____ Trustee Refusal to Accept Trust Property) of Article _______) to fill the vacancy in the trusteeship so occurring. Such appointment shall be by an instrument in writing delivered to the vacating Trustee and the successor Trustees; provided, however, that any successor corporate Trustee so appointed must be a bank or trust company organized under U.S. law or the law of a state or of the District of Columbia and must have one of the following: (a) a combined capital and surplus of at least ten million dollars ($10,000,000.00), or (b) at least five hundred million dollars ($500,000,000.00) in assets under management, including all branches and wholly-owned subsidiaries and any holding company of which such Trustee is a wholly-owned subsidiary. The powers granted to a beneficiary or beneficiaries of a separate trust pursuant to § _______ (Removal of Trustee) and this § _______of this Article may be completely and irrevocably released by a written instrument signed by said beneficiary or beneficiaries and delivered to the Trustee of such separate trust.


C. Retirement benefits planning for minor children. When it comes to retirement assets, flexibility at the time of the first spouse’s death is extremely important. Many clients have estates that are primarily made up of retirement assets, such as Individual Retirement Accounts or 401(k)s. Below is a beneficiary designation form that designates the surviving spouse as the primary beneficiary. If the surviving spouse does nothing at the time of death, the surviving spouse can roll over the assets into a spousal IRA and maximize the potential of deferring income tax for the successor beneficiaries of the IRA.

Primary Beneficiary: I hereby designate my spouse, , as my primary beneficiary to receive 100% of the death benefit if she shall survive me.

Typically, clients name their children as the contingent beneficiaries in the event there is no surviving spouse. They also tend to limit their access to inherited funds until they reach a certain age. Why not provide the same age restrictions on inherited retirement accounts? Below is an example of a contingent beneficiary designation:

Contingent Beneficiary in Case of Death of Spouse: If my spouse does not survive me, I hereby designate all of my lawful children in equal shares to receive 100% of the death benefit. If any child shall predecease me with issue of his or her own then living, the deceased child’s share shall be distributed, per stirpes, to such issue of the deceased child, provided, however, any share allocable to a beneficiary who shall be under the age of , his or her share shall be distributed to John Smith, the Successor Trustee of the Descendant’s Trust created for such beneficiary under the Jane Smith Revocable Trust under agreement dated May 1, 2015.

Because financial institutions do not want to have to make determinations regarding the proper identification of beneficiaries the following language can be added to beneficiary designations:

I acknowledge that any retirement plan provider, and its plan administrator, will not be responsible for determining who is to receive the assets and my executor or personal representative must provide the instructions, and the retirement plan provider, and its plan administrator, may rely conclusively on such instructions as correctly identifying the parties entitled to receive the distribution.

D. IRA trust provisions qualifying for stretch-out of IRA distributions. Other issues arise when a trust is named as the beneficiary of retirement assets. IRA assets must be distributed before the end of the fifth year following the year of the participant’s death unless either (a) the trust qualifies as a “see-through” trust, where the required minimum distributions ("RMD") are based on the life expectancy of the designated beneficiary with the longest life expectancy,45 or (b) the trust does not qualify as a see-through trust, but the participant dies after the Required Beginning Date, where the RMDs will be based on the life expectancy of the participant.

45 However, note that if the participant dies after the Required Beginning Date and has a life expectancy which is longer than the Designated Beneficiary’s, the MRDs will be based on the life expectancy of the participant.


In order to determine whether a trust named as beneficiary of an IRA qualifies as a see-through trust, the U.S. Department of the Treasury issued regulations46 that establish five rules a trust must follow in order to permit RMDs to be computed by reference to the beneficiaries of the respective trust:47

1. The trust must be a valid trust under state law, or would be but for the fact that there is no corpus.

2. The trust must be irrevocable or will, by its terms, become irrevocable upon the death of the participant.

3. The beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the IRA must be identifiable within the meaning of the Regulations from the trust instrument.

4. The documentation described in the Treasury regulations48 must have been provided to the plan administrator.49

5. All beneficiaries who must be taken into account are individuals.

If a trust is named as a beneficiary of retirement assets, and qualifies as a see- through trust, the RMD is calculated by using the beneficiary’s life expectancy. One way to satisfy requirement number 3 above is to make the trust a “conduit trust.” In a conduit trust, the trustee is required to withdraw the RMD from the retirement account and to distribute it to the trust beneficiary. Sample language is as follows:

If any Descendant’s Trust becomes the beneficiary of benefits under any Plan, such Descendant’s Trust shall be administered as a “conduit trust” with respect to such Plan, and all distributions from the Plan shall be distributed (net of expenses properly charged thereto) to or for the benefit of the beneficiary of the Descendant’s Trust, notwithstanding any restrictions on the distribution of income or principal that otherwise may be applicable pursuant to the terms of said Descendant’s Trust.

If it is important to the client that the children not get access to the RMD, then the trust for the child could be set up as an “accumulation trust” if the facts permit. Take for example a client with three children, ages 6, 8, and 10. If upon the death of any child, the trust provides that either the child’s descendants take the deceased child’s share, or the child’s siblings or their respective descendants take the deceased child’s share, “outright and free of trust”, then the age of the oldest of the three children can be used for determining the RMD calculation and each child’s Descendant’s Trust can accumulate the RMD.50 Language that can be included in a trust to ensure that the trust qualifies for the deferred payout follows:

46 Reg. Sec. 1.401(a)(9)-1 through -9. 47 Reg. Sec. 1.401(a)(9)-4, A-1; A-5. 48 Reg. Sec. 1.401(a)(9)-4, A-6. 49 Reg. Sec. 1.401(a)(9)-4, A-5(b)(4). 50 See PLR 2004-38044; PLR 2005-22012; PLR 2006-08032; and PLR 2006-10026.


If any Descendant’s Trust becomes the beneficiary of benefits under any Plan,

(i) if, assuming that the beneficiary of the Descendant’s Trust were to die at the same time as the Grantor, the remaining assets would be allocable to a then living sibling of the deceased beneficiary or to a then living individual beneficiary who is no older than the beneficiary of the Descendant’s Trust, then notwithstanding any other provision in this Trust Agreement, the benefits of any Plan held in the Descendant’s Trust upon the death of said beneficiary and any remaining benefits shall be distributed outright to said beneficiaries of the Descendant’s Trust, and shall not be retained in trust notwithstanding any provisionin the Descendant’s Trust to the contrary; alternatively

(ii) if, assuming that the beneficiary of the Descendant’s Trust were to die at the same time as the Grantor, the remaining assets would be allocable to a beneficiary other than a then living sibling of the deceased beneficiary or a then living identifiable individual beneficiary who is no older than the beneficiary of the Descendant’s Trust, such Descendant’s Trust shall be administered as a “conduit trust” with respect to such Plan, and all distributions from the Plan shall be distributed (net of expenses properly charged thereto) to or for the benefit of the beneficiary of the Descendant’s Trust notwithstanding any restrictions on the distribution of income or principal that otherwise may be applicable pursuant to the terms of said Descendant’s Trust.

