Maryland Estate Litigation

Tag: elder law

A Primer on Guardianships – Part Four – Understanding Incapacity

by David A. (Andy) Hall

Clients often talk to us about whether someone is competent to execute legal documents such as a will or a power of attorney (POA).  Talk of competency is generally putting the cart before the horse.  Competency is a legal term, but it has to do with whether a person lacks legal competence, e.g., they are a minor, or they have been adjudicated incompetent.[1]

From an estate planning perspective particularly where the goal is avoid a guardianship, the question is whether someone has capacity to make decisions or execute planning documents. [2]  The capacity required to execute a will is the ability of the testator/testatrix to understand the nature of their assets and the objects of their bounty.[3]  Put more simply, does a person know who their children and/or grandchildren are, and do they know what “stuff” they own.  In order to devise[4] property to a relative, a testator/testatrix[5] needs to know the property they have and who they are giving the property.  It makes sense from an intrinsic level that you need to know these two points in order to give something away otherwise someone could give away things that are not theirs to people they do not know, which is generally not how people approach estate planning.  All in all, the capacity needed to execute a will is pretty low.  A will, however, will not obviate the need for a guardianship.  Additional incapacity planning is required.

The capacity required to execute a trust is the same as that required to execute a contract, which requires that the party must understand the nature of the business conducted. For contracts, the more complicated the contract, then the higher the level of understanding required to be able to execute the contract.   This holds true for advance medical directives (AMD) and POAs.  Overall, the capacity to execute a will is less than the capacity required to execute a trust or other incapacity planning documents (AMDs and POAs).

Incapacity planning documents are important in the realm of avoiding guardianships.  Most of these documents have explicit nominations for persons to serve as guardian should the need arise, but they also serve the role of allowing an agent to make or communicate decisions for a principal during a period of incapacity.  Without these documents, it may become necessary for a relative to file for guardian of the person and/or property.

A guardian of the person may be appointed upon the following grounds:

Grounds. – A guardian of the person shall be appointed if the court determines from clear and convincing evidence[6] that a person lacks sufficient understanding or capacity to make or communicate responsible decisions concerning his person, including provisions for health care, food, clothing, or shelter, because of any mental disability, disease, habitual drunkenness, or addiction to drugs, and that no less restrictive form of intervention is available which is consistent with the person’s welfare and safety.

Estate & Trusts § 13-705(b).  There are three operative components of the grounds for filing a guardianship of the person.  First, the alleged disabled lacks “sufficient understanding or capacity to make or communicate responsible decisions concerning his person.”  Id.  Second, this is due to “mental disability, disease, habitual drunkenness, or addiction to drugs.” Id. Third, there is “no less restrictive form of intervention.”  Id.

Focusing on the first basis, because of the person’s mental disability or other cognitive impairment, the person lacks capacity to make or communicate decisions.  This covers someone in a temporary or medically induced coma to someone who’s dementia has progressed to a point where they can no longer interact with others in any normal sense of the expression.  It can also cover someone who is habitually drunk or addicted to drugs.[7]  A guardianship of the person is necessary because the alleged disabled did not have proper incapacity planning documents in place and are unable to sign documents appointing a healthcare agent to make decisions on their behalf.  Physically a person may still be able to sign and there are many cases brought where someone has been unduly influenced to sign particular estate planning or ancillary documents, but that does not mean that they possess the contractual capacity in order to execute an AMD or POA.

If after a court finds the alleged disabled is unable to make or communicate decisions due to mental disability or other cognitive impairment and there is no less restrictive alternative, then the court will appoint and guardian of the person.  After the appointment of a guardian, then a person has been legally adjudicated incompetent to make legal decisions.  Thus, it is after a long process that the conversation about whether someone is competent is appropriate from a legal perspective.

Filing for guardianship may be a difficult process with unique challenges for those who do not handle these on a regular basis.  If you believe that you need to file for guardianship, then call for a free consultation.

