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What Do I Need to Know About Powers of Attorney?
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What Do I Need to Know About Powers of Attorney?

People frequently devote their efforts to their wills and trusts. Choosing a person to serve as their power of attorney is often a last-minute decision.

Forbes’ article, “9 Things You Need To Know About Power Of Attorney,” reminds us that it’s an important decision and not one that should be taken lightly. Let’s look at what you need to know to get your POA right.

Understand what it means. With a POA, you select a person as your attorney-in-fact (or agent) to make financial decisions for you. This gives your agent control over any assets held in your name alone.

Look at your options. There are two types of powers of attorney. A durable power of attorney is effective when you sign it. It survives your incapacity. A springing power of attorney goes into effect when you’re incapacitated. A springing power of attorney is more difficult to use. Your agent must prove that you’re incapacitated usually through some written confirmation by one or more physicians. Even though the document states how to do that, banks frequently are hesitant to make that determination. Thus, most attorneys advise you to execute a durable power of attorney and often will hold the original POA until it is needed, as an extra protection.

Make a wise decision. You may wonder if your agent can steal your money, and unfortunately the answer is “yes.” Your agent will have access to your financial accounts and could use your funds for his own benefit. The agent has a fiduciary duty to use the assets only for your benefit or as you direct in the document so you could later sue the agent for theft and misuse of your funds.

Abuse. Depending on the terms of the power of attorney, your agent may have the ability to amend the ownership of your bank accounts or change your beneficiary designations. This is common in second marriages. The transfer often occurs right before the spouse passes away, typically when the husband is dying in the hospital. If the husband’s will leaves his large bank accounts to his children from his first marriage, the second wife with power of attorney can add herself as a joint owner of the account. When the husband dies, she’s the surviving joint owner and liquidates the account. Siblings also do this to direct mom’s assets away from their brothers or sisters.

Designate an alternate. If your agent dies before you or is incapacitated, you should appoint a back-up who can act.

Read through the document. Take a look though the powers listed in the document and make sure you’re comfortable with what it allows.

The POA dies with you. Once you pass away, the POA is no longer valid. Your will then controls what happens to your assets.

Your revocable trust should be funded. If you fund your trust during your lifetime, you may not need to use your power of attorney. However, you should still have one just in case. Ask an experienced estate planning attorney about this.

Reference: Forbes (September 12, 2019) “9 Things You Need To Know About Power Of Attorney”

 

Can You Make a Short-Term Change to a Will?

People usually make changes to their wills when their relationship with heirs have changed or if they get divorced or when a spouse dies. They also change their wills when they do a regular review which should be done every three or four years. However, most people make changes that are permanent, says nwi.com in the article “Temporarily changing a will.”

There are three ways to change a will, none of which is temporary.

The first is to fully revoke the will. This can be done by executing a revocation, or by physically destroying it, by tearing it up or shredding it. If you revoked the will in full, you’ve changed it, because it no longer exists or is no longer valid. However, that’s not temporary.

Another way to change a will, and the one that most people do, is by executing a new will. A new will should include language that states that all prior wills and codicils (i.e., amendments) are revoked and the new will is the only valid one. By executing a new will, you’ve changed the original will by revoking it. Again, this is not a temporary change. It’s permanent or it is permanent until you execute a new will or revoke the will by destroying it.

The third way to change a will is to execute an amendment to the will. This amendment to the will is known as a “codicil.” By executing a codicil, an existing will is still valid, except for the portions in the will that are addressed by the codicil.

These are the most common ways to change a will. However, none of them is temporary. Anything that is done to change the will has a lasting effect, not a temporary one.

If the will is physically revoked it no longer exists. If a new will is executed the old one is revoked. And if you revoke the subsequent will, the original does not necessary become valid again.

There is a line of cases that say if a subsequent will turns out to be invalid, the prior one remains valid. However, the reasoning here is that the original will was never revoked in the first place because the revocation failed. However, if the subsequent will was revoked, rather than failed because it was invalid, that would not be the case.

