Does Power of Attorney Perform the Same Way in Every State?

A power of attorney is an estate planning legal document signed by a person, referred to as the “principal,” who grants all or part of their decision-making power to another person, who is known as the “agent.” Power of attorney laws vary by state, making it crucial to work with an estate planning attorney who is experienced in the law of the principal’s state of residence. The recent article from limaohio.com, titled “When ‘anything and everything’ does not mean anything and everything,” explains what this means for agents attempting to act on behalf of principals.

When a global or comprehensive power of attorney grants an agent the ability to do everything and anything, it may seem to the layperson they may do whatever they need to do. However, each state has laws defining an agent’s role and responsibilities.

As a matter of state law, a power of attorney does not include everything.

In some states, unless certain powers are explicitly stated, the POA does not include the right to do the following:

  • Create, amend, revoke, or terminate a trust
  • Make a gift
  • Change a beneficiary designation on an account
  • Change a beneficiary designation on a life insurance policy.

If you want your agent to be able to do any of these things, consult with an experienced estate planning attorney, who will know what your state’s law allows.

You’ll also want to keep in mind any gifting empowered by the POA. If you want your agent to gift your property to other people or to the agent, the power to gift is limited to $16,000 of value to any person in one year, unless the POA explicitly states the power to gift may exceed $16,000. An estate planning attorney will know what your state’s limits are and the tax implications of any gifts in excess of $16,000.

These types of limitations are intended to give some common-sense parameters to the POA.

Most people don’t know this, but the power of attorney can be as narrow or as broad as the principal wishes. You may want your brother-in-law to manage the sale of your home but aren’t sure he’ll do a good job with your fine art collection. Your estate planning attorney can create a power of attorney excluding him from taking any role with the art collection and empowering him to handle everything else.

Reference: limaohio.com (April 30, 2022) “When ‘anything and everything’ does not mean anything and everything”

Can a Vacation Home Be Kept in the Family for Generations?

Many family traditions include gatherings at vacation homes. However, leaving these properties to the next generation is not always in the best interest of the family. Some people try to make a simple solution work for a complex problem, leading to more challenges, as explained in the article “Succession planning for the family lakehouse” from NH Business Review.

Joint ownership among siblings can lead to disputes about how the home is used, operated and maintained. Some children want to continue using the house, while others may see it as an income stream for a rental property. There may be siblings who cannot afford to participate in the house’s upkeep and need the cash more than the tradition. When joint ownership is presented as a surprise in a will, the adult children may find themselves fighting about the vacation home, with no parent around to tell them to knock it off.

Making matters more complicated, if the siblings live in different states and the house is in a neighboring state, ownership of the real estate at death may subject the decedent’s estate to estate taxes where the property is located. As a result, the property may need to go through probate in an additional state. Every state has its own tax rules, so the transfer of joint property will have to be analyzed by an estate planning attorney knowledgeable about the laws in each state involved.

A sensible alternative is creating a Limited Liability Corporation, ideally while the original owners—the parents—are still living. The organizational documents include a certificate of organization to file with the Secretary of State and an operating agreement. The LLC will need its own taxpayer identification number, or EIN.

The operating agreement governs the management of the property and addresses the operating expenses and maintenance of the property. It should also address the process for a child to cash in on their ownership to other children. LLC operating agreements often include these items:

  • Responsibilities for operating expenses
  • Process to transfer member units or interests
  • Duties for regular maintenance, budgeting and approval of property improvements
  • Development of a property use schedule
  • Establishing rules for the home’s use

There are some costs associated with creating an LLC, including annual filing requirements. However, these will be small, when compared to the cost of family fights and untangling joint ownership.

An LLC can also offer personal liability protection from lawsuits brought by renters, creditors, or any litigants. If there is an accident resulting from work being done on the property, the owners may be shielded from the liability because they do not personally own the property, the LLC does.

In the case of divorce, bankruptcy filing, or a large judgement being filed against one of the children, the LLC will protect their interest in the property.

The real estate owned by the LLC is not part of the owner’s probate estate. This avoids the need for a second probate in the state where the property is located. Some states have adopted the Uniform Transfer on Death Security Registration Act, and the LLC membership interest can be assigned along to the terms of the beneficiary designation.

Planning for what will happen to a vacation home after death provides peace of mind for all in the family. Speak with an experienced estate planning attorney to ensure that the property and the family’s peace is preserved.