David A. (Andy) Hall, Esq.
King|Hall LLC
5300 Dorsey Hall Drive
Suite 107
Ellicott City, Maryland 21042
410-696-2045

andy@kh.legal

 

[1] In criminal law, competency is the ability of the accused to stand trial and participate in one’s defense.

[2] Note that this distinction is muddled by the Maryland Code, specifically, Estates & Trusts Art. § 4-101 states “Any person may make a will if he is 18 years of age or older, and legally competent to make a will.” (emphasis added).

[3] Sellers v. Qualls, 206 Md. 58, 66, 110 A.2d 73 (1954).

[4] Give away pursuant to a will. See Black’s Law Dictionary [Third Pocket Edition] p. 207 (2006).

[5] A person executing a will.

[6] “To be clear and convincing, evidence should be ‘clear’ in the sense that it is certain, plain to the understanding, and unambiguous and ‘convincing’ in the sense that it is so reasonable and persuasive as to cause you to believe it.” Maryland Civil Pattern Jury Instructions § 1:13 (2013).

[7] Note the language used in the code, it is not referring to someone that has a drinking problem or casually uses drugs.  Also, the use of the intoxicants must prevent them from making or communicating decisions, not necessarily making poor decisions.

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What are Trusts? Main Trust Principles

by David A. (Andy) Hall

1. Trust Terms, Concepts and Definitions

A trust is, “[a]n equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides the legal title or ownership, recognized and enforced by courts of chancery.”[1] It is worth noting that Maryland does not have courts of chancery and the Circuit Court where venue is appropriate would enforce a trust. More generally, a trusts is an important estate planning vehicle, but can also serve a vital role in the protection of assets prior to the Grantor’s[2] death.  They can serve as a desirable alternative to a will and allow the grantor’s family to avoid probate to a large extent and provide for greater control over the decedent’s assets after death.

Types of Trusts

Trusts are broadly split into two categories: living or testamentary.  The living trust, or inter vivos, is a trust created while the Grantor is alive.  A testamentary trust is a trust created in a Last Will and Testament.  Trusts can also be split in two other categories: revocable or irrevocable.  A revocable trust can be terminated by the Grantor during her lifetime.  An irrevocable trust cannot.  Finally, there are charitable trusts and non-charitable trusts.

Goals of Trusts

There are five key goals to trust planning.  1. Avoid Probate; 2. Protect the Grantor/Beneficiary’s Privacy; 3. Plan for Incapacity; 4. Tax Minimization; and 5. Creditor Protection.  By avoiding probate, grantors and their trustees can avoid cumbersome estate administration especially in estates with real property in other jurisdictions.  There is no immediate jurisdiction of the court for the administration of a trust.  The well drafted trust will contain a mechanism for succession should grantor/trustee become incapacitated.  Trusts, particularly those with charitable components can be an useful tool in the minimization of taxes.  Finally, trusts can help protect young or unsophisticated beneficiaries from their own poor choices and shelter assets in the event of a divorce.

Functions of Trusts

Trusts provide for flexible management.  They allow an orderly means for the transfer of authority in the event of a trustee’s resignation, incapacity, or death.  Trusts can also reduce the expenses of administration as compared to probate.  Trust planning is effective to protect the Grantor’s estate planning objectives by allowing her to shield beneficiaries’ from themselves and by exercising control for multiple generations.  Trusts can also serve as mechanism to manage litigation.  Litigation in trust cases is often more expensive and complex, which can deter a would be challenger.  And unlike a will, the filing of litigation does not strip the trustee of power to continue to act without seeking the order of the Court.  In many instances, there will be no need to file for guardianship for an incapacitated or underage beneficiary.