You might execute a codicil amending the will, and then revoke the codicil, but that may not work, depending on other facts and circumstances.

There is no such “temporary revocation”. Speak with an experienced estate planning attorney to clarify your reasoning for seeking a  change to your estate plan and find out how it might be accomplished. Never tear up a will as it will create more issues for your loved ones without a will than if you kept the original one.

Reference: nwi.com (Sep. 8, 2019) “Temporarily changing a will.”

 

Do It Yourself Estate Planning Leads to Bad Outcomes

While the attraction of simplicity and low cost is appealing, the results are all too often disastrous, affirms Insurance News in the article “Mind Your Mouse Clicks: DIY Estate Planning War Stories.” The increasing number of glitches that estate planning attorneys are seeing after the fact has increased as much as the number of people using online estate planning forms. For estate planning attorneys who are concerned about their clients and their families, the disasters are troubling.

A few clumsy mouse clicks can derail an estate plan and adversely affect the family. Here are five real life examples.

Details matter. One of the biggest and most routinely made mistakes in DIY estate planning goes hand-in-hand with simple wills, where both spouses want to leave everything to each other. Except this typical couple neglected something. See if you can figure out what they did wrong:

John’s will: I leave everything to my wife Phyllis. Phyllis’ will: I leave everything to my wife Phyllis.

Unless John dies and Phyllis marries someone named Phyllis, this will is not going to work. It seems like a simple enough error but the courts are not forgiving of errors.

Life insurance mistakes. Jeff owns a life insurance policy and has been using its cash value as a “rainy day” fund. He had intended to swap the life insurance into his irrevocable grantor trust in exchange for low-basis stock held in the trust. The swap would remove the life insurance from Jeff’s estate without exposure to the estate tax three-year rule and the stock would receive a stepped-up basis at death leading to tax savings on both sides of the swap.

However, Jeff had a stroke recently and he’s incapacitated. He planned ahead though or so he thought. He downloaded a free durable power of attorney form from a nonprofit that helps the elderly. The POA specifically included the power to change ownership of his life insurance. Jeff put his name in the space designated for the POA. As a result, the insurance company won’t accept the form and the swap isn’t going to happen.

Incomplete documents. Ellen created an online will leaving her entire probate estate to her husband. It was fast, cheap and she was delighted. However, she forgot to click on the space where the executor is named. The website address for the website company is the default information in the form, which is what was created when she completed the will. The court is not going to appoint the website as her executor. Her heirs are stuck, unless she corrects this. Hope has a terrible estate plan which will not work when she passes.

Letting the form define the estate plan. Single parent Joan has a 6-year-old son. Her will includes a standard trust for minors providing income and principal for her son until he turns 21, at which point he inherits everything. Joan met with a life insurance advisor and applied for a $1 million convertible 20–year term life insurance policy. It will be payable to the trust. However, her son has autism and receives government benefits. There are no special needs provisions in her will so her son will most likely risk losing any benefits, if and when he inherits the policy proceeds.

Don’t set it and forget it. One couple created online wills when the estate tax exclusion was $2 million. They created a credit shelter, or bypass trust to reduce their estate taxes by allowing each of them to use their estate tax exclusion amount. However, the federal estate tax exclusion today is $11.4 million per person. With $4 million in separate assets and a $2 million life insurance policy payable to children from a previous marriage, the husband’s separate assets will go into the bypass trust. None of it will go to his wife.

An experienced estate planning attorney who is licensed to practice in your state is the best source for creating and updating estate plans, preparing for incapacity and ensuring that tax planning is done efficiently.

Reference: Insurance News Net (Sep. 9, 2019) “Mind Your Mouse Clicks: DIY Estate Planning War Stories”

 

Estate Planning Is for Everyone, at Every Age

As we go through the many milestones of life, it’s important to plan for what’s coming, and also plan for the unexpected. An estate planning attorney works with individuals, families and businesses to plan for what lies ahead, says the Cincinnati Business Courier in the article “Estate planning considerations for every stage of life.” For younger families, having an estate plan is like having life insurance: it is hoped that the insurance is never needed, but having it in place is comforting.

