From our colleagues at AmeriTrust:
BY: Quin Swiney, J.D. | Assistant Vice President/Trust Administration, AmeriTrust Corporation
BY: Kenny Brown, Jr, MBA | Senior Vice President, Chief Operating Officer, AmeriTrust
In the popular movie The Princess Bride, one of the funniest scenes features the villain Vizzini repeating the word inconceivable.
After he says it for the fifth time, the swordsman Inigo Montoya turns to him and says, “You keep using that word. I do not think it means what you think it means.”
At AmeriTrust, we feel that way every time we find imprecise language in trust and power of attorney (POA) documents. (And for the record, we find such language a lot.)
Some of the stock phrases commonly used in legal documents can actually create undesirable outcomes.
Here’s a true story that illustrates this problem. It demonstrates the importance of making sure the language in your trust documents and POAs is clear and easy for your trustees and beneficiaries—and judges—to interpret and follow in real life.
(NOTE: Some details have been altered to protect the client’s identity, but the essential story is true.)
A Meticulous Client
Years ago, an older man (we’ll call him Mr. B.) asked AmeriTrust to oversee all aspects of his financial planning.
Around the same time, he had an attorney begin working on a comprehensive set of legal documents for him—a trust, power of attorney for finances, and some advanced directives.
Mr. B spelled out his wishes in no uncertain terms:
1| He wanted to remain in his beloved home, despite the increasing obstacles brought on by age.
2| Despite having two adult sons, he wanted AmeriTrust to serve as his Power of Attorney, granting us authority to manage his assets.
In short, Mr. B. was determined to avoid guardianship and probate while maintaining full control over his financial affairs.
With these goals in mind, the documents intended to safeguard his assets and preserve his independence were finalized.
But then…
An Unexpected Accident
Mr. B’s health began to deteriorate. And when he resisted certain forms of assistance, he suffered a severe fall.
This triggered a chain reaction…a surgery, followed by a stint in skilled nursing care, and the inability to walk unassisted.
A Surprise Development
In response to this crisis, one of Mr. B’s sons filed for guardianship. His motives were good; he wanted to ensure his father’s well-being. But the court, in granting this petition, effectively neutralized the POAs Mr. B had created!
Suddenly, the son had full authority over all his father’s financial and medical affairs.
This meant AmeriTrust’s authority and ability to act on Mr. B’s behalf—in accordance with his clearly expressed desires—was significantly curtailed.
Talk about ironic! All those painstakingly-prepared legal documents designed to prevent guardianship proved to be powerless in the face of real-life events.
The court’s edict changed everything. This outcome was the exact opposite of what Mr. B wanted.
Mr. B’s experience is a real-life cautionary tale. It vividly showcases the critical importance of word choice in legal constructs.
The Root Problem
In this case, the central issue was “springing language” in Mr. B’s POA.
“Springing language” refers to a standard provision found in legal documents like powers of attorney and trust agreements.
The term derives its name from the fact that it only becomes effective (or “springs into action”) when the grantor (the person who establishes the document) becomes unwilling or unable to manage their own affairs.
Springing language outlines the conditions under which someone else can assume control over certain responsibilities or decision-making authority from the grantor.
This common, provisional language is intended to safeguard the grantor’s interests and provide reassurance that no one will take over their affairs prematurely or without just cause.
It operates on the principle that the grantor remains in control until they become unwilling or unable to manage their own affairs.
At that point, a designated successor trustee or power of attorney is permitted to step in and assume responsibility for managing financial matters, making decisions, or fulfilling other obligations on the grantor’s behalf.
The usual standard employed in such documents to determine the need for intervention is when the grantor is deemed “incompetent” or “incapacitated.” This determination is typically made through two methods:
1| The grantor is placed under guardianship by the court; or
2| Two doctors certify in writing that the grantor lacks the capacity to handle their affairs.
Relying on this kind of vague springing language presents real-life challenges, as illustrated by Mr. B’s case. In his situation, he never accepted his inability to handle his financial obligations, physical well-being, or medical affairs.
But because of the language in the document, the son was able to obtain guardianship and assume the decision-making role in his father’s affairs…in complete contradiction to the plans Mr. B had made years before!
(Alternatively, as noted above, the son would have needed letters from two doctors affirming his father’s incapacity. This generally proves difficult in practice for at least two reasons. One, many physicians are hesitant to make such a drastic determination and put it in writing, even when the need is evident. Two, finding two doctors who are unfamiliar with the client and yet still willing to conduct evaluations and provide written assessments within a limited timeframe can be a daunting task.)
In short, because the potential for these kinds of problems is always present when broad springing language is used, we recommend avoiding springing language altogether in legal documents. Or, we at least advise adding detailed provisions that eliminate any kind of ambiguity.
For example, language might be included that allows adult beneficiaries to form a committee to assess whether the grantor requires assistance and even to vote on whether a trustee should assume control. This committee’s membership may or may not include the trustee.
Safeguard your future
To avoid ending up in a situation like Mr. B faced, we recommend the following:
1| Review Your Existing Documents
If you have estate planning documents in place, don’t assume everything is in order. Review them critically to ensure they clearly express your intentions. Take time to understand the language used and how it impacts the execution of your wishes. Look out for common pitfalls such as vague “springing language,” conflicting powers of attorney, or any other provisions that could be misinterpreted and hinder the fulfillment of your desired outcomes.
And if you aren’t sure what you’re reading…or don’t yet have estate planning documents…
2| Seek Professional Guidance
Reach out to an attorney who specializes in estate planning. This is a complex field that requires special expertise. You’ll want a legal professional who prioritizes clear communication and who is willing to work collaboratively with designated trustees and other stakeholders to ensure you end up with a comprehensive estate plan that perfectly and plainly reflects your wishes.
If you’re overwhelmed by this or not sure where to turn, our team at AmeriTrust would be glad to help you review your documents and/or put you in touch with a respected legal expert in your area who specializes in these matters.
3| Embrace a Team Approach
Recognize that a successful estate plan extends beyond legal documents alone. Establishing a team approach can help mitigate risks.
Ideally, in addition to any designated family members, your planning attorney and your trustee, you’ll want to include other professionals such as financial advisors, CPAs, even health care managers. In this way, each can contribute his/her expertise and perspective.
Such a holistic approach will ensure that all aspects of your estate plan, from financial matters to healthcare decisions, are clarified and aligned.
By proactively following these three steps, you can avoid the common pitfalls that arise from inadequate planning or unclear language and greatly increase the chances of your wishes being carried out.
Remember too that estate planning is an ongoing process. It’s vital to regularly review and update your documents as your life circumstances change.
Take these necessary steps today. Secure your legacy, and provide peace of mind for yourself and your loved ones.
Again, for assistance in reviewing and/or administering your estate plan, contact our team. We can recommend experienced estate planning attorneys and help facilitate a collaborative approach so that your wishes are effectively carried out.
