What Is a Power of Attorney?

Nj.com’s recent article entitled “What does becoming someone’s ‘power of attorney’ mean?” explains that a power of attorney (POA) is a legal document through which a principal states that his or her trusted agent may act on his or her behalf and for their benefit.

A power of attorney is usually centered on addressing the principal’s financial matters, such as banking, paying taxes and selling or buying property.

A power of attorney can be “springing,” so that it becomes effective only when the principal becomes incapacitated. A springing POA provides that an agent can’t act, until the principal is determined to be incapacitated based on the criteria listed in the POA.

The “springing POA” frequently says the determination of incapacity will be made by the principal’s spouse and a licensed physician, or two licensed physicians.

There is also what is known as a medical power of attorney or living will. This is a legal document through which a principal authorizes an agent to make medical decisions for him or her, when they’re incapable of making the decisions for themselves.

In either event, the agent doesn’t become personally responsible for the financial expenses incurred by the principal, unless the agent agrees to take such responsibility in his/her individual capacity.

It is, therefore, important to execute documents as an agent and indicate you’re doing so as an agent.

For example, you, Jim Smith, would sign for principal Mary Smith as follows: “Mary Smith, by Jim Smith, attorney-in-fact,” or “Jim Smith, as agent for Mary Smith, under power of attorney.”

When signing a contract with respect to nursing home care, be wary of agreeing to individually be the “responsible party.” That term may be defined to assign additional obligations, meaning being responsible for the bill.

Remember to sign everything as agent under the power of attorney.

Reference: nj.com (April 12, 2022) “What does becoming someone’s ‘power of attorney’ mean?”

Why Is Communication Important in Estate Planning?

Successful transition of wealth from generation to generation is best accomplished when family members have a shared understanding of the overall use of the family wealth. While the initial wealth creators have final say about how their assets are distributed, awareness and agreement on the part of the receiving family members regarding how the wealth is used can help preserve assets as they move to the next generation.

Forbes’ recent article entitled “Communication Can Be The Key To Creating Harmony In Multi-Generational Estate Planning” says that coming to an agreement can sometimes be difficult, especially if family members bring their own perspectives and values to the estate planning process. However, good communication can help head off potential multi-generational conflicts before they happen.

One of the most significant challenges in achieving multi-generational wealth preservation is that each individual and generation has a different outlook on wealth. Today’s families could include four or even five generations. This big gap in ages could mean differing perspectives on many topics, including:

  • Personal values. Family members may have different belief systems and values, including how they view work, social and political systems, relationships, and other topics.
  • Investing priorities. Some generations may give greater importance to socially conscious investing than others. This could create a conflict when it comes to how and where to invest.
  • Shifting economic environments. Older generations who have lived through various economic scenarios may have very different perspectives than younger generations, particularly those just coming of age in a time of high inflation and a slowing economy.
  • Communication. Not every generation or family member is comfortable talking openly about money, especially when it comes to sharing how much is involved and how to spend it.
  • View of the role of a financial advisor. Some family members may see a financial advisor as a trusted partner, and others may be more skeptical.

While these differences can create challenges in the estate planning process, you can resolve them and reach an agreement about how to best manage the family’s wealth. Begin with a plan designed for the long-term, spanning current and future generations that’s flexible to meet the family’s changing needs and shifting economic environments.

Reference: Forbes (April 18, 2022) “Communication Can Be The Key To Creating Harmony In Multi-Generational Estate Planning”

What Needs to Be Reviewed in Estate Plan?

When it comes to drafting a will and other estate planning documents, note that you probably should revisit them many times before they actually are needed, advises, CNBC’s recent article entitled “Be sure to keep your will or estate plan updated. Here are 3 key reasons why.”

You should give these end-of-life legal papers a review at least every few years, unless there are reasons to do it more often. Things like marriage, divorce, birth or adoption of a child should necessitate a review. Coming into a lot of money (i.e., inheritance, lottery win, etc.) or moving to another state where estate laws differ from the one where your will was drawn up, mean that you should review your plan with an experienced estate planning attorney.

About 46% of U.S. adults have a will, according to a 2021 Gallup poll. If you are among those who have a will or full-blown estate plan, here are some things to review and why.

Even though your will is all about you, there are other people you need to rely on to carry out your wishes. This makes it important to review who you have named to be executor. He or she must liquidate accounts, ensure your assets go to the proper beneficiaries, pay any debts not discharged (i.e., taxes owed), and sell your home. You should also be sure that the guardian you have named to care for your children is still the person you would want in that position.

As part of estate planning, you may create other documents related to end-of-life issues, such as powers of attorney. The person who is given this responsibility for decisions related to your health care is frequently different from whom you would name to handle your financial affairs. You should look at both of those choices.

