Choose Wisely and Protect Yourself When Naming a Power of Attorney

Deciding who to name as your power of attorney, or “agent” is not an easy decision. However, it is a necessary appointment, says this article “Ways to protect yourself when appointing a power of attorney” from The Mercury. Disaster and disability strike without advance notice, so it’s important to make this decision while you are well and can think it through.

If you don’t have a power of attorney in place and the unexpected occurs, the only way for your family to obtain legal authority to act on your behalf is through a guardianship procedure. Even when not contested, guardianship is expensive, time consuming and can limit personal freedom. Not every court will award guardianship to a family member, so the end result could be a stranger taking control of your decisions and property.

Having a power of attorney is a far better alternative, but there are seniors who are concerned about the power of a POA and how it might be abused. Here are some tips to keep you in control of your life even with a POA:

Choose wisely when you are well. Choose your agent when you are of sound mind and body. A common “test” is the checkbook test: could you, right now, hand this person your checkbook without a second thought? Do you believe this person would act responsibly, in your own best interest, follow through in paying bills, ask for help in areas they may not understand, record transactions and be scrupulously honest? If you hesitate to give them your checkbook today, you aren’t likely to trust them to run your life in the future.

Many people choose an agent based on whether the person is the oldest child or if there would be hurt feelings if the person was named. These are not good reasons. A person who has problems managing money, for whatever reason, is not a good candidate. Their own stress might make access to your funds too great to resist.

Name a secondary Power of Attorney. There should always be a back-up person named, if the person you name is not able to serve. The same goes for trustees and beneficiaries. Discuss these alternatives with your estate planning attorney to ensure the attorney knows the identities of the primary and secondary choices.

Have a Power of Attorney customized to your personal needs. Not all Powers of Attorney are the same, and one that is great for a friend may be a disaster for you. Limited powers, unlimited powers, powers to gift or powers only for a specific task or period of time are all options when creating a Power of Attorney. You may have a business to run or a partnership to dissolve. Gifting might be permitted to limit estate taxes, if that is your wish. Limited gifting generally means $15,000 a year, although your estate planning attorney can provide guidance on how to best structure gifting for you. If you own life insurance policies, you may want to permit your agent to cash in insurance policies but not allow the agent to change the named beneficiaries.

Two agents or one agent? Not all banks or investment companies will accept two agents. If they do, will the two people you select be able to work together? If not, naming two could create a financial and legal firestorm.

Financial Power of Attorney and Health Care Power of Attorney can be two separate roles. One person might be terrific with managing money, while another could be better at understanding and managing healthcare providers. Naming different people for each task will allow both to participate in caring for you and draw on their unique skillsets.

Fire when necessary. You always have the right to remove someone from their role as your agent. Your attorney will know how to do this properly to protect you and other agents.

Reference: The Mercury (Aug. 3, 2021) “Ways to protect yourself when appointing a power of attorney”

How to Keep the Vacation Home in the Family

There are several ways to protect a vacation home so it remains in the family and is not overly burdensome to any one member or couple in the family, according to the article “Estate planning for vacation property” from Pauls Valley Daily Democrat.

To begin, families have the option of creating a legal entity to own the asset. This can be a Family LLC, a partnership or a trust. The best choice depends upon each family’s unique situation. For an LLC, there needs to be an operating agreement, which details management and administration, conflict resolution, property maintenance and financial matters. The agreement needs to include:

Named management—ideally, two or three people who are directly responsible for managing the LLC. This typically includes the parents or grandparents who set up the LLC or Trust. However, it should also include representatives from different branches in the family.

Property and ownership rules must be clarified and documented. The property’s use and rules for transferring property are a key part of the agreement. Does a buy-sell agreement work to give owners the right to opt out of owning the property? What would that look like: how can the family member sell, who can she sell to and how is the value established? Should there be a first-right-of refusal put into place? In these situations, a transfer to anyone who is not a blood descendent may require a vote with a unanimous tally.

There are families where transferring ownership is only permitted to lineal descendants and not to the families of spouses who marry into the family.

Finances need to be spelled out as well. A special endowment can be included as part of the LLC or as a separate trust, so that money or investments are set aside to pay taxes, upkeep, insurance and future capital requirements. Anyone who has ever owned a house knows there are always capital requirements, from replacing an ancient heating system to fixing a roof after decades of a heavy snow load.

If the endowment is not enough to cover costs, create an agreement for annual contribut6ions by family members. Each family will need to determine who should contribute what. Some set this by earnings, others by how much the property is used. What happens if someone fails to pay their share?

Managing use of the property when there is a legal entity in place is more than a casual “Who calls Mom and Dad first.” The parents who establish the LLC or Trust may reserve lifetime use for themselves. The managers should establish rules for scheduling.

For parents or grandparents who create an LLC or Trust, be sure it works with your estate plan. If they intend to keep the property in the family and wish to leave a bequest for its maintenance, for instance, the estate planning attorney will be able to incorporate that into the LLC or Trust.

Reference: Pauls Valley Democrat (July 29, 2021) “Estate planning for vacation property”

Why Estate Planning is Essential for Small Business Owners

For the entrepreneurial-minded person, nothing beats the excitement of having a vision for a business, and then making that dream come true. However, have you ever wondered what will happen to that business after you are gone?

A comprehensive estate plan, says Bakersfield.com, in the recent article “Estate planning tips for small business owners,” provides a plan that can protect your life’s work.

It makes sense. You’ve likely spent decades building your business throughout your working life. You’re proud of what you have accomplished, and you should be. You should then protect it with a well-thought-out plan. Your estate planning attorney will be able to help you design a two-pronged plan for your business and your personal life. For business owners, these two are intertwined.

Can you avoid taxes? Reviewing your personal and business assets, as part of an estate plan, is the best way to minimize the tax exposure of your estate and facilitate an organized sale or succession plan for your business. You can’t completely avoid taxes, but good planning will help them from being excessive.

There are a number of IRS sections that can help, and your estate planning attorney will know them. For example, Section 6166 gives your loved ones more time to pay the tax, by paying in ten annual installments. Another Section, 303, lets your family redeem stock with few tax penalties. Talk with your attorney and CPA to find out if your business is eligible for either of these strategies. Create a plan and talk about it in detail with survivors to help them navigate the transition.

Do you have a buy-sell agreement in place? This is critical, if more than one person owns the business. The buy-sell agreement dictates how the partnership or LLC is distributed upon the death or incapacity of one of the owners. Without one, family members may be stuck owning a company they don’t want or don’t know anything about. Alternatively, your former partners may find themselves partnered with people with whom they never intended to go into business.

The buy-sell agreement creates a plan so, when an owner passes, the shares of the company must be bought out by the other owners at a fair market price. The agreement can even establish a sale price, so family members will know exactly what they can expect to receive from the sale. In addition, a buy-sell agreement can be used to block certain individuals from taking a role in the business. For many family businesses, that’s enough of a reason to make sure to have a buy-sell agreement.

How are life insurance policies used by small business owners? Maybe you want the business to die with you. Some small businesses provide a stable income for the owner, but there’s no plan for the business to be passed to another family member or to survive the passing of the owner. If that is your situation, and you want your family to have income, you’ll need a life insurance policy.

A life insurance policy can also be used to help partners with the capital they’ll need to purchase your shares, if that is how your buy-sell agreement has been set up.

As a small business owner and a family breadwinner, you want to be sure your family and your business are prepared for your passing. Talk with your estate planning attorney to make sure both are protected, in the event of your passing.

Reference: Bakersfield.com (July 15, 2019) “Estate planning tips for small business owners”