Definitions

  1. Beneficiary – One for whose benefit a trust is created[3]. “Beneficiary” means a person that:
    (1) Has a present or future beneficial interest in a trust, vested or contingent; or
    (2) In a capacity other than that of a trustee, holds a power of appointment over trust property.[4]
  2. Grantor – a person, including a testator, that creates or contributes property to a trust.[5]
  3. HEMS – Health, Education, Maintenance and Support – This is the most common discretionary standard.[6]
  4. Incapacity – inability of an individual to manage the individual’s property or financial affairs effectively due to:
    (1) Physical or mental disability;
    (2) Disease or illness;
    (3) Habitual drunkenness;
    (4) Drug addiction;
    (5) Imprisonment;
    (6) Compulsory hospitalization;
    (7) Confinement;
    (8) Detention by a foreign power; or
    (9) Disappearance.[7]
  5. Income Beneficiary – a person entitled to income from a trust
  6. Independent Trustee – A non-interested trustee who is granted additional powers under the Internal Revenue Code.[8]
  7. Interested Trustee –
  8. Under the Internal Revenue Code, a related or subordinate party. In simpler terms, someone working for or a first degree relative of the Grantor.[9]
  9. Power of Appointment – authority to designate the recipient or recipients of beneficial interests in property.[10]
  10. Property – anything that may be the subject of ownership, whether real or personal, legal or equitable, or an interest in the thing.[11]
  11. Qualified Retirement Benefits – amounts held in or distributed pursuant to a plan qualified under Section 401, an individual retirement arrangement under Section 408 or Section 408A, a tax-sheltered annuity under Section 403 or any other benefit subject to the distribution rules of Section 401(a)(9)
  12. Settlor – See Grantor
  13. Situs – The location of the trust for legal purposes. Maryland law provides that the situs of the trust is any county where the trustee may be sued.[12]
  14. Trustee – One who, having legal title to property, holds it in trust for the benefit of another and owes a fiduciary duty to that beneficiary.[13]
  15. Trustor – See Grantor

2.  Key Parties in a Trust and Their Roles

There are three key roles in a trust, but there are also additional roles to consider as well.  First and foremost is the Grantor.  The Grantor grants or gives property to be included in the trust.  The property is held by the Trustee for the benefit of the Beneficiary.  The Trustee is guided by the rules within the trust document and pursuant to state statute and case law regarding the management of the trust including, but not limited to, distributions to the Beneficiary.  The Trustee has a duty of loyalty to the beneficiaries.[14]  A beneficiary may be either a current income beneficiary or contingent beneficiary entitled to receive funds at some future date under certain specified conditions.

A role player not often contemplated, but which may be forced to decide on matters related to the trust, is the court.  The Court can modify the terms where appropriate or where all trustees and beneficiaries agree as long as it is not inconsistent with the grantor’s intent.  It can modify if unanticipated circumstances arise.  It can also remove a bad actor trustee.

Additional Roles to Consider

  • Trust Protector
  • Trust Company
  • Financial or Investment Advisor
  • Doctor or other mental health professional

A Trust Protector serves an oversight role of the trustee and the operation of the trust.  A trust protector can step in, and depending on their powers, remove the trustee, or amend the trust as necessary to keep it current with the intent of the grantor, or in line with changing laws.  A Trust Company can serve the same role as the trustee, but may have different members of the organization serving various roles.  A Grantor may appoint a Financial Advisor to serve as the investment manager.  Many times a trust instrument will provide that the Grantor or a Trustee can be considered incapacitated for the purposes of the Trust if two doctors certify that person lacks capacity.  In practical instances, it can be extremely difficult to get a reluctant Grantor to two different doctors.  In addition, long-time family physicians are going to be extremely hesitant to certify that her patient no longer has capacity.  Appointing a third party mental health professional, or a trusted person, to decide whether the Grantor has the capacity to continue managing assets is an option to remedy doctor shopping.

Care should be exercised before nominating any party for a particular role.  They should be consulted with prior to their inclusion in the document.  Trustees should affirmatively sign that they have accepted the position.

3. The Laws of Trust Creation and Administration

The most critical law for Maryland attorneys regarding the creation and administration of trusts is The Maryland Trust Act.[15]  It was adopted along with approximately 30 other states as a variation of the Uniform Trust Code.  It was not adopted to revise Maryland law on trusts, but to fill in gaps and codify much of the common law.  It applies, prospectively and retroactively, to all trusts created before, on or after January 1, 2015.  It is not applicable, however, to constructive or resulting trusts.