Reference: NH Business Review (March 23, 2022) “Succession planning for the family lakehouse”

Can Grandchildren Receive Inheritances?

Wanting to take care of the youngest and most vulnerable members of our families is a loving gesture from grandparents. However, minor children are not legally allowed to own property.  With the right strategies and tools, your estate plan can include grandchildren, says a recent article titled “Elder Care: How to provide for your youngest heirs” from the Longview News-Journal.

If a beneficiary designation on a will, insurance policy or other account lists the name of a minor child, your estate will take longer to settle. A person will need to be named as a guardian of the estate of the minor child, which takes time. The guardian may not be the child’s parent.

The parent of a minor child may not invest and grow any funds, which in some states are required to be deposited in a federally insured account. Periodic reports must be submitted to the court, and audits will need to be done annually. Guardianship requires extensive reporting and any monies spent must be accounted for.

When the child becomes of legal age, usually 18, the entire amount is then distributed to the child. Few children are mature enough at age 18, even though they think they are, to manage large sums of money. Neither the guardian nor the parent nor the court has any say in what happens to the funds after they are transferred to the child.

There are many other ways to transfer assets to a minor child to provide more control over how the money is managed and how and when it is distributed.

One option is to leave it to the child’s parent. This takes out the issue of court involvement but may has a few drawbacks: the parent has full control of the asset, with no obligation for it to be set aside for the child’s needs. If the parents divorce or have debt, the money is not protected.

Many states have Uniform Transfers to Minors Accounts. In Pennsylvania, it is PUTMA, in New York, UTMA and in California, CUTMA. Gifts placed in these accounts are held in custodianship until the child reaches 18 (or 21, depending on state law) and the custodian has a duty to manage the property prudently. Some states have limits on the amount in the accounts, and if the designated custodian passes away before the child reaches legal age, court proceedings may be necessary to name a new custodian. A creditor could file a petition with the court if there is a debt.

For most people, a trust is the best option for placing funds aside for a minor child. The trust can be established during the grandparent’s lifetime or through a testamentary trust after probate of their will is complete. The trust contains directions as to how the money is to be spent: higher education, summer camp, etc. A trustee is named to manage the trust, which may or may not be a parent. If a parent is named trustee, it is important to ensure that they follow the directions of the trust and do not use the property as if it were their own.

A trust allows the assets to be restricted until a child reaches an age of maturity, setting up distributions for a portion of the account at staggered ages, or maintaining the trust with limited distributions throughout their lives. A trust is better to protect the assets from creditors, more so than any other method.

A trust for a grandchild can be designed to anticipate the possibility of the child becoming disabled, in which case government benefits would be at risk in the event of a lump sum payment.

There are many options for leaving money to a minor, depending upon the family’s circumstances. In all cases, a conversation with an experienced estate planning attorney will help to ensure any type of gift is protected and works with the rest of the estate plan.

Reference: Longview News-Journal (Feb. 25, 2022) “Elder Care: How to provide for your youngest heirs”

What’s the Difference between Probate Assets and Non-Probate Assets?

Updating estate plans and reviewing beneficiary designations are both important estate planning tasks, more important than most people think. They’re easy to fix while you are alive, but the problems created by ignoring these tasks occur after you have passed, when they can’t be easily fixed or, can’t be fixed at all. The article “Who gets the brokerage account?” from Glen Rose Reporter shares one family’s story.

The father of three children had an estate plan done when the children were in their twenties. His Last Will and Testament directed all assets in a substantial brokerage account to be equally divided between the three children.

His Last Will was never updated.

Thirty years later, his two sons are successful, affluent physicians with high incomes. His daughter is a retired educator who had raised two children as a single mom and struggled financially for many years.

When her father met with his investment advisor, he signed a beneficiary designation leaving the substantial brokerage account, including the substantial growth occurring over the years, to his daughter.

When he dies, the two brothers claim his Last Will, dividing all assets equally, must be the final word. They insist the brokerage account is to be divided equally among the three children.

Any assets held in an account with a beneficiary designation are considered non-probate assets. They do not pass through the probate process. Their disposition is not controlled by the Last Will. The contract between the institution and the individual is paramount.

Insurance policies, retirement accounts, bank and brokerage accounts usually have these designations. They often include a pay-on-death provision, and the person who is to receive the assets upon death of the owner is clearly named.