Even if you have experienced no major life events, those you previously chose to handle certain duties may no longer be your best option.

Remember that some assets pass outside of the will, including retirement accounts like a 401(k) plan, IRAs and life insurance policies. This means the person named as a beneficiary on those accounts will generally receive the money no matter what your will states. Bank accounts can have beneficiaries listed on a pay-on-death form, which your bank can supply.

If a beneficiary is not listed on those non-will items or the named person has already passed away (and there is no contingent beneficiary listed), the assets automatically go into probate.

Reference: CNBC (Jan. 27, 2022) “Be sure to keep your will or estate plan updated. Here are 3 key reasons why”

Can My Ex Get Some of My Estate?

For many people, their will is their final communication to the world.

A will states how their property should be distributed upon their death. CNBC’s recent article entitled “Your ex-spouse could inherit your money. How to avoid this and other estate-planning mistakes” says that depending on how you plan, it may have a few some surprises for those who are close to you.

There are a couple of situations where you could inadvertently leave money to people you no longer intend as heirs, much to the surprise of other heirs.

An ex-spouse could get some of your money when you die, if you do not update your beneficiaries under a retirement plan.

Divorce does not automatically change a beneficiary designation, unless the divorce decree includes a stipulation to change it. IRAs are the same, so it is not uncommon for an IRA owner to die without having changed the beneficiary designation after a divorce. It’s usually just a simple oversight.

However, most state laws provide that once a married couple is divorced, ex-spouses lose all property rights.

However, pensions are governed by federal law, formally known as ERISA or the Employee Retirement Income Security Act of 1974. As a result, state rules do not apply.

Pensions are not the only accounts that people tend to forget to update. Bank account beneficiary designations are often hard to find, and circumstances may change from when you first set them up.

While it may be tempting to disinherit someone to whom you are no longer close, it can be a bad idea. That is because it can invite all kinds of issues, like a will challenge.

There is always the chance you may reconcile, even on your death bed, at which point it will be too late to update your will and estate plan. Therefore, leave something less to them and do not say anything bad.

To ensure your wishes are carried out the way you want, work with an experienced estate planning attorney.

Reference: CNBC (Jan. 9, 2022) “Your ex-spouse could inherit your money. How to avoid this and other estate-planning mistakes”

Do Single People Need Estate Planning?

In evaluating your needs for estate planning, look at what might happen if you die intestate – that is, without a last will and testament. Your assets will likely have to go through the probate process, which means they’ll be distributed by the court according to the state intestate succession laws, says Hood County News’ recent article entitled “Even ‘singles’ need estate plans.”

Even if you do not have children, you may have a few nephews or nieces—or children of cousins or friends— to whom you would like to leave some of your assets. This can include automobiles, collectibles and family memorabilia. However, if everything you own goes through probate, there is no guarantee that these individuals will end up with what you wanted them to have.

If you want to leave something to family members or close friends, you will need to say this in your will. However, you also may want to provide support to one or more charitable organizations. You can just name these charities in your will. However, there may be options that could provide you with more benefits.

One option is a charitable remainder trust. With this option, you would transfer appreciated assets – such as stocks, mutual funds or other securities – into an irrevocable trust. The trustee, whom you have named (note that you could serve as trustee yourself) can then sell the assets at full market value, avoiding the capital gains taxes you would have to pay if you sold them yourself, outside a trust. If you itemize, you may be able to claim a charitable deduction on your taxes. The trust can purchase income-producing assets with the proceeds and provide you with an income stream for the rest of your life. At your death, the remaining trust assets will pass to the charities you have named.

There is also a third entity that is part of your estate plans: you. Everyone should make arrangements to protect their interests. However, without an immediate family, you need to be especially mindful of your financial and health care decisions. That is why, as part of your estate planning, you may want to include these two documents: durable power of attorney and a health care proxy.

A durable power of attorney allows you to name a person to manage your finances, if you become incapacitated. This is especially important for anyone who does not have a spouse. If you become incapacitated, your health care proxy (health care surrogate or medical power of attorney) lets you name another person to legally make health care decisions for you, if you cannot do so yourself.

Reference: Hood County News (Dec. 17, 2021) “Even ‘singles’ need estate plans”

How Do I Avoid Probate?

Probate can tie up the estate for months and be an added expense. Some states have a streamlined process for less valuable estates, but probate still has delays, extra expense and work for the estate administrator. A probated estate is also a public record anyone can review.

Forbes’ recent article entitled “7 Ways To Avoid Probate Without A Living Trust” says that avoiding probate often is a big estate planning goal. You can structure the estate so that all or most of it passes to your loved ones without this process.