For others, in different stages of life, an estate plan is needed to ensure a smooth transition for a business owner heading to retirement, protecting a spouse or children from creditors or minimizing tax liability for a family.

Here are some milestones in life when an estate plan is needed:

Becoming an adult. It is true, for most 18-year-olds estate planning is the last thing on their minds. However, at 18 most states consider them legal adults, and their parents no longer control many things in their lives. If parents want or need to be involved with medical or financial matters, certain estate planning documents are needed. All new adults need a general power of attorney and health care directives to allow someone else to step in, if something occurs.

That can be as minimal as a parent talking with a doctor during an office appointment or making medical decisions during a crisis. A HIPAA release should also be prepared. A simple will should be considered, especially if assets are to pass directly to siblings or a significant person in their life, to whom they are not married.

Getting married. Marriage unites individuals and their assets. For newly married couples, estate planning documents should be updated for each spouse, so their estate plans may be merged, and the new spouse can become a joint owner, primary beneficiary and fiduciary. In addition to the wills, power of attorney, healthcare directive and beneficiary designations also need to be updated to name the new spouse or a trust. This is also a time to start keeping a list of assets in case someone needs to access accounts.

When children join the family. Whether born or adopted, the entrance of children into the family makes an estate plan especially important. Choosing guardians who will raise the children in the absence of their parents is the hardest thing to think about, but it is critical for the children’s well-being. A revocable trust may be a means of allowing the seamless transfer and ongoing administration of the family’s assets to benefit the children and other family members.

Part of business planning. Estate planning should be part of every business owner’s plan. If the unexpected occurs, the business and the owner’s family will also be better off, regardless of whether they are involved in the business. At the very least, business interests should be directed to transfer out of probate, allowing for an efficient transition of the business to the right people without the burden of probate estate administration.

If a divorce occurs. Divorce is a sad reality for more than half of today’s married couples. The post-divorce period is the time to review the estate plan to remove the ex-spouse, change any beneficiary designations, and plan for new fiduciaries. It’s important to review all accounts to ensure that any controlling-on-death accounts are updated. A careful review by an estate planning attorney is worth the time to make sure no assets are overlooked.

Upon retirement. Just before or after retirement is an important time to review an estate plan. Children may be grown and take on roles of fiduciaries or be in a position to help with medical or financial affairs. This is the time to plan for wealth transfer, minimizing estate taxes and planning for incapacity.

Contacting an experienced estate planning attorney to help assist you is your best bet.

Reference: Cincinnati Business Courier (Sep. 4, 2019) “Estate planning considerations for every stage of life.”

 

When are You Done with Estate Planning?

A family has set up their estate plan. Two sons are already in the farming business and are thriving. Their daughter will receive the proceeds from a second-to-die life insurance policy and their considerable savings. The amounts are not equal in amount, but they are an equitable inheritance, and it seems like the couple has done its homework.

However, asks an article in The Courier, “The will is done, you’re sitting pretty—but are you?”

Estate planning is a lot like putting together a jigsaw puzzle. Like farming, it gets put together over time, piece by piece. Each piece represents something that needs to be done. For instance, a key part of the puzzle is having a Last Will and Testament. That functions like building the outside frame of the puzzle for those who start their puzzles by building the perimeter first. It frames the rest of your estate plan.

Other pieces are included within the will like naming a personal representative or executor. This is the person who is in charge of distributing your assets and making sure that the directions in your will are followed when you pass away.

Do you have a plan for what happens when you die? For instance, if a husband dies, is there a plan for the wife to maintain the farm, or will she sell machinery and other transitory assets?

