Topics: Estate Planning
What is a life estate?
The term “life estate” refers to property that is owned by an individual only through the duration of his or her lifetime. Therefore, it’s always for an indefinite period of time. We usually encounter life estates when dealing with real estate. When you have a life estate, you are called the “life tenant.” For example, you can sell or give your home to your children, but retain a “life estate,” thereby reserving the right to live in, use, enjoy, and control the home until you die. Your children would be called the “remaindermen.”
When Massachusetts adopted its own version of the Uniform Probate Code (MUPC) in 2012, it changed what happens to your estate if you die without a will, technically called dying "intestate." The results depend on whether you're married, have children or have living parents. The rules are very specific. Here are a few examples:
My new client was recently widowed. She is healthy, living on her own in the house she shared with her husband for many decades. She is comfortable financially with significant savings in addition to the home, but by no means wealthy. Her four children all have families of their own and they and their spouses have good jobs, so they don't need her financial support.
I met with her and her son. They asked whether the mom should put her home, and perhaps some of her savings, into an irrevocable trust in order to protect them in the event she needs long-term care. She also expressed her steadfast wish to stay at home.
The George Clooney character in The Descendants is under pressure to sell extremely valuable Hawaiian land held in trust for his family for over a hundred years because if he doesn't act soon the trust will terminate with the property being distributed outright to dozens of family members. They might never agree among themselves on what to do with the property without expensive and extensive litigation.
The reason the trust will end? The "rule against perpetuities," the bugaboo of many a first-year law student.
The law deems us to be of full legal capacity when we reach age 18, unless we’re incapacitated for some reason other than insufficient age. And we’re presumed to be competent until a court decides otherwise. So what should parents do when they have a special needs child who is about to turn 18? As with most things, there is no hard and fast rule or simple answer.
Trusts commonly provide that distributions may be made for the "reasonable maintenance, comfort and support" of the beneficiary. These are often part of the so-called "HEMS" standard -- "health, education, maintenance and support" -- that the Internal Revenue Service has deemed to create a safe harbor. If distributions are limited to this standard, they will not be deemed to belong to the trustee when she dies. But what do these words really mean?
The case of Harootian v. Douvadjian (80 Mass. App. Ct. 565, October 4, 2011) helps answer this question, and the answer is that these words give very wide discretion to the trustee. Andrew H. Ansbigian left a trust for the benefit of his wife, Beatrice, and also named her as trustee. The trust provided that she could make distributions for her own "support in reasonable comfort and maintenance."
My client acts as agent for her father under a longstanding durable power of attorney. Unfortunately, tensions are developing between her and her brother who has been consulting with other attorneys about asking their father to execute a new durable power of attorney appointing him.
My client wants to know how we can stop this from happening and why the doctor's declaration that their father is no longer competent isn't sufficient.