VI. Smooth Transition of Assets – Probate Avoidance A. Apportionment clause. The source from which taxes are to be paid must look both to the desires of the Testator and to applicable law. The Testator may want payments to come all from the residuary estate or, in the alternative that each beneficiary, the specific legatees and the residuary beneficiaries, proportionately share in the tax benefits. The tax apportionment clause should consider and possibly identify certain assets from which the tax should not be paid, which might include qualified plan benefits, specific bequests, and property qualifying for Marital or charitable deductions.51

If there is no apportionment clause in the Will, then Ohio’s apportionment clause may apply. Ohio’s Apportionment Statute directs the payment of estate taxes for testators who die domiciled in Ohio.52 The statute will not apply to the Will of a client who leaves Ohio prior to death, or the client who is only resident in but not a domicile of Ohio at death, unless the Will specifically cites to the state’s apportionment statute. Here is an example of an apportionment clause that utilizes Ohio law with some modifications.

51 See Recent Decisions Indicate a Review of Tax Apportionment Clauses in Estate Planning, David A. Berek, January 2005. 52 O.R.C. § 2113.85 et. seq.


(a) All estate, inheritance, transfer and succession taxes (including interest and penalties) shall be apportioned as provided under Ohio and federal law. In the event that Grantor is not a domiciliary of Ohio at the time of Grantor’s death, Ohio’s apportionment laws shall apply as if Grantor were an Ohio domiciliary. With respect to apportioning taxes and administering this trust, the Trustee:

(i) May withhold from any property distributable to a person under this trust the total taxes apportioned to such person, including apportioned taxes attributable to property that does not pass under Grantor’s Will or this trust.

(ii) May first pay from the residuary of this trust any taxes that are apportioned to persons who receive property that does not pass under Grantor’s Will or this trust, subject to recovery from such persons as provided below.

(iii) Shall use proportions based on the fair market value of each asset and not on reduced values owing to agricultural uses or other statutory tax valuation reductions under applicable federal and state law.

[(iv) Shall not apportion taxes to or seek to recover taxes from _________, and any such taxes that would be apportioned to such __________ shall instead be reapportioned to the residuary of this trust.]

B. Privacy through probate avoidance. 1. Ohio transfer on death beneficiary. The use of a Transfer on Death Designation Affidavit (“TOD Affidavit”) allows an owner of real property to designate to whom the person’s property interest will transfer upon the person’s death. The designation of a transfer on death beneficiary on a TOD Affidavit has no effect on ownership, and the transfer on death beneficiary has no interest in the property until the death of the owner of the property.53 Therefore, a TOD Affidavit may be changed at any time by the owner of the property without the consent of the transfer on death beneficiary.54

Multiple designated beneficiaries surviving the owner hold their interests as tenants in common.55 Also, individuals who own property titles as “joint and survivorship” can execute a TOD Affidavit but upon the death of the first to die of the owners, the property passes to the surviving owner. Upon the death of the last surviving owner, the property then passes to the transfer on death beneficiary.

53 O.R.C. § 5302.23. 54 Id. 55 Id.


On the death of the owner of the real estate, ownership shall pass to the beneficiary or beneficiaries who survive the owner.56 If no beneficiary survives the owner, the property is included in the estate of the deceased owner.57 Upon the death of the owner of the real estate, the general unsecured creditors of the deceased owner cannot reach the property, since the property is not an estate asset but rather transfers by act of law to the named beneficiaries.58

Joint and Survivorship TOD Affidavit to Trust

That Affiants hereby designate JOE SMITH as Successor Trustee (or his successor) of the XYZ TRUST under agreement dated May 1, 2015 as transfer on death beneficiary upon the latter of Affiants’ deaths.

TOD Affidavit to Two Beneficiaries with rights of survivorship

That Affiant hereby designates JOE SMITH and JANE SMITH jointly, or to the survivor of them if only one shall then be living, as the transfer on death beneficiaries upon the Affiant’s death.

2. Payable on death accounts. An owner can designate an account a payable on death (“POD”) account naming a beneficiary to receive any money left in the account when the owner dies. A POD account may be a savings account, checking account or certificate of deposit at a bank, building and loan or savings and loan association, credit union or society for savings.59

Similar to a TOD Affidavit, a POD account passes to the named beneficiaries outside of probate. Further, any entity or organization can be named as a beneficiary of a POD account, including charities.

To make the payable on death/transfer on death designation to the Trust the designation should list the Trustee of the Trust as beneficiary, or if the owner is the Trustee, list the successor Trustee

Jane Smith, successor Trustee (or her successors) of the XYZ Trust, U/A/D May 1, 2015

VII. Overlooked Areas of Estate Planning Clientele A. Bringing women into the conversation. Estate planning clients are often composed of married couples with children. It is important that estate planners communicate and build trust with both spouses in order to address each of their wishes, and secure their ongoing business. Statistics show that women have an average

56 Id. 57 Id. 58 See St. Vincent Charity Hospital v. Mintz (8th Dist.), Nos. 51031, 51057, 1988 Ohio App. LEXIS 733, *8 (Court

held that a payable on death account vests in the beneficiary at the time of the depositor’s death and is not available to the creditors of a decedent depositor’s estate). 59 O.R.C. § 2131.10.


life expectancy of 81 years, whereas men have one of 76 years.60 This means that wives will generally outlive their husbands and become the sole controller of the couple’s assets. Does the wife know where their financial assets are located? The advisor at each institution? How to access the accounts online? How the assets will be transferred if the husband should die first? Can the wife look to you, as their estate planner, to get this information? If you have not built a relationship with the wife, as well as the husband, then the widow will find someone else with whom she is comfortable and trusts to address her estate planning needs.

Not only do women gain control of assets by virtue of living longer, they are building wealth during their careers. Women create, control, and influence upwards of $20 trillion of the world’s total wealth and $11.2 trillion in the U.S. alone, or 39% of the nation’s estimated investable assets.61 In addition to controlling more financial assets, more women are in the workforce, and are projected to represent 51% of the U.S. workforce in 2018.62 Estate planners cannot afford to ignore this growing sector, and need to ensure that the conversation is tailored to address women’s concerns. Stereotypically, women are less focused on the nuts and bolts of the estate plan, and are more concerned with the overall concepts such as financial security; providing education and care to their children; and retiring comfortably. Further sixty-six percent of family caregivers are women;63 as their planner, have you addressed health care options; caring for parents; long term care? Even though you may not be able to advise clients on specific strategies, you can ensure they have considered these issues and help them build a team of advisors that can address these needs.