If the owner of the account fails to sign a right of survivorship, pay-on-death or to name a beneficiary designation before they die, then the assets are paid by the financial institution to the probate estate. This is to be avoided, however, since it complicates what could be a simple transaction.

The two sons were correctly advised by an estate planning attorney of their sister’s full and protected right to receive the investment account, despite their wishes. When the provisions in the Last Will conflict with a contract made between an owner and a financial institution, the contract prevails.

In this case, a less financially secure daughter and her family benefited from the wishes and foresight of her father.

Last Wills and beneficiary designations need to be reviewed and revised to ensure that they reflect the wishes of the parent as time goes by.

Reference: Glen Rose Reporter (Jan. 13, 2022) “Who gets the brokerage account?”

When Do I Need to Review My Will?

You should take a look at your will and other estate planning documents at least every few years, unless there are reasons to do it more frequently. Some reasons to do it sooner include things like marriage, divorce, birth or adoption of a child, coming into a lot of money (i.e., inheritance, lottery win, etc.) or even moving to another state where estate laws are different from where your will was drawn up.

CNBC’s recent article entitled “When it comes to a will or estate plan, don’t just set it and forget it. You need to keep them updated” says that one of the primary considerations for a review is a life event — when there’s a major change in your life.

The pandemic has created an interest in estate planning, which includes a will and other legal documents that address end-of-life considerations. Research now shows that 18- to 34-year-olds are now more likely (by 16%) to have a will than those who are in the 35-to-54 age group. In the 25-to-40 age group, just 32% do, according to a survey. Even so, fewer than 46% of U.S. adults have a will.

If you’re among those who have a will or comprehensive estate plan, here are some things to review and why. In addition to reviewing your will in terms of who gets what, see if the person you named as executor is still a suitable choice. An executor must do things such as liquidating accounts, ensuring that your assets go to the proper beneficiaries, paying any debts not discharged (i.e., taxes owed) and selling your home.

Likewise, look at the people to whom you’ve assigned powers of attorney. If you become incapacitated at some point, the people with that authority will handle your medical and financial affairs, if you are unable. The original people you named to handle certain duties may no longer be in a position to do so.

Some assets pass outside of the will, such as retirement accounts, like a Roth IRA or 401(k)plans and life insurance proceeds. As a result, the person named as a beneficiary on those accounts will generally receive the money, regardless of what your will says. Note that 401(k) plans usually require your current spouse to be the beneficiary, unless they legally agree otherwise.

Regular bank accounts can also have beneficiaries listed on a payable-on-death form, obtained at your bank.

If you own a home, make sure to see how it should be titled, so it is given to the person (or people) you intend.

Reference: CNBC (Dec. 7, 2021) “When it comes to a will or estate plan, don’t just set it and forget it. You need to keep them updated”

What a Will Can and Cannot Do

Having a will doesn’t avoid probate, the court-directed process of validating a will and confirming the executor. To avoid probate, an estate planning attorney can create trusts and other ways for assets to be transferred directly to heirs before or upon death. Estate planning is guided by the laws of each state, according to the article “Before writing your own will know what wills can, can’t and shouldn’t try to do” from Arkansas Online.

In some states, probate is not expensive or lengthy, while in others it is costly and time-consuming. However, one thing is consistent: when a will is probated, it becomes part of the public record and anyone who wishes to read it, like creditors, ex-spouses, or estranged children, may do so.

One way to bypass probate is to create a revocable living trust and then transfer ownership of real estate, financial accounts, and other assets into the trust. You can be the trustee, but upon your death, your successor trustee takes charge and distributes assets according to the directions in the trust.

Another way people avoid probate is to have assets retitled to be owned jointly. However, anything owned jointly is vulnerable, depending upon the good faith of the other owner. And if the other owner has trouble with creditors or is ending a marriage, the assets may be lost to debt or divorce.

Accounts with beneficiaries, like life insurance and retirement funds bypass probate. The person named as the beneficiary receives assets directly. Just be sure the designated beneficiaries are updated every few years to be current.

Assets titled “Payable on Death” (POD), or “Transfer on Death” (TOD) designate beneficiaries and bypass probate, but not all financial institutions allow their use.

In some states, you can have a TOD deed for real estate or vehicles. Your estate planning attorney will know what your state allows.

Some people think they can use their wills to enforce behavior, putting conditions on inheritances, but certain conditions are not legally enforceable. If you required a nephew to marry or divorce before receiving an inheritance, it’s not likely to happen. Someone must also oversee the bequest and decide when the inheritance can be distributed.