For the couple mentioned above who has the will, a transition spelled out in the will and a second-to-die policy in place to supplement the daughter’s inheritance, congratulations: they have many pieces of the puzzle in place. However, that’s not everything.

The other parts of the puzzle have to do with issues while the couple is still living. What happens if one or both are injured, or become ill? Who should take over the farming in the short or long term? Who will care for the spouse or spouses? Will they depend on each other for caretaking or their daughter?

The number one worry for seniors is whether they have enough money to last until they die. However, by taking a portion of their savings and investing in a long-term care insurance policy, they can rest assured that they or their spouse will get the care they need—in a nursing home or at home—without burning through the family’s savings.

This piece of the estate planning puzzle—preparing for illness or disability—is often missing, and it can turn the rest of the estate plan into a pile of unattached pieces.

Speak with an experienced estate planning attorney today to make sure your estate plan does not have any missing pieces. If you have not recently reviewed your estate plan in the last three or four years, schedule a review. Changes in the law and changes in your own life may make your old estate plan out of date and may no longer achieve the goals you had in mind.

Reference: The Courier (Sep. 4, 2019) “The will is done, you’re sitting pretty—but are you?”

 

How Do I Deed My Home into a Trust?

Say that a husband used his inheritance to purchase the family home outright. The wife signed a quitclaim deed to him to put the property into his living trust with the condition that if he died before his wife, she could live in the home until her death.

However, a common issue is that the husband or the creator of the trust never signed the living trust. So what would happen to the property if the husband were to die before the wife?

This can be complicated if the couple lives out-of-state and it’s a second marriage for each of the spouses. They both also have adult children from prior marriages.

The Herald Tribune’s recent article, “Home ownership complications need guidance from estate planning attorney,” says that in this situation it’s important to know if the deed was to the husband, individually or to his living trust. If the wife deeded the home to her husband, individually, he then owns her share of the home. However, if the wife deeded the home to his living trust, and the trust was never created, the wife may still own the husband’s interest in the home. You need to contact an experienced estate planning attorney if this is the case.

First, the wife should see if the deed was even filed or recorded. If it wasn’t recorded or filed, she could simply destroy the document and keep the status of the title as it was. However, if the document was recorded and she transferred ownership to her husband, he would be the sole owner of the home, subject to her marital rights under state law.

If the trust doesn’t exist, her deed transfer to an entity that doesn’t exist would create a situation, where she could claim that she still owned her interest in the home. However, the home may now be owned by the spouses, as tenants in common, rather than joint tenants with rights of survivorship.

To complicate things further, if the husband now owns the home and the wife has marital rights in the home, upon his death, she may still be entitled to a share of the home under her husband’s will, if he has one, or by the laws of intestacy. However, the husband’s children would also own a share of his share of the home. At that point, the wife would co-own the home with his children.

You can see how crazy this can get. It’s best to seek the advice of a qualified estate planning attorney to guide you through the process and make sure that the proper documents get signed and filed or recorded.

Reference: The (Sarasota, FL) Herald Tribune (September 8, 2019) “Home ownership complications need guidance from estate planning attorney”

 

What Are The Essential Estate Planning Documents?

Forbes’ recent article, “Retirement, Estate Planning: Documents You Should Have,” says that in this time of life, while emotions are running high, it’s critical to be make sure your financial and legal matters are in order.

Putting together a well thought out financial plan and creating an estate plan lets you be certain that personal, financial, and health wishes will be carried out the way you want. Managing your estate, regardless of the size, starts with working with an experienced estate planning attorney who will help give you greater control, privacy and security of your legacy. Here are the documents you need to get started:

Will. This is a legal document that is used to detail your wishes regarding the distribution of your assets and property, as well as the care of any minor children, by naming a guardian in the event your pass away while they’re still young.

Durable Power of Attorney. This is a written authorization that gives a trusted family or friend the authority to act on your behalf in business, legal, and financial matters, if you’re unable to act for yourself due to a mental or physical disability. The requirements are different in each state, so ask your attorney about the right form and language to include.