A couple of key provisions to note, it allows a trustee to terminate the trust if the fair market value is under $100,000.[16]  In addition, it codifies that the capacity to create, amend, revoke or add property to a revocable trust is the same as that to create a will, that is, the Grantor must know the nature and objects of her bounty.[17]

4.  Trust Revocability and its Implications

The ability of a trust to be revoked allows the Grantor to retain control over the trust property.  This gives the Grantor/Trustee considerable power to amend the terms of the trust, change beneficiaries, change or remove trustees, but with this power comes certain drawbacks.  The Trust property will still be considered an asset of the Grantor in most instances.  This can have important ramifications for tax or Medical Assistance planning.  In addition, a self-settled trust will likely not be afforded as much creditor or bankruptcy protection as an irrevocable trust.

5.  Trust Funding Basics

Too many attorneys draft great documents, but the plans they have drafted ultimately fail because of a lack of emphasis on funding the trust.  Clients do not understand that a trust is incomplete until it is actually funded with assets.  A trust is an empty vessel without property to fund the trust.  It is often left to the client to figure out the funding of the trust on their own with a few notable exceptions.  Many attorneys are familiar with the pour-over will and a deed titling real property in the name of the trust, but some may be less familiar with the assignment of personal property or dealing with retirement assets.  Finally, it is helpful for assets that are not titled to have the clients prepare an asset schedule to be included in the trust.

[1] Black’s Law Dictionary

[2] Also known as a Trustor or Settlor.

[3] Black’s Law Dictionary

[4] Md. ESTATES AND TRUSTS Code Ann. § 14.5-103(d)

[5] Id. § 14.5-103(v)

[6] See also Id. § 14.5-103(y): Support provision. —

(1) “Support provision” means a mandatory distribution provision in a trust that provides that the trustee shall distribute income or principal or both for the health, education, support, or maintenance of a beneficiary, or language of similar import.   (2) “Support provision” does not include a provision in a trust that provides that a trustee has discretion whether to distribute income or principal or both for the purposes under paragraph (1) of this subsection or to select from among a class of beneficiaries to receive distributions in accordance with the trust provision.

[7] Id. § 14.5-103(l)

[8] 26 U.S. Code § 674(c)

[9] Id. § 672(c)

[10] Md. ESTATES AND TRUSTS Code Ann. § 14.5-103(q)

[11] Id § 14.5-103(s)

[12] Md. Rule 6-111(a)

[13]  Black’s Law Dictionary

[14] Md. ESTATES AND TRUSTS Code Ann. § 14.5-802

[15] See generally Id.  § 14.5-101 et seq.

[16] Id. § 14.5-412

[17] Id. § 14.5-601.  It is silent as to irrevocable trusts.

 

David A. (Andy) Hall, Esq.
King|Hall LLC
410-696-2045
5300 Dorsey Hall Drive
Suite 107
Ellicott City, Maryland 21042
andy@kh.legal

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Investing in Family

by barrettrkingpc

Throughout the years, we are constantly taught, admonished, reminded that we must invest. We must invest in our education by focusing on our studies or by taking student loans to complete our degree so that we can increase our earning potential and job satisfaction. We are taught that we must invest in our retirement by saving a portion of our earnings in an IRA or 401(k). We eventually, for those of us who have them, invest in our children by saving for their own education and by making sure to catch their baseball or field hockey games even if it means going back to the job or office and pulling a late night as soon as the game ends.

Looking back, as teenagers we start our flight from the nest and comforting wing of our parents or guardians with our desire to establish independence. An important part of our passage into adulthood is separating ourselves from those who invested in us so that we can invest in ourselves. And, before we know it, our parents have aged into retirement. To your eyes, are they enjoying themselves? Do they travel? Do they engage in hobbies? Are they experiencing what you grew up hearing them say they would hope to experience in retirement? Do they get to spend time with you or with the grandchildren? Are they getting to relish in the satisfaction of seeing you thrive on their investment and sacrifice in you?