B. Digital assets. More people buy, store and access their assets online. Not only can these assets have significant monetary value, they often have sentiment value as well. Further, many people keep their account and bill records online thereby eliminating a paper trail that could give hints as to the location of their assets and financial obligations. Despite people’s continually increasing online presence, there is little guidance given to estate planners on how they should advise their clients on planning for such assets. Further, there is little legal authority that addresses the rights of executors to access and administer online assets of the deceased. Currently, the access to digital assets is dictated under the Stored Communications Act (SCA) and the Computer Fraud and Abuse Act (CFAA). Both Acts protect against anyone who “intentionally accesses a computer

without authorization or exceeds authorized access.”64 However, there is little guidance on whether a person can consent for an agent to access his or her online accounts, and if a person can give consent, how a fiduciary gets consent from a deceased account holder. Without such consent, a fiduciary that accesses a person’s information, even if the person gave the fiduciary 60 US Department of Labor http://www.dol.gov/wb/factsheets/Qf-laborforce-10.htm. 61 Power of the Purse. Center for Talent Innovation, 2014. 62 US Department of Labor http://www.dol.gov/wb/factsheets/Qf-laborforce-10.htm. 63 National Alliance for Caregiving, Caregiving in the US, http://www.caregiving.org/pdf/research/CaregivingUSAllAgesExecSum.pdf. 64 National Conference of Commissioners on Uniform State Laws. “Fiduciary Access to Digital Assets Act,”

Drafting Committee Meeting, 10/23/2013; available at http://www.uniformlaws.org/shared/docs/Fiduciary% 20Access%20to%20Digital%20Assets/2013nov_FADA_Mtg_Draft.pdf.

http://www.dol.gov/wb/factsheets/Qf-laborforce-10.htm

http://www.dol.gov/wb/factsheets/Qf-laborforce-10.htm

http://www.caregiving.org/pdf/research/CaregivingUSAllAgesExecSum.pdf

http://www.uniformlaws.org/shared/docs/Fiduciary%20Access%20to%20Digital%20Assets/2013nov_FADA_Mtg_Draft.pdf

http://www.uniformlaws.org/shared/docs/Fiduciary%20Access%20to%20Digital%20Assets/2013nov_FADA_Mtg_Draft.pdf


his or her account user names and passwords, could face criminal charges. This could be extremely problematic for executors of an insolvent estate. Consider the situation where the decedent has set up automatic bill pay on his or her accounts that continue after the decedent’s death. If these accounts continue to be paid after the death of the owner through the automatic payment system, this could violate the ordering rule for payment of creditors and creating liability for the executor.65

Estate planners should also encourage their clients to consider whether any of their online assets have financial value, and if so, incorporate these assets into the client’s estate plan. Assets such as domain names or personal blogs may initially appear to have minimal value, however, if tied to a popular search phrase, or if it gains enough readership, the value could bloom. For example, the domain name Fund.com sold for $9,999,950 in 200866 and Insure.com sold for $16 million in 2009.67 In 2010, Huffington Post earned $31 million in revenue, and in 2011 AOL agreed to purchase it for $300 million.68 In addition to financial value, many people store digital assets that carry sentimental value online. Photographs are stored in online photo accounts or on social media, such as Facebook or Google Plus, and blogs have replaced personal journals. While some social media accounts such as Facebook and Google have created a way for account owners to designate a “Legacy Contact” or an “Inactive Account Manager”, this access is limited.69 Estate planners should address with clients how their digital assets should be utilized after their death or whether such accounts should be deleted.

Recently, the Uniform Fiduciary Access to Digital Assets Act (“UFADAA”),70 was published with the goal of creating laws that allow fiduciaries access to digital access. While UFADAA has been introduced in several states, excluding Ohio, until such an act is passed, estate planners must help clients plan ahead as best as possible for digital assets. One way an estate planner can help clients preserve their digital assets is by having the clients create a comprehensive inventory of the assets, complete with usernames, passwords, and security questions and answers. This inventory should be kept in a safe place that is not subject to internet hackers. If clients personally own digital assets that they use in the course of business, they should transfer such assets, if possible, to the business to prevent the loss of access and stored information in such digital asset.

65 Web of Estate Planning Considerations for Digital Assets, Estate Planning Journal, Vol. 4, Number 5, May 2013 Estate Planning Journal (WG&L). 66 See Jackson, “Fund.com Changes Hands for $9,999,950 in the Largest Cash Deal Reported to Date,” www.dnjournal.com, 8/18/2008, available at http://www.dnjournal.com/archive/domainsales/2008/ domainsales03-18-08.html citing Web of Estate Planning supra note 34. 67 See “Insure.com Announces $16 Million Asset Sale, Continuation of Business under Life Quotes Brand Name,” Insure.com, 9/9/2009, available at http://www.insure.com/ir/releases/pr100909.html citing Web of Estate Planning supra note 34. 68 See Peters, “Betting on News: AOL to Buy The Huffington Post,” NY Times, 2/7/2011, available at

http://www.nytimes.com/2011/02/07/business/media/07aol.html citing Web of Estate Planning supra note 34. 69 http://money.cnn.com/2015/02/12/technology/facebook-legacy-contact/. 70 http://www.uniformlaws.org/Committee.aspx?title=Fiduciary+Access+to+Digital+Assets.

http://www.dnjournal.com/

http://www.dnjournal.com/archive/domainsales/2008/domainsales03-18-08.html

http://www.dnjournal.com/archive/domainsales/2008/domainsales03-18-08.html

http://www.insure.com/ir/releases/pr100909.html

http://www.nytimes.com/2011/02/07/business/media/07aol.html

http://money.cnn.com/2015/02/12/technology/facebook-legacy-contact/

http://www.uniformlaws.org/Committee.aspx?title=Fiduciary+Access+to+Digital+Assets


C. Drafting for foreign clients. Families are becoming increasingly international as access to foreign investment opportunities increase, people relocate to different countries for work, and students travel abroad. Consider the following trends:71

In the academic year ended May 2012, an estimated 820,000 foreign students studied in the US, up more than seven percent from the previous year, the seventh consecutive year of increase, and the steepest rise in four years. International students add approximately $24 billion into the United States economy annually.72

Between 468,000 and 482,000 immigrant visas have been issued every year since 2009. Not surprisingly, immigrant visas are issued primarily for family sponsored preferences and immediate relatives, with the parent of a US citizen at least 21 years of age being the primary basis for visa issuance. Students come to study, stay, and are followed by their parents.73

Foreign investment in US real estate, both commercial and residential represents measurable market share. Foreign buyers acquired over $68 billion in single family homes in the US in 2013.74

It is likely that there are families in your community that consist of U.S. and non-U.S. citizens. An estate planner needs to have enough knowledge of “international” law to recognize when there is a foreign planning component, and determine at which point they require assistance from an attorney with specialized knowledge in that area.