However, trusts can be used to set conditions on asset distribution. The trust documents are used to establish your wishes for the assets and the trustee is charged with following your directions on when and how much to distribute assets to beneficiaries.

Leaving money to a disabled person who depends on government benefits puts their eligibility for benefits like Supplemental Security Income and Medicaid at risk. An estate planning attorney can create a Special Needs Trust to allow for an inheritance without jeopardizing their services.

Finally, in certain states you can use a will to disinherit a spouse, but it’s not easy. Every state has a way to protect a spouse from being completely disinherited. In community property states, a spouse has a legal right to half of any property acquired during the marriage, regardless of how the property is titled. In other states, a spouse has a legal right to a third to one half of the estate, regardless of what is in the will. An experienced estate planning attorney can help draft the documents, but depending on your state and circumstances, it may not be possible to completely disinherit a spouse.

Reference: Arkansas Online (Dec. 27, 2021) “Before writing your own will know what wills can, can’t and shouldn’t try to do”

Should I Start Estate Planning Now?

The coronavirus has taken a toll on our finances, as well as our physical and mental health. As a result, it’s important to plan appropriately for your health care and financial needs in an estate plan to provide much-needed peace of mind, say Yahoo Finance’s recent article entitled “Estate Planning During a Pandemic – Quit Stalling.” The article lists the important components of a comprehensive estate plan:

Advance Health Care Directive. This is a written plan that states your wishes, in the event you can’t speak for yourself. Your wishes need to be in writing, and the document should be updated as your health changes. Review your advance health care directive with your doctor and the person you select as your health care proxy to be certain it’s completed correctly.

Health Care Power of Attorney. This legal document lets you name someone who can review your medical records and make decisions, such as how and where you should be treated. This would be applicable, if you were incapacitated and unable to make medical decisions for yourself.

Living Will. A living will is a type of advance health care directive that specifically states your end-of-life decisions in the event you are terminally ill or permanently unconscious. This covers specific medical treatments, like CPR, ventilation, pain management, tube feeding and organ and tissue donation.

Financial Power of Attorney. This document lets you name someone to help with your finances, if you become incapacitated and unable to do so. You can state how much control your power of attorney will have, like accessing accounts, selling stock and managing real estate.

Trusts. Ask an experienced estate planning attorney about creating a trust to protect your assets as you pass them down to your heirs. If your children or grandchildren aren’t old enough or mature enough to handle their inheritance, you can set up a trust that provides them with a small amount of money each year, increasing that amount as they get older. You can also direct that the money be specifically used for an adult child’s mortgage or student loans.

Beneficiaries. Many people forget to update their life insurance policies, bank, brokerage accounts and retirement plans. These all have beneficiary forms, which supersede a will. These should be updated, along with your estate plan, every few years and after every major life change. That’s something like a marriage, divorce, death, adoption, or birth.

Make certain that you are reviewing and updating your estate plan when you review your retirement plan each year or so.

Reference: Yahoo Finance (Oct. 31, 2021) “Estate Planning During a Pandemic – Quit Stalling”

What Should Same-Sex Couples Know about Estate Planning?

Proper estate planning can help ensure that your wishes are carried out exactly as intended in the event of a death or a serious illness, says Insurance Net News’ recent article entitled “What Same-Sex Partners Need to Know About Estate Planning.” Having a clearly stated plan in place can give clear instructions and potentially avoid any fights that otherwise might occur. For same-sex couples, this may be even more crucial.

Your estate plan should include a will or trust, beneficiary forms, powers of attorney, a living will and a letter of intent. It’s also smart to include a secure document with a list of your accounts, debts, assets and contact info for any key people involved in those accounts. This list should contain passwords for locked accounts and any other relevant information.

A will is a central component of an estate plan which ensures that your wishes are followed after you pass away. This alleviates your family from the responsibility of determining how to divide your property and takes the guessing and stress out of how to pass along belongings. A will or trust might also state the way in which to transfer your financial assets to your children. You should also make sure your beneficiary forms are up to date with your spouse for life insurance policies, bank accounts and retirement accounts.

For same-sex couples, it is particularly important to create a clear medical power of attorney and create a living will that states your medical directives, if you aren’t able to make those decisions on your own. If you aren’t married, this will give your partner the legal protection he or she needs to make those decisions. It is important for you to take time to have those conversations with your partner, so the plans and directives are clear. You can also draft a letter of intent, which is a written, personal note that can be included to help detail your wishes and provide reasoning for the decisions.