Eventually, the caregiver becomes the cared for. It is worth talking to your parent or guardian about long term care insurance or whether they saved enough for retirement to self-insure for anticipated lifetime medical and long term care expenses. It can affect your ability to invest in your own children or in your own retirement if you have to take time away from work or your young family to become a caregiver or untangle a legal morass where your parents did not properly plan.

Help your parents plan for themselves. You are a major part of your parents’ life story and their future. We spend such a large part of our lives doing the things we do not want to do – chores, commuting, planning, even sleeping – that we should truly enjoy the small moments. And one way to ensure you and those who invested in you will get to do just that is to talk about estate planning and investing for the years to come.

Barrett R. King, Esq.
King|Hall LLC
410-696-2405
5300 Dorsey Hall Drive
Suite 107
Ellicott City, Maryland 21042
barrett@kh.legal
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A Primer on Guardianships – Part Three – Guardianship of the Property

by David A. (Andy) Hall

From one broad perspective, a person can be understood to have control over two sets of decisions in their lives: decisions affecting their person and decisions affecting their property. These are commonly reduced to healthcare and personal decisions (e.g., what medical treatment I receive or where I live), or financial decisions (e.g., what bank holds my money).  For a person who lacks capacity to make these decisions, there is a need to have the proper incapacity planning in place.

For financial decisions to be made by another person, there needs to be a financial power of attorney (“POA”) in place.  These POAs can come in many varieties.  Most financial institutions will have their own forms.  The Maryland Legislature and the Attorney General for the State of Maryland have created a specific form, which must be accepted by banks and financial institutions in the State of Maryland – with some limited exceptions.  Many attorneys will also have their clients sign a separate durable power of attorney which is tailored to their clients’ wishes.  When a person becomes incapacitated and does not have the planning in place, then their loved ones may be left with little alternative to filing for guardianship of the property.

An incapacitated person may not need a guardian of the person if there is an advance medical directive in place, or their loved one is experiencing little issue serving as a health care surrogate.  The management of their property may pose a more difficult challenge.  Banks are reticent to deal with someone who is not named in a POA.  Legal advisors will not release documents.  Simply getting information about assets is difficult without a POA.

The Petition for Appointment of a Guardian of the Property must be filed where the “alleged disabled person resides, even if the person is temporarily absent.” Md. Rule 10-301(c); Estates & Trusts § 13-202.  (Note that temporarily absent is not defined in the statute, but an often seen context is where a person is incapacitated by an injury and is receiving medical treatment in a different county.)  The rule is somewhat different for someone who is not a resident of the State of Maryland.  The practitioner should look at the situs (location) of any property or file where a guardianship of the person would be properly filed.

The Petition for Appointment of a Guardian of the Property must also include two certificates signed by medical doctors (or one can be signed be a licensed psychologist or licensed clinical social worker) attesting to the alleged disabled person’s need for a guardianship.  The rules are different for somone who is a beneficiary of the United States Department of Veterans Affairs (the “VA”).  The VA can supply a certificate in lieu of the two certificates previously noted though for practical purposes it may be easier to get the two physicians’ certificates.

The Petitioner (the one filing for guardianship) has to meet the burden of proving that the alleged disabled person (“ADP”):

  • Is unable to manage his property and affairs effectively because of physical or mental disability, disease, habitual drunkenness, addiction to drugs, imprisonment, compulsory hospitalization, confinement, detention by a foreign power, or disappearance; and
  • Has or may be entitled to property or benefits which require proper management.

Estates & Trusts § 13-201(c).  After a bench trial and a finding of the need for a guardian of the property by a preponderance of the evidence (which means that it is substantially more likely than not that it is true, and is a less rigorous standard than clear and convincing evidence standard necessary for guardian of the person), the judge will appoint a guardian of the property.  There is no right to a jury trial for a guardianship of the property.

Filing for guardianship may be a difficult process with unique challenges for those who do not handle these on a regular basis.  If you believe that you need to file for guardianship, then call for a free consultation.