Generally, U.S. citizens and persons domiciled in the U.S., notwithstanding their citizenship, are subject to U.S. transfer taxes on their worldwide assets.75 Non-U.S. citizens, not domiciled76 in the U.S. are subject to U.S. transfer tax only on their U.S. situs asses. Listed

71 For more statistics see Brittain Cynthia and Suzanne Shier, Crossing Borders: Planning for Wealth in Motion, Trusts & Estates (Nov. 2014). 72 “Open Doors 2013 – Report on International Educational Exchange,” Institute of International Education, in partnership with the Bureau of Educational and Cultural Affairs, US Dep’t of State, http://www.iie.org/Research-and-Publications/Open-Doors. 73 “Report of the Visa Office 2013.” U.S. Dep’t of State – Bureau of Consular Affairs, http://travel.state.gov/content/visas/english/law-and-policy/statistics/annual-reports/report-of-the -visa-office-2013.html. 74 “2013 Profile of International Home Buying Activity: Purchases of US Real Estate by International Clients for the Twelve Month Period Ending March 2013,” National Association of Realtors, http://www.realtor.org/sites/default/ files/2013-profile-of-international-home-buying-activity-2013-06.pdf. 75 Note that for transfer tax purposes, U.S. residents are taxed the same as U.S. citizen except for the marital deduction, which is not available for lifetime gifts to a U.S. resident spouse who is not a U.S. citizen, and is only available for transfer at death to a U.S. resident spouse who is not a U.S. citizen through the use of a Qualified Domestic Trust. 76 A person acquires a domicile in a place by living there, even for a brief time, with no definite present intention of

later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile affect such a change unless accompanied by actual removal. The issue of domicile must be determined based upon the facts and circumstances. It is, however, not to be confused with the concept of “residence” used for income tax purposes which requires only the presence in the

http://www.iie.org/Research-and-Publications/Open-Doors

http://www.iie.org/Research-and-Publications/Open-Doors

http://www.realtor.org/sites/default/files/2013-profile-of-international-home-buying-activity-2013-06.pdf

http://www.realtor.org/sites/default/files/2013-profile-of-international-home-buying-activity-2013-06.pdf


below are variables that affect the taxation of assets upon transfer during life or at death of the non-citizen client. These variables include the citizenship of the client and in the case of the non-citizen client, the domicile of that person. Also of importance is the nature and location of the clients’ asset and the form of ownership of such assets.

1.1. Citizenship Determine the country or countries of which one or both spouses are citizens. Determine also the citizenship of the children, as it is possible that the parents are not U.S. citizens, but one or more of their children are U.S. citizens.

1.2. Children. Determine the ages of the clients’ children. Ask who will be guardian for the children if both spouses become deceased while the children are minors. The guardianship designation may determine the long term objectives of the clients as to their primary country of commitment. If the children are grown, determine where they live, and whether the clients consider them financially and emotionally capable to serve as a fiduciary, attorney-in-fact, executor or trustee.

1.3. Prior Place of Residence. Determine whether a non-citizen has moved to the U.S. within the prior year.

1.4. Immigration Status. Determine whether one or both of the clients is in the U.S. on a work visa, for a limited period of time, whether either or both spouses has applied for permanent residence in the U.S., or if they have permanent residency (a Green Card) status in the U.S. If the clients have Green Cards, determine how long they have held the Green Card.

1.5. Long Term Intentions of Clients. If the clients are not U.S. citizens, determine whether one or both of the spouses intend to return to his or her country of citizenship at some time in the future such as the time when the other spouse becomes deceased.

1.6. Location and Nature of the Assets. Obtain a full list of the assets held by both clients, whether such assets consist of real, personal or intangible property, and the location of each such asset.

1.7. Formalities of Ownership. Assets may be held as community property or as separate property depending upon the place of residence of the clients at the time of acquisition. The ownership as community or separate property may also depend upon the marriage contract under which the couple was married, so this is important information. Be particularly alert to this distinction if the clients were married in a Napoleonic Code country such as France or Italy where the marriage contract can be changed to alter the ownership of assets between spouses.

U.S. for a stated period and does not require an intention to remain permanently. To be a domicile for estate tax purposes the taxpayer must move to the U.S. with the intention to remain permanently. As a general rule a person who has a U.S. permanent residence visa (Green Card) may be considered as having a U.S. domicile. U.S. Estate and Gift Tax for Non-U.S. citizens see Campbell, John, United States Estate and Gift Tax: An Overview for the International Executive (2014) http://www.kohnenpatton.com/pdf/united_states_estate_and_gift_tax.pdf.

http://www.kohnenpatton.com/pdf/united_states_estate_and_gift_tax.pdf


1.8. Financial History of Both Spouses When Joint Property is Involved. If the clients own any assets in joint name, you must determine who provided the consideration for the purchase of the assets. Where the residence is owned in joint name, it is important to know whether that house was purchased from assets inherited by one of the spouses, from salary earned by one or both spouses, or from some other source.

1.9. Client Objectives. Determine the primary and secondary objectives of the clients so that you can summarize those objectives in short, concise language in a follow up letter. The objectives should include the names and addresses of persons who are to be beneficiaries of the clients’ estates, the extent to which tax considerations are important, and the level of complexity that the client wishes to undertake to achieve those objectives. Any conflicts in the objectives should be clarified, particularly if the goals are significant tax savings, and simplicity.

1.10. Engagement Letter. Present the client with a clear engagement letter.

1.11. Conflict Discussion. Address the conflict inherent in representing spouses in estate planning and be certain that the clients are comfortable with your representation of both under these circumstances.

Once an estate planner has acquired this information, he or she will be better equipped to determine whether there is a foreign estate planning component, and can advise the client accordingly.77

77 For more information on U.S. Estate and Gift Tax for Non-U.S. citizens see Campbell, John, United States Estate and Gift Tax: An Overview for the International Executive (2014) http://www.kohnenpatton.com/pdf/ united_states_estate_and_gift_tax.pdf.



Should We Simply Use the Suggested Statutory Financial Power of Attorney Form • i

Chapter 2: Should We Simply Use the

Suggested Statutory Financial Power of Attorney Form and the

OSBA Suggested Advanced Directives Forms?

Alan S. Acker Carlile, Patchen & Murphy LLP Columbus, Ohio

Table of Contents

Financial Powers of Attorney.......................................................................................................... 4

Health Care Powers of Attorney ..................................................................................................... 7

Living Will Declarations................................................................................................................... 8

Conclusion....................................................................................................................................... 9

Exhibit 1 ........................................................................................................................................ 11

Exhibit 2 ........................................................................................................................................ 17

ii • Estate Planning in the Ear of High Federal Exemptions

Should We Simply Use the Suggested Statutory Financial Power of Attorney Form • 2.1

Chapter 2: Should We Simply Use the

Suggested Statutory Financial Power of Attorney Form and the

OSBA Suggested Advanced Directives Forms?