Health Care Proxy. This is also known as a living will. It is another legal document that states your health care preferences in case you become incapacitated or unable to speak for yourself. It also allows you to say how you’d like your end-of-life care to be handled.

Information Document. Another important part of your estate plan is a document that contains bank account information, passwords, insurance policies, contact information for attorneys, financial planners and any other significant data regarding your personal estate and final wishes. It provides important information to family in the event of an emergency.

Plan for the future, by making certain that your loved ones know and are able to carry out your final wishes.

Reference: Forbes (August 28, 2019) “Retirement, Estate Planning: Documents You Should Have”

 

More Reasons to Review Your Estate Plan

Every estate planning attorney will tell you that they meet with people every day who sheepishly admit that they’ve been meaning to review their estate plan but just haven’t gotten to it. Let the guilt go.

Attorneys know that no one wants to talk about death, taxes or illness, says Wicked Local in the article “Five Reasons to Review Your Estate Plan.” However, there are five times when even an appearance before the Queen of England has to come second to reviewing your estate plan.

You have minor children. An estate plan for a couple with young children must do two very important things: address the care and custody of minor children should both parents die and address the management and distribution of the assets that the children will inherit. The will is the estate planning document used to name a guardian for minor children. The guardian is the person who will determine where your children will live and go to school, what kind of health care they receive and make all daily decisions about their care and upbringing.

If you don’t have a will, the court will name a guardian. You may not like the court’s decision. Your children might not like it at all. Having a will takes care of this important decision.

Your estate is worth more than $1 million. While the federal estate plan exemptions currently are at levels that remove federal tax from most people’s estate planning concerns, there are still state estate taxes. Some states have inheritance taxes. Whether you are married or single, if your assets are significant, you need an estate plan that maps out how assets will be left to your heirs and to plan for taxes.

Your last estate plan was created before 2012. There have been numerous changes in state estate tax laws regarding wills, probate and trusts in Massachusetts. This is not the only state that has seen major changes. There have been big changes in federal estate taxes. Strategies that were perfect in the past, may no longer be necessary or as productive because of these changes. While you’re making these changes, don’t forget to deal with digital assets. That includes email accounts, social media, online banking, etc. This will protect your fiduciaries from breaking federal hacking laws that are meant to protect online accounts, even when the person has your username and password.

You have robust retirement plans. Your will and trust do not control all the assets you own at the time of death. The first and foremost controlling element in your asset distribution is the beneficiary designation. Life insurance policies, annuities, and retirement accounts will be paid to the beneficiary named on the account, regardless of what your will says. Part of a comprehensive will review is to review beneficiary designations on each account.

You are worried about long-term care costs. Estate planning does not take place in a vacuum. Your estate plan needs to address issues like your plan, if you or your spouse need care. Do you intend to stay in your home? Are you going to move to live closer to your children, or to a Continuing Care Retirement Community? Do you have long-term insurance in place? Do you want to plan for Medicaid eligibility?

All of these issues need to be considered when reviewing and updating your estate plan. If you’ve never had an estate plan created, this is the time. Put your mind at ease, by getting this off your “to do” list and contact an experienced estate planning attorney.

Reference: Wicked Local (Aug. 29, 2019) “Five Reasons to Review Your Estate Plan”

 

What Are My Estate Planning “Must Have’s”?

Many people think that having an estate plan just means drafting a will or a trust. However, there’s much more to include in your estate planning to be sure all of your assets are transferred directly to your heirs at your death. A successful estate plan also includes provisions allowing your family members to access or control your assets, if you become incapacitated.

Investopedia’s recent article, “6 Estate Planning Must-Haves,” provides us with a list of items every estate plan should include:

  • A will and/or a trust;
  • Powers of attorney;
  • Beneficiary designations;
  • A letter of intent – specific wishes; and
  • Guardianship designations.

