Tag Archives: Probate

Capacity–Can she really make that decision?

Capacity Requirements

Proper execution of a legal instrument requires that the person signing have sufficient mental "capacity" to understand the implications of the document. While most people speak of legal "capacity" or "competence" as a rigid black line–either the person has it or doesn’t–in fact it can be quite variable depending on the person’s abilities and the function for which capacity is required.

One side of the capacity equation involves the client’s abilities, which may change from day to day (or even during the day), depending on the course of the illness, fatigue and the effects of medication. On the other side, greater understanding is required for some legal activities than for others. For instance, you need to have a higher and clearer amount of “capacity” to enter a contract than to write a will. 

Capacity to make a will was summed up by the Massachusetts Supreme Judicial Court:

Testamentary capacity requires ability on the part of the testator to understand and carry in mind, in a general way, the nature and situation of his property and his relations to those persons who would naturally have some claim to his remembrance. It requires freedom from delusion which is the effect of disease or weakness and which might influence the disposition of his property. And it requires ability at the time of execution of the alleged will to understand the nature of the act of making a will.

This is a relatively "low threshold," meaning that signing a will does not require a great deal of capacity. The fact that the next day the testator does not remember the will signing and is not sufficiently "with it" to execute a will then does not invalidate the will if he understood it when he signed it.

The standards for entering into a contract are different because the individual must know not only the nature of her property and the person with whom she is dealing, but also the broader context of the market in which she is agreeing to buy or sell services or property.  This is a more long range kind of understanding, and requires a more complex ability.

While the standards may seem clear, applying them to particular clients may be difficult. The fact that a client does not know the year or the name of the President may mean she does not have capacity to enter into a contract, but not necessarily that she can’t execute a will or durable power of attorney. The determination mixes medical, psychological and legal judgments. It must be made by the attorney (or a judge, in the case of guardianship and conservatorship determinations) based on information gleaned by the attorney in interactions with the client, from other sources such as family members and social workers, and, if necessary, from medical personnel. Doctors and psychiatrists cannot themselves make a determination as to whether an individual has capacity to undertake a legal commitment. But they can provide a professional evaluation of the person that will help an attorney make this decision.

Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by an attorney.

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Tell me again why I should do my estate plan?

Everyone has a different reason for beginning, updating, or implementing an estate plan.  Usually one very specific reason.  For some, it’s the birth of a child and the need to secure their future.  For another it might be a divorce and the need to separate in life and in death.  For a third, it’s the death or illness of a loved one that makes a client realize that planning can make a death either easier, or much harder for their family members.

For others it’s a chance encounter or event.  I have some friends who were first time homebuyers, excited about a great home, and in a hurry to move in with their young family.  Sadly, the elderly owner of the home passed away two weeks before the closing.  This could have completely derailed this family’s plans, but the home was held in a trust.  The home did not need to go through probate since it was legally owned by the trustees.  Because of this, the closing could continue, and the heirs and the family were able to finish the transaction quickly and efficiently.  You can be sure that the young family was much more enthusiastic about good estate planning once they had seen it in action.

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Estate Administration

Probate is the process by which a deceased person’s property, known as the "estate," is passed to his or her heirs and legatees (people named in the will). The entire process, supervised by the probate court, usually takes about a year. However, substantial distributions from the estate can be made in the interim.

The emotional trauma brought on by the death of a close family member often is accompanied by bewilderment about the financial and legal steps the survivors must take. The spouse who passed away may have handled all of the couple’s finances. Or perhaps a child must begin taking care of probating an estate about which he or she knows little. And this task may come on top of commitments to family and work that can’t be set aside. Finally, the estate itself may be in disarray or scattered among many accounts, which is not unusual with a generation that saw banks collapse during the Depression.

Here we set out the steps the surviving family members should take. These responsibilities ultimately fall on whoever was appointed executor or personal representative in the deceased family member’s will. Matters can be a bit more complicated in the absence of a will, because it may not be clear who has the responsibility of carrying out these steps.

First, secure the tangible property. This means anything you can touch, such as silverware, dishes, furniture, or artwork. You will need to determine accurate values of each piece of property, which may require appraisals, and then distribute the property as the deceased directed. If property is passed around to family members before you have the opportunity to take an inventory, this will become a difficult, if not impossible, task. Of course, this does not apply to gifts the deceased may have made during life, which will not be part of his or her estate.