Alan S. Acker Carlile, Patchen & Murphy LLP Columbus, Ohio

Forms of all types are commonly used by attorneys and with good reason – good forms improve the quality of our work, they ensure consistency in our work from one client to another, they ensure that matters that should be addressed are addressed, and they eliminate the need to “reinvent the wheel” every time we want to draft a document for which a good form exists.

With respect to financial powers of attorney, RC §1337.60 sets forth a suggested form for a statutory power of attorney (attached as Exhibit 1). With respect to advanced directives, that is, health care powers of attorney and living will declarations, the Ohio State Bar Association (OSBA) along with four health care organizations drafted suggested advanced directive forms for use by the public (attached as Exhibit 2). This paper discusses whether attorneys should use these forms without alteration in their practices. The quick answer is no. Ultimately, we, as the attorney, need to draft documents for our clients that are acceptable to us. It does not matter that many of our clients will not appreciate the time and skill that can go into the drafting of a good document; doing quality work is a badge of the professional and it is sufficient if only professionals can recognize such quality. As a result, no particular rule of drafting or of writing is absolute and we must draft our documents that appear best to us.

Some comments are in order regarding these forms in general and a comment is in order for the advanced directive forms in particular.

As to these forms in general, these forms are written for a wide audience and, as a result, the use of pronouns may not be appropriate for attorneys drafting these documents for specific clients. For example, where these forms may use the second-person pronoun (e.g., your), in documents drafted for a specific client, it may be better to use the first-person pronoun (e.g., my). This depends on one’s frame of reference – is the document being written to the client or


being written by the client. Additionally, these forms set forth alternative provisions because the form cannot know what choices may be made by any particular user of the form, but the attorney knows what choices the client has made and does not need to set forth alternative choices. For example, in the left-hand column below is the language in the statutory suggested financial power of attorney form under “Important Information” as it is written in the second person and without knowing the choices made, and in the right-hand column below is how such language may be set forth for a particular client.

This power of attorney authorizes another person (your agent) to make decisions concerning your property for you (the principal). Your agent will be able to make decisions and act with respect to your property (including your money) whether or not you are able to act for yourself. The meaning of authority over subjects listed on this form is explained in the Uniform Power of Attorney Act (sections 1337.21 to 1337.64 of the Revised Code).

This power of attorney does not authorize the agent to make health-care decisions for you.

You should select someone you trust to serve as your agent. Unless you specify otherwise, generally the agent's authority will continue until you die or revoke the power of attorney or the agent resigns or is unable to act for you.

Your agent is entitled to reasonable compensation unless you state otherwise in the Special Instructions.

This form provides for designation of one agent. If you wish to name more than one agent you may name a coagent in the Special Instructions. Coagents are not required to act together unless you include that requirement in the Special Instructions.

If your agent is unable or unwilling to act for you, your power of attorney will end unless you have named a successor agent. You may also name a second successor agent.

This power of attorney becomes effective immediately unless you state otherwise in the Special Instructions.

I understand that this power of attorney authorizes another person (my agent) to make decisions concerning my property for me (the principal). My agent will be able to make decisions and act with respect to my property (including my money) whether or not I am able to act for myself. The meaning of authority over subjects listed on this form is explained in the Uniform Power of Attorney Act (sections 1337.21 to 1337.64 of the Revised Code). This power of attorney does not authorize the agent to make health-care decisions for me. I have selected someone I trust to serve as my agent. Unless I specify otherwise, generally the agent's authority will continue until I die or revoke the power of attorney or the agent resigns or is unable to act for me. My agent is entitled to reasonable compensation unless I state otherwise in the Special Instructions. [NOTE: The attorney should know if it is stated otherwise.] This form provides for designation of one agent. If you wish to name more than one agent you may name a coagent in the Special Instructions. Coagents are not required to act together unless you include that requirement in the Special Instructions. [NOTE: This paragraph should be altered or deleted to match the actual document.] If my agent is unable or unwilling to act for me, this power of attorney will end [unless you have named a successor agent. You may also name a second successor agent. NOTE: This portion should be modified accordingly to match the actual document.]


This power of attorney becomes effective immediately unless you state otherwise in the Special Instructions. [NOTE: This paragraph should be altered to match the actual document.]

Thus, slavishly following the form can make it seem to your client that you don’t know what your client wanted and that you simply filled in blanks on a form; something that your client, no doubt, will believe he could have done just as simply.

With respect to these forms in general, all of the suggested forms contain explanatory materials or directions to aid the principal or the declarant on the use of these forms. Such provisions are logical and sensible when these forms are viewed as potential tools for the general public who might not have the benefit of counsel in aiding them in the meaning and consequences of these documents. However, such language is not needed when we are preparing these documents for our clients. For example, the powers of attorney forms provide for the possibility of naming successor agents. But, if there are not to be successor agents, then why have these sections in your documents? Similarly, all explanatory language for the intended user should be deleted, especially the sentence that reads, “If you have questions about the power of attorney or the authority you are granting to your agent, you should seek legal advice before signing this form.”

These forms also set forth alternate choices for the user to choose from, either initialing the choice made or crossing out the choices not made or some other indication of identifying the choice made. Similarly, these forms are likely to have provisions that will not apply to a particular client of ours. Again, this makes complete sense as a form available to the general public, but makes no sense when we are drafting a document for a particular client. There is no reason to draft alternate choices or unnecessary provisions just so our client can cross out the options or provisions that are not wanted. Would you ever draft provisions in a will or trust or any other document that don’t apply, but could apply to other clients, just so your particular client could cross them out? In my opinion, this is simply poor and lazy drafting.

With respect to the advanced directive forms offered by the OSBA specifically, I have heard the lame excuse that we should simply fill in the blanks in the form and crossing out inapplicable provisions because doctors, hospital administrators, and health care workers want and expect to see all those logos at the bottom of the front page so that they know what they have. This excuse is premised on the foundation that all health care professionals either are too lazy or too busy to read a patient’s advanced directives and to note such information in their files and records. I assume that people who ascribe to this approach never have any special instructions in their advanced directives. I have never understood this reasoning.

We certainly may and should largely follow the forms, but we, at the very least, should customize them to our individual client’s needs. If we at least recognize that all forms are tools that should not be blindly or slavishly followed, but, rather, should be used as a tool to help us craft finely tuned documents for our clients, then we also should explore whether there are provisions that should be added into our financial and health care powers of attorney and living will declarations that are not in the forms.

So, if nothing else, the professional should customize these documents to the specific needs of


the client by switching from the second-person pronoun to the first-person pronoun where appropriate, modifying the language to reflect decisions and choices actually made, eliminating explanatory language or directions, and eliminating those provisions that do not apply to the particular client.

With respect to the advanced directives, Ohio Rev. Code § 1337.17 provides that a printed form of durable power of attorney for health care that is sold or otherwise distributed in Ohio must include a notice as set forth in this section. The notice is poorly written, but cannot be altered. Similarly, Ohio Rev. Code § 2133.07(C) and (D) requires certain language regarding anatomical gifts and a donor registry enrollment form be included with a printed form for a living will declaration. However, such otherwise required provisions are not required where an attorney has prepared the document. As a result, I will provide that the principal or the declarant has been represented by an attorney so that the document’s validity will not come into question because of the absence of these otherwise (awkward) statutory provisions.