Protecting Your Minor Children. Name a legal guardian for them in your will, in the event both parents die. Same-sex couples must make sure that both parents have equal rights, especially in a case where one parent is the biological parent. If the surviving spouse or partner isn’t the biological parent and hasn’t legally adopted the children, don’t assume they’ll automatically be named guardian.  These laws vary from state to state.

Dissolve Old Unions. There could be challenges, if you entered into a civil union or domestic partnership before your marriage was legalized. Prior to the 2015 marriage equality ruling, some same-sex couples married in states where it was legal but resided in states where the marriage wasn’t recognized. If you and your partner broke up, but didn’t legally dissolve the union, it may still be legally binding. Moreover, some states converted civil unions and domestic partnerships to legal marriages, so you and a former partner could be legally married without knowing it. If a former union wasn’t with your current partner, make certain that you legally unbind yourself to avoid any future disputes on your estate.

Review Your Real Estate Documents. Check your real estate documents to confirm that both partners are listed and have equal rights to home ownership, especially if the home was purchased prior to the legalization of same-sex marriage or if you aren’t married. There are a few ways to split ownership of their property. This includes tenants in common, where both partners share ownership of the property, but allows each individual to leave their shares to another person in their will. There’s also joint tenants with rights to survivorship. This is when both partners are property owners but if one dies, the remaining partner retains sole ownership.

Estate planning can be a complex process, and same-sex couples may have more stress to make certain that they have a legally binding plan. Talk to an experienced estate planning attorney about the estate planning process to put a solid plan to help provide peace of mind knowing your family is protected.

Reference: Insurance Net News (June 30, 2021) “What Same-Sex Partners Need to Know About Estate Planning”

What Should a Power of Attorney Include?

The pandemic has taught us how swiftly our lives can change, and interest in having a power of attorney (POA) has increased as a result. But you need to know how this powerful document is and what it’s limits are. A recent article from Forbes titled “4 Power of Attorney Clauses You Need To Focus On” explains it all.

The agent acting under the authority of your POA only controls assets in your name. Assets in a trust are not owned by you, so your agent can’t access them. The trustee (you or a successor trustee, if you are incapacitated) appointed in your trust document would have control of the trust and its assets.

There are several different types of POAs. The Durable Power of Attorney goes into effect the moment it is signed and continues to be valid if you become incapacitated. The Springing Power of Attorney becomes valid only when you become incapacitated.

Most estate planning attorneys will advise you to use the Durable Power of Attorney, as the Springing Power of Attorney requires extra steps (perhaps even a court) to determine your capacity.

All authority under a Power of Attorney ceases to be effective when you die.

There are challenges to the POA. Deciding who will be your agent is not always easy. The agent has complete control over your financial life outside of assets held in trust. If you chose to appoint two different people to share the responsibility and they don’t get along, time-sensitive decisions could become tangled and delayed.

Determine gifting parameters. Will your agent be authorized to make gifts? Depending upon your estate, you may want your agent to be able to make gifts, which is useful if you want to reduce estate taxes or if you’ll need to apply for government benefits in the near future. You can also give directions as to who gets gifts and how much. Most people limit the size of gifts to the annual exclusion amount of $15,000.

Can the POA agent change beneficiary designations? Chances are a lot of your assets will pass to loved ones through a beneficiary designation: life insurance, investment, retirement accounts, etc. Do you want your POA agent to have the ability to change these? Most people do not, and the POA must specifically state this. Your estate planning attorney will be able to custom design your POA to protect your beneficiary designations.

Can the POA amend a trust? Depending upon your circumstances, you may or may not want your POA to have the ability to make changes to trusts. This would allow the POA to change beneficiaries and change the terms of the trust. Most folks have planned their trusts to work with their estate plan, and do not wish a POA agent to have the power to make changes.

The POA and the guardian. A POA may be used to name a guardian, who would be appointed by the court. This person is often the same person as the POA, with the idea that the same person you trust enough to be your POA would also be trusted to be your guardian.

The POA is a more powerful document than people think. Downloading a POA and hoping for the best can undo a lifetime of financial and estate planning. It’s best to have a POA created that is uniquely drafted for your family and your situation.

Reference: Forbes (July 19, 2021) “4 Power of Attorney Clauses You Need To Focus On”