In addition to these documents and designations, a thorough estate plan also should consider the purchase of insurance, like long-term care insurance (if available), a lifetime annuity to generate some level of income until death and life insurance to pass money to beneficiaries without probate.

Let’s look at each item on this checklist to make sure you haven’t left any decisions to chance.

Wills and Trusts. A will or trust should be one of the primary parts of your estate plan even if you don’t have a lot of assets. Wills make certain that your assets are distributed according to your instructions. Some trusts also help limit estate taxes or legal challenges. Talk to an experienced estate planning attorney about wills and trusts.

Power Of Attorney. A durable power of attorney (POA) allows an agent or a person you assign to act on your behalf if you are unable to do so yourself. A healthcare proxy (HCP) designates another person to make critical healthcare decisions on your behalf in the event of incapacity.

Beneficiary Designations. Some of your assets will pass to your heirs without being mentioned in your will such as 401(k) plan assets. Therefore, maintain a beneficiary and a contingent beneficiary on these types of accounts. Likewise, insurance plans should have a beneficiary and a contingent beneficiary because they also pass outside of a will. Your beneficiaries should be over 21 and mentally competent.

Letter of Intent. This is simply a document for your executor or a beneficiary to define what you want done with a particular asset after your death or incapacitation. Some letters of intent also contain funeral details and other special requests. A letter of intent isn’t legally binding.

Guardians. If you have minor children or are considering having kids, naming a guardian is very important. Be sure the person(s) shares your views, is financially sound and willing to raise your children. You should also name a backup or contingent guardian.

Without these designations, a court could order your children to live with a family member you wouldn’t have selected, or in some instances, the court could instruct that your children become wards of the state.

A will is a great place to start, but it’s only the starting point.

It is very important that you contact an experienced estate planning attorney to assist you in the preparation of these important documents.

Reference: Investopedia (July 16, 2019) “6 Estate Planning Must-Haves”

 

So, You Have to Manage Someone Else’s Money – Now What?

This sounds like a disaster in the making. A durable power of attorney document must follow the statutory requirements, must delegate proper authority, must consider the timing of when the agent may act and a host of other issues that must be addressed, warns My San Antonio in the article “Guide to managing someone else’s money.” A durable power of attorney document can be so far reaching that a form downloaded from the Internet is asking for major trouble.

Start by speaking with an experienced estate planning attorney to provide proper advice and draft a legally valid document that is appropriate for your situation.

Once a proper durable power of attorney has been drafted, talk with the agent you have selected and with the successor agents you want to name, about their roles and responsibilities. For instance:

When will the agent’s power commence? It may start immediately, or it may not become active, until the person becomes incapacitated.

If the power is postponed, how will the agent prove that the person has become incapacitated? Will he or she need to go to court?

What is the extent of the agent’s authority? This is very important. Do you want the agent to be able to talk with the IRS about your taxes?, with your investment advisor? will the agent have the power to make gifts on your behalf, and to what extent? May the agent set up a trust for your benefit?, can the agent change beneficiary designations and what about caring for your pets? Can they talk with your lawyer or accountant?

When does the agent’s authority end? Unless the document sets an earlier date, it ends when you revoke it, when you die, when a court appoints a guardian for you, or if your agent is your spouse, when you divorce.

What does the agent need to report to you? What are your expectations for the agent’s role? Do you want immediate assistance from the agent or will you continue to sign documents for yourself?

Does the agent know how to avoid personal exposure? If the agent signs a contract for you by signing his or her own name that contract may be performed by the agent. Legally, that means that the cost of the services provided could be taken out of the agent’s wallet. Does the agent understand how to sign a contract to avoid liability?

All of these questions need to be addressed long before any durable power of attorney papers are signed. Both you and the agent need to understand the role of a power of attorney. An experienced estate planning attorney will be able to explore all the issues inherent in a durable power of attorney and make sure that it is the correct document.

Reference: My San Antonio Life (Aug. 26, 2019) “Guide to managing someone else’s money”