Let us now examine the financial power of attorney and advanced directive forms and discuss whether additional changes to these specific forms should be made, whether that is to add provisions that are not a part of these forms or to modify or remove provisions that are a part of these forms. This paper is not intended to examine or comment upon every section, paragraph or word of the suggested forms, but, rather, largely will focus on those aspects that the author suggests should be modified or removed as well as on provisions that should be added to these forms.

Financial Powers of Attorney In the statutorily suggested power of attorney form, under the section titled “Designation of Agent,” if two or more co-agents will be named, we need to set forth whether the co-agents must act together or independent of one another. Ohio Rev. Code § 1337.31 allows the naming of two or more persons to act as co-agents and provides that co-agents may act independent of one another unless the power of attorney otherwise provides. Even if co-agents can act independent of one another, I suggest that the attorney state this fact in the document so that the agents and third parties know this explicitly.

In the statutorily suggested power of attorney form, under the section titled “General Grant of Authority,” the principal is to initial each authority the principal wishes to grant to the agent, with the ability to simply initial “all of the above” if the principal wishes to grant to the agent authority for all matters listed.

For the financial power of attorney drafted by an attorney, there is no need to have the client cross out any powers not granted to the agent. Simply do not include them in the list of powers given to the agent. Likewise, there is no reason to have the client initial any powers. An attorney-created document simply should set forth the powers and authority that the principal is giving to the agent. As an aside, a potential problem with having clients initial the powers given to the agent is that invariably someone will fail to initial any item and then we will be left with a power of attorney that does not seem to give any authority to the agent.

The above applies to any “hot” powers set forth in the section titled “Action Requiring Express Authority” that the client wishes to give to the agent. If the client wishes to grant the agent these additional powers, the attorney-drafted documents should simply state only those hot powers given and no initialing is required. When I grant any hot powers to the agent, I begin


with the following paragraph: Additional Specific Powers. In addition to the powers given to my Agent above, [referencing the general powers given to the agent] I also authorize my Agent to act as my agent with respect to the matters that are set forth below. However, my Agent will not exercise any authority granted below if my Agent believes that such exercise would be detrimental to my economic welfare or considered to be in discharge of a legal obligation of my Agent, unless the prior approval of a court of competent jurisdiction is obtained. This shall not require my Agent to obtain approval of a court before my Agent exercises any authority granted below if my Agent is reasonably satisfied that such action will not be detrimental to my economic welfare or considered to be a discharge of a legal obligation of my Agent.

In the statutorily suggested power of attorney form, the section titled “Limitations on Agent’s Authority” should be changed to fit the reality. In many instances, the agent will be an ancestor, spouse or descendant of the principal and, thus, the limitation expressed in this section will not apply. But the draftsman will know (1) whether the agent is not so related, and (2) whether the principal wishes to override this limitation, and, so, the draftsman should craft the power to accomplish the client’s wishes. If the agent and, if applicable, all successor agents are either an ancestor, spouse or descendant of the principal, then this provision is surplusage and should not appear in the document.

The section titled “Special Instructions” should only be used if there actually are special instructions. And if your client has special instructions, then the word “optional” should be deleted. The same is true with respect to the section titled “Nomination of Guardians.”

The above discussion deals only with what is found in the suggested statutory form itself. But are there provisions not found in the form that we should consider adding? I suggest that, where applicable, the answer is yes and below I discuss provisions that I often add to my financial powers of attorney.

I like to state explicitly that the current financial power of attorney revokes all prior such powers and my language typically will read as follows:

Revocation of Earlier Financial Powers of Attorney. I hereby revoke all earlier financial powers of attorney that I may have granted. I understand that if any earlier financial power of attorney has been recorded in the office of a county recorder, this revocation may not be effective unless it also is recorded in the same county recorder office. This provision will not revoke any health care power of attorney.

I like to set forth the general duties and obligations of the agent in my financial power of attorney so that the agent understands the obligations being assumed. Some of these are found in Ohio Rev. Code § 1337.34. My language typically reads as follows:

General Duties of My Agent. At all times, my Agent must act in accordance with my instructions or reasonable expectations actually known by my Agent and, otherwise, in my best interests. Additionally, whenever exercising any authority granted under this instrument, my Agent shall always act as required by law, including the following:

act in good faith; act loyally for my benefit; act only within the scope of authority granted in this instrument;


act with care, competence, and diligence in all matters; and act always to attempt to preserve my estate plan to the extent actually known by my Agent if preserving my estate plan is consistent with my best interests based on all relevant factors. Relevant factors will include, but not necessarily be limited to, the nature and value of my property, my foreseeable obligations and maintenance needs, the minimization of all taxes, and my eligibility for benefits under any statute or regulation.

Unless otherwise specifically provided, my Agent will have no affirmative duty to act, will have no duty to diversify or to prudently manage my assets or have any duties other than those set forth above.

If the agent is to have authority to make gifts, we must consider the breadth of such authority. Can the agent make gifts in excess of the annual exclusion limits of IRC § 2503? Are gifts to pay life insurance premiums expected? Can gifts be made in trust or pursuant to a Uniform Transfers to Minors Act? An example of such language may be as follows:

Gifts. To make gifts including qualified transfers defined under Section 2503(e) of the Internal Revenue Code or any successor provision thereto, that my Agent believes is consistent with my dispositive wishes or upon the advice of legal counsel is beneficial for tax purposes or for the anticipated administration of my estate, on my behalf to or for the benefit of one or more of my Spouse, my descendants, and the spouse of any such descendant, with no duty of equalization. Notwithstanding, any gifts made to my descendants or the spouse of any descendant will not exceed the amount equal to twice the annual exclusion amount set forth in Section 2503(b) of the Internal Revenue Code or any successor provision thereto.

In addition, my Agent is authorized to make gifts to the owner of each life insurance policy that insures my life or the lives of my Spouse and me, in an amount necessary to permit the owner thereof to pay in a timely fashion all premiums due thereon each year.

My Agent can make gifts to each donee or donees either outright or in trust. In the case of a gift to a minor, such gift may be made in trust or in accordance with any Uniform Transfers to Minors Act. In the case of a gift made in trust, my Agent may execute a deed of trust for such purpose, designating one or more persons (including my Agent) as original or successor trustee, or may make additions to an existing trust.