David A. (Andy) Hall, Esq.
King|Hall LLC
410-696-2045
5300 Dorsey Hall Drive
Suite 107
Ellicott City, Maryland 21042
andy@kh.legal

457526bfb82f4540ba08c7cce8e707dd

A Primer on Guardianships – Part Two – Guardianship of the Person

by David A. (Andy) Hall

Many times clients will come for an appointment with an elder law attorney because their spouse or parent is no longer able to communicate decisions about their health or person.  This can be the result of a progressive condition such as Alzheimer’s disease, or from a sudden onset, such as a fall resulting in a traumatic brain injury (“TBI”).  The consequence can be the same if the alleged disabled person (“ADP”) does not have a healthcare power of attorney (“POA”) or advance medical directive (“AMD”) in place.  Many Americans do not have incapacity planning documents.

A healthcare POA or AMD allows the person nominated to serve as the agent for the ADP.  This means that the agent can make healthcare and other personal decisions for the person that is no longer able to communicate those decisions.  The most common context is making decisions about healthcare matters, i.e., whether to select a certain course or treatment, or whether to decline treatment because the ADP has made their wishes known regarding when they no longer want treatment.

Without this document, then a loved one can make decisions for the ADP pursuant to the Maryland Health Care Decisions Act as codified in Md. Code, Health Gen. Art. §5–605.  Where the ADP has not nominated a person, then after two physicians determine that the person can no longer make decisions for himself, then the following people may serve as surrogate (in priority of the order listed):

  • A guardian for the patient, if one has been appointed;
  • The patient’s spouse or domestic partner;
  • An adult child of the patient;
  • A parent of the patient;
  • An adult brother or sister of the patient; or
  • A friend or other relative of the patient who meets the requirements

Id. While this statutory recognition is great for ad hoc or crisis situations, it may not be a viable long term solution for clients.  Sometimes the ADP’s illness will drive them to fight against decisions which are objectively being made in their best interests.  Then the loved one in that situation will want the imprimatur of a court order.

The Circuit Court in the Maryland County where the ADP resides or is admitted to receive medical treatment is the proper venue for filing for a guardianship and it has the authority to appoint a guardian.  Md. Rule 10-201; Estates & Trusts § 13-704(a)(2).  The Petition is the document whereby a client (through her attorney) requests that the court appoint someone as guardian.  Among other basic informational items, the Petition will need to include: a description of less restrictive alternatives to guardianship that have been attempted and failed; facts as to the need for a guardianship; and two certificates signed by medical doctors (or one can be signed be an licensed psychologist or licensed clinical social worker) attesting to the ADP’s need for a guardianship.  The timing of the certificates is important as one needs to be completed within 21 days of filing the petition.  A seasoned guardianship attorney will give you a checklist of the required documents and information in order for the Petition to be accepted by the Court.

The Petitioner (the one filing for guardianship) has to meet the burden of proving that the ADP:

  • Lacks sufficient understanding or capacity to make or communicate responsible decisions concerning his person
  • Because of any mental disability, disease, habitual drunkenness, or addiction to drugs,and
  • That no less restrictive form of intervention is available which is consistent with the person’s welfare and safety

Estates & Trusts § 13-705.

The Court will appoint an attorney for the ADP, and it is very likely that the court appointed attorney will be paid out of the ADP’s assets.  For a married couple, this can mean that the two parties will be paying for both sets of attorney’s fees.  It can seem counter-intuitive to have to pay for an attorney to fight against you, but a guardianship seeks to take away the inalienable right of self-determination regarding one’s person.  A court will not do so lightly.

Consult with your fiduciary litigation attorney to go over the options regarding a loved one who can no longer make decisions for themselves and has not executed incapacity planning documents.  If you have not already done so, then consult with an estate planning attorney to prepare for incapacity.  It is truly a case where, as Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.”

David A. (Andy) Hall, Esq.
King|Hall LLC
410-696-2045
5300 Dorsey Hall Drive
Suite 107
Ellicott City, Maryland 21042
andy@kh.legal

457526bfb82f4540ba08c7cce8e707dd