Second, take your time. You do not need to take any other steps immediately. While bills do need to be paid, they can wait a month or two without adverse repercussions. It’s more important that you and your family have time to grieve. Financial matters can wait. (One exception: Social Security should be notified within a month of death. If checks are issued following death, you could be in for a battle. For more on Social Security’s death procedures, click on http://www.ssa.gov/pubs/deathbenefits.htm)

When you’re ready, but not a day sooner, meet with an attorney to review the steps necessary to administer the deceased’s estate. Bring as much information as possible about finances, taxes and debts. Don’t worry about putting the papers in order first; the lawyer will have experience in organizing and understanding confusing financial statements.

Below are some of the steps in probate:

1. Filing the will and petition at the probate court in order to be appointed executor or personal representative. In the absence of a will, heirs must petition the court to be appointed "administrator" of the estate.

2. Marshaling, or collecting, the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an "inventory," with the probate court. It’s generally best to consolidate all the estate funds to the extent possible. Bills and bequests should be paid from a single checking account, either one you establish or one set up by your attorney, so that you can keep track of all expenditures.

3. Paying bills and taxes. If an estate tax return is needed—generally if the estate exceeds $1 million in value—it must be filed within nine months of the date of death. If you miss this deadline and the estate is taxable, severe penalties and interest may apply. If you do not have all the information available in time, you can file for an extension and pay your best estimate of the tax due.

4. Filing tax returns. You must also file a final income tax return for the decedent and, if the estate holds any assets and earns interest or dividends, an income tax return for the estate. If the estate does earn income during the administration process, it will have to obtain its own tax identification number in order to keep track of such earnings.

5. Distributing property to the heirs and legatees. Generally, executors do not pay out all of the estate assets until the period runs out for creditors to make claims, which is a year after the date of death. But once the executor understands the estate and the likely claims, he or she can distribute most of the assets, retaining a reserve for unanticipated claims and the costs of closing out the estate.

6. Filing a final account. The executor must file an account with the probate court listing any income to the estate since the date of death and all expenses and estate distributions. Once the court approves this final account, the executor can distribute whatever is left in the closing reserve, and finish his or her work.

Some of these steps can be eliminated by avoiding probate through joint ownership or trusts. But whoever is left in charge still has to pay all debts, file tax returns, and distribute the property to the rightful heirs. You can make it easier for your heirs by keeping good records of your assets and liabilities. This will shorten the process and reduce the legal bill.

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Will Basics

What exactly is a will, and what does it do? 

A will is a document that disposes of a person’s property after death.  In addition, it names fiduciaries, including an executor, maybe a trustee, and a guardian of your minor children.  A will can spell out specific gifts (I give my engagement ring to my granddaughter Alice); charitable bequests (I leave $500 to the First Parish Church of XYZ); and dispose of whatever is left in the way that you direct.

A will comes into effect at the death of the testator (person making the will).  Prior to death, the testator can change or amend their will at any time, presuming that they remain mentally competent.  A will must be executed EXACTLY according to state law, there is very little wiggle room to accommodate mistakes in execution.

In Massachusetts, once you pass away, your original will must be located and presented to the probate court of the county you live in within 30 days.  This is important for two reasons.  The first being that someone needs to know where you keep your original documents.  A safety deposit box is not a good place for an original will, unless someone else has access to it.  (This means they’re “on” the safety deposit box, a notation in a power of attorney will not work once you have passed away).  The second important point is that time is, as they say, “of the essence”.  While probate can seem like a long process, getting started should happen pretty quickly.  Once your will is filed, it becomes a public document.  Under no circumstances should you put private financial information into this document!  I say this because there are “do it yourself” kits that insert social security numbers into the will, which is obviously an unwise thing to do.

So here is your “to do” list:

— Think about guardians for my children

— Who would I want to be the executor of my estate?

— What charities or special bequests do I want named in my will?

— Have a will drafted by an attorney I trust

— EXECUTE MY DOCUMENTS

— Put them somewhere safe, and tell someone where they are

 

I will write about the other documents in a basic estate plan in later posts.

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