I like to have a provision requiring the agent to maintain records and to provide accountings. A problem that I have seen with financial powers of attorney is when one child is the agent and refuses to inform his or her siblings what is happening with mom’s or dad’s money. This is to override Ohio Rev. Code § 1337.34(H) which provides that generally an agent is not required to disclose unless ordered by a court or requested by the principal or other persons with authority to act for or in behalf of the principal. My language typically reads as follows:

Obligation to Maintain Records and Provide Accountings. My Agent will maintain records and reasonable supporting documentation regarding actions taken and will provide an accounting in reasonable detail and accompanied by reasonable supporting documentation as I or any person interested in my welfare may request. Any person related to me by blood, adoption or marriage will be considered a person interested in my welfare. I or any person interested in my welfare may maintain an action to compel an accounting by my Agent in the [County] Ohio Probate Court or in any appropriate court in the county where I or my Agent resides.


In addition to the above provisions, I typically add provisions addressing the agent’s authority: to access documents such as the principal’s will, trusts, life insurance policies, etc.; to deal with digital assets such as Facebook and LinkedIn as well as online bank and brokerage accounts, and to obtain passwords and access codes; to not have authority over foreign accounts to protect the agent from ignorantly violating tax reporting requirements; to waive privileges such as attorney-client or physician-patient; to obtain personal health information; to be reasonably compensated; to take actions to enforce the power of attorney; and to self-deal or not to self-deal. Further, I typically have provisions that exonerate the agent for its actions and decisions except for willful misconduct or gross negligence as well as exonerating third parties who act upon the agent’s instructions. I typically indicate that the power is intended to apply everywhere and that the principal retains the right to amend or revoke the document.

Health Care Powers of Attorney First, I delete all provisions that will not apply to my particular client. For example, if no alternate agents will be named, then I will delete the applicable portions. Also, if my client is not pregnant and will not become pregnant, then I delete the second paragraph under the section titled, Limitations on Agent’s Authority. I also delete references to sections of the Ohio Revised Code. Near the beginning of the health care power of attorney form is a section (Definitions) setting forth particular words or phrases and defining them. This makes perfect sense for a form that may be obtained by the general public and so the drafters of the forms cannot know the level of sophistication or understanding of the potential users. However, where we, as attorneys, draft a health care power of attorney for our clients, (1) we can assess their understanding of the defined terms, (2) we can discuss these terms with our clients, and (3) the client can ask questions as to the meaning of any term. Notwithstanding, there are terms relating to health care that I often include in my health care powers of attorney so that the client as well as any others reading the document will know what was intended. But even here, I often limit this to the terms of “comfort care,” “life sustaining treatment,” “permanently unconscious state,” and “terminal condition,” while customizing such definitions to the first person. Thus, the definitions for these terms will read as follows [emphasis added]:

Comfort care means any measure, medical or nursing procedure, treatment or intervention, including nutrition and/or hydration, that is taken to diminish my pain or discomfort, but not to postpone death. Life-sustaining treatment means any medical procedure, treatment, intervention or other measure that, when administered to me, mainly prolongs the process of dying. Permanently unconscious state means an irreversible condition in which I am permanently unaware of myself and surroundings. At least two physicians must examine me and agree that I have totally lost higher brain function and am unable to suffer or feel pain. Terminal condition means an irreversible, incurable, and untreatable condition caused by disease, illness, or injury from which, to a reasonable degree of medical certainty as determined in accordance with reasonable medical standards by my attending physician and one other physician who has examined me, both of the following apply: (1) there can be no recovery and (2) death is likely to occur within a relatively short time if life-sustaining treatment is not administered.


I modify the section titled, Authority of Agent, to fit the actual result wanted by my client. If no powers are to be removed, I do not begin the paragraph with the phrase “Except for those items I have crossed out and.” If there are powers that my client does not want to give to the agent, then I modify the provision accordingly, expressly setting forth what authority is not granted.

When I authorize the agent to have authority to obtain protected health information, I add the following language:

I authorize and request any physician, dentist, health care professional, health care provider, pharmacy, hospital, clinic, laboratory and other medical care facility to provide to any designated agent in this document information relating to my physical and mental condition, without limitation, and the diagnosis, prognosis, care, and treatment thereof upon the request of any agent I have designated in this document.

I intend by this authorization for my designated agent to be considered a personal representative under privacy regulations related to protected health information and for my designated agent to be entitled to all health information in the same manner as if I personally were making the request. I understand that the disclosure of protected health information to my agent carries the potential that such information may no longer be protected by federal confidentiality rules.

This authorization and request also shall be considered my consent to the release of such information under current laws, rules, and regulations as well as under future laws, rules, and regulations and amendments to such laws, rules, and regulations to include but not be limited to the express grant of authority to personal representatives as provided by Regulation Section 164.502(g) of Title 45 of the Code of Federal Regulations and the medical information privacy law and regulations generally referred to as HIPAA.

While this may violate my general rule of not including unnecessary language, no rule is absolute and I prefer to let health care professionals feel greater comfort in releasing protected health information.

Lastly, with respect to the execution requirements for health care powers of attorney, I often will have the client’s signing of the document notarized. As a result, I remove the provisions dealing with the witnessing of the client’s signing. While some may contend that it is best to have these documents witnessed and notarized, I do not subscribe to such approach and cannot find the logic to it. The law clearly provides that the document can be witnessed or notarized and I am quite comfortable doing one or the other, but see no need to do both.

Living Will Declarations My changes with respect to living will declarations are the same as the changes that I make to my durable powers of attorney of health care where appropriate. Just as with the health care power of attorney, I delete all provisions that will not apply to my particular client and I set forth only those terms relating to health care that I feel are beneficial. Likewise, with respect to the execution requirements, I provide only for witnesses or a notary public, but not both.

I also do not include the provisions otherwise required by Ohio Rev. Code § 2133.07(C), relating to the making of anatomical gifts. While the provision required by 2133.07(C) specifically states that it is optional, by the virtue of the statute, such language must be a part of a pre-printed


form and if the declarant does not wish to use such provision, presumably the declarant must cross it out.

I also do not include a donor registration enrollment form otherwise required by Ohio Rev. Code § 2133.07(D) unless my client wants to make an anatomical gift for research or education. Where my client does want to make anatomical gift but only for transplantation or therapy, then I advise my client to designate such desire on his or her drivers’ license. Pursuant to Ohio Rev. Code § 2108.11(F), “if a document of gift specifies only a general intent to make an anatomical gift by words such as “donor,” “organ donor,” or “body donor,” or by a symbol or statement of similar import, the gift shall be used only for transplantation or therapy.” Thus, a symbol on the client’s drivers’ license indicating that the client is an organ donor will only be an anatomical gift for the purposes of transplantation and therapy.

Conclusion Forms are wonderful tools for lawyers. But they are only tools and tools are only as good as the craftsman who employs them.


Exhibit 1 Sec. 1337.60. A document substantially in the following form may be used to create a

statutory form power of attorney that has the meaning and effect prescribed by sections 1337.21 to 1337.64 of the Revised Code.

[INSERT NAME OF JURISDICTION] STATUTORY FORM POWER OF ATTORNEY IMPORTANT INFORMATION This power of attorney authorizes another person (your agent) to make decisions

concerning your property for you (the principal). Your agent will be able to make decisions and act with respect to your property (including your money) whether or not you are able to act for yourself. The meaning of authority over subjects listed on this form is explained in the Uniform Power of Attorney Act (sections 1337.21 to 1337.64 of the Revised Code).

This power of attorney does not authorize the agent to make health-care decisions for

you. You should select someone you trust to serve as your agent. Unless you specify

otherwise, generally the agent's authority will continue until you die or revoke the power of attorney or the agent resigns or is unable to act for you.

Your agent is entitled to reasonable compensation unless you state otherwise in the

Special Instructions. This form provides for designation of one agent. If you wish to name more than one

agent you may name a coagent in the Special Instructions. Coagents are not required to act together unless you include that requirement in the Special Instructions.

If your agent is unable or unwilling to act for you, your power of attorney will end unless

you have named a successor agent. You may also name a second successor agent. This power of attorney becomes effective immediately unless you state otherwise in the

Special Instructions. ACTIONS REQUIRING EXPRESS AUTHORITY Unless expressly authorized and initialed by me in the Special Instructions, this power of

attorney does not grant authority to my agent to do any of the following: (1) Create a trust; (2) Amend, revoke, or terminate an inter vivos trust, even if specific authority to do so is

granted to the agent in the trust agreement;


(3) Make a gift; (4) Create or change rights of survivorship; (5) Create or change a beneficiary designation; (6) Delegate authority granted under the power of attorney; (7) Waive the principal's right to be a beneficiary of a joint and survivor annuity,

including a survivor benefit under a retirement plan; (8) Exercise fiduciary powers that the principal has authority to delegate. CAUTION: Granting any of the above eight powers will give your agent the authority to

take actions that could significantly reduce your property or change how your property is distributed at your death.

If you have questions about the power of attorney or the authority you are granting to

your agent, you should seek legal advice before signing this form. DESIGNATION OF AGENT I, ..................................... (Name of Principal) name the following person as my agent:

Name of Agent: Agent's Address: Agent's Telephone Number:

DESIGNATION OF SUCCESSOR AGENT(S) (OPTIONAL) If my agent is unable or unwilling to act for me, I name as my successor agent:

Name of Successor Agent: Successor Agent's Address: Successor Agent's Telephone Number:


If my successor agent is unable or unwilling to act for me, I name as my second successor agent:

Name of Second Successor Agent: Second Successor Agent's Address: Second Successor Agent's Telephone Number:

GRANT OF GENERAL AUTHORITY I grant my agent and any successor agent general authority to act for me with respect to

the following subjects as defined in the Uniform Power of Attorney Act (sections 1337.21 to 1337.64 of the Revised Code):

(INITIAL each subject you want to include in the agent's general authority. If you wish to

grant general authority over all of the subjects you may initial "All Preceding Subjects" instead of initialing each subject.)

(...) Real Property (...) Tangible Personal Property (...) Stocks and Bonds (...) Commodities and Options (...) Banks and Other Financial Institutions (...) Operation of Entity or Business (...) Insurance and Annuities (...) Estates, Trusts, and Other Beneficial Interests (...) Claims and Litigation (...) Personal and Family Maintenance (...) Benefits from Governmental Programs or Civil or Military Service (...) Retirement Plans (...) Taxes (...) All Preceding Subjects LIMITATION ON AGENT'S AUTHORITY An agent that is not my ancestor, spouse, or descendant MAY NOT use my property to

benefit the agent or a person to whom the agent owes an obligation of support unless I have included that authority in the Special Instructions.


SPECIAL INSTRUCTIONS (OPTIONAL) You may give special instructions on the following lines:

EFFECTIVE DATE This power of attorney is effective immediately unless I have stated otherwise in the

Special Instructions. NOMINATION OF GUARDIAN (OPTIONAL) If it becomes necessary for a court to appoint a guardian of my estate or my person, I

nominate the following person(s) for appointment:

Name of Nominee for guardian of my estate: Nominee's Address: Nominee's Telephone Number: Name of Nominee for guardian of my person: Nominee's Address: Nominee's Telephone Number:

RELIANCE ON THIS POWER OF ATTORNEY Any person, including my agent, may rely upon the validity of this power of attorney or a

copy of it unless that person knows it has terminated or is invalid. SIGNATURE AND ACKNOWLEDGMENT

Your Signature Date

Your Name Printed Your Address


Your Telephone Number

State of Ohio County of .......................... This document was acknowledged before me on .................... (Date), by ..........................

(Name of Principal).

..............................

Signature of Notary

My commission expires:

This document prepared by:

IMPORTANT INFORMATION FOR AGENT Agent's Duties When you accept the authority granted under this power of attorney, a special legal

relationship is created between you and the principal. This relationship imposes upon you legal duties that continue until you resign or the power of attorney is terminated or revoked. You must:

(1) Do what you know the principal reasonably expects you to do with the principal's

property or, if you do not know the principal's expectations, act in the principal's best interest; (2) Act in good faith; (3) Do nothing beyond the authority granted in this power of attorney; (4) Attempt to preserve the principal's estate plan if you know the plan and preserving the

plan is consistent with the principal's best interest; (5) Disclose your identity as an agent whenever you act for the principal by writing or

printing the name of the principal and signing your own name as "agent" in the following manner:

(Principal's Name) by (Your Signature) as Agent Unless the Special Instructions in this power of attorney state otherwise, you must also: (1) Act loyally for the principal's benefit; (2) Avoid conflicts that would impair your ability to act in the principal's best interest; (3) Act with care, competence, and diligence; (4) Keep a record of all receipts, disbursements, and transactions made on behalf of the

principal; (5) Cooperate with any person that has authority to make health-care decisions for the

principal to do what you know the principal reasonably expects or, if you do not know the principal's expectations, to act in the principal's best interest.


Termination of Agent's Authority You must stop acting on behalf of the principal if you learn of any event that terminates

this power of attorney or your authority under this power of attorney. Events that terminate a power of attorney or your authority to act under a power of attorney include:

(1) The death of the principal; (2) The principal's revocation of the power of attorney or your authority; (3) The occurrence of a termination event stated in the power of attorney; (4) The purpose of the power of attorney is fully accomplished; (5) If you are married to the principal, a legal action is filed with a court to end your

marriage, or for your legal separation, unless the Special Instructions in this power of attorney state that such an action will not terminate your authority.

Liability of Agent The meaning of the authority granted to you is defined in the Uniform Power of Attorney

Act (sections 1337.21 to 1337.64 of the Revised Code). If you violate the Uniform Power of Attorney Act or act outside the authority granted, you may be liable for any damages caused by your violation.

If there is anything about this document or your duties that you do not understand, you should seek legal advice.


Exhibit 2

2015 annual convention estate planning in the era of high...

Documents