A living trust is the most well-known way to avoid probate. However, retirement accounts, such as IRAs and 401(k)s, avoid probate. The beneficiary designation on file with the account administrator or trustee determines who inherits them. Likewise, life insurance benefits and annuities are distributed to the beneficiaries named in the contract.

Joint accounts and joint title are ways to avoid probate. Married couples can own real estate or financial accounts through joint tenancy with right of survivorship. The surviving spouse automatically takes full title after the other spouse passes away. Non-spouses also can establish joint title, like when a senior creates a joint account with an adult child at a financial institution. The child will automatically inherit the account when the parent passes away without probate. If the parent cannot manage his or her affairs at some point, the child can manage the finances without the need for a power of attorney.

Note that all joint owners have equal rights to the property. A joint owner can take withdrawals without the consent of the other. Once joint title is established you cannot sell, give or dispose of the property without the consent of the other joint owner.

A transfer on death provision (TOD) is another vehicle to avoid probate. You might come across the traditional term Totten trust, which is another name for a TOD or POD account (but there is no trust involved). After the original owner passes away, the TOD account is transferred to the beneficiary or changed to his or her name, once the financial institution gets the death certificate.

You can name multiple beneficiaries and specify the percentage of the account each will inherit. However, beneficiaries under a TOD have no rights in or access to the account while the owner is alive.

Reference: Forbes (March 28, 2022) “7 Ways To Avoid Probate Without A Living Trust”

Is Estate Planning Affected by Property in Two States?

Cleveland Jewish News’ recent article titled “Use attorney when considering multi-state estate plan says that if a person owns real estate or other tangible property (like a boat) in another state, they should think about creating a trust that can hold all their real estate. You don’t need one for each state. You can assign or deed their property to the trust, no matter where the property is located.

Some inherited assets require taxes be paid by the inheritors. Those taxes are determined by the laws of the state in which the asset is located.

A big mistake that people frequently make is not creating a trust. When a person fails to do this, their assets will go to probate. Some other common errors include improperly titling the property in their trust or failing to fund the trust. When those things occur, ancillary probate is required.  This means a probate estate needs to be opened in the other state. As a result, there may be two probate estates going on in two different states, which can mean twice the work and expense, as well as twice the stress.

Having two estates going through probate simultaneously in two different states can delay the time it takes to close the probate estate.

There are some other options besides using a trust to avoid filing an ancillary estate. Most states let an estate holder file a “transfer on death affidavit,” also known as a “transfer on death deed” or “beneficiary deed” when the asset is real estate. This permits property to go directly to a beneficiary without needing to go through probate.

A real estate owner may also avoid probate by appointing a co-owner with survivorship rights on the deed. Do not attempt this without consulting an attorney.

If you have real estate, like a second home, in another state (and) you die owning that individually, you’re going to have to probate that in the state where it’s located. It is usually best to avoid probate in multiple jurisdictions, and also to avoid probate altogether.

A co-owner with survivorship is an option for avoiding probate. If there’s no surviving spouse, or after the first one dies, you could transfer the estate to their revocable trust.

Each state has different requirements. If you’re going to move to another state or have property in another state, you should consult with a local estate planning attorney.

Reference: Cleveland Jewish News (March 21, 2022) “Use attorney when considering multi-state estate plan”

Should I have a Discretionary Trust in My Estate Plan?

The trustee who oversees a discretionary trust can use their discretion in determining when and how trust assets should be distributed to beneficiaries. There are several reasons why you might consider establishing a discretionary trust. The Facts’ recent article entitled “Your Estate Plan Could Improve with This Type of Trust” explains that a trust is a legal arrangement in which assets are managed by a trustee on behalf of one or more beneficiaries. In a typical trust arrangement, assets are managed according to the directions and wishes of the grantor (also known as the trustmaker, settlor, or trustor).

However, with a discretionary trust, the trust lets the trustee have full discretion when overseeing the distribution of trust assets to beneficiaries. This is a type of irrevocable trust, which means that the transfer of assets is permanent. The grantor can provide direction about when trust assets should be distributed and how much each trust beneficiary should receive. However, it is up to the trustee to decide what choices are made with regard to distributions of principal and interest from trust assets.

A discretionary trust can help to prevent mismanagement of assets on the part of beneficiaries. It can also offer protection against creditor lawsuits. The assets in a discretionary trust are protected because the trustee technically owns those assets, not the trust beneficiaries.

A discretionary trust can also be used in other situations where you may have concerns over how trust assets will be used, such as in the event a beneficiary divorces.

An experienced estate planning attorney can create a discretionary trust. When establishing the trust, you’ll need to decide:

  • Who to name as trustee and successor trustees
  • Which assets will be transferred to the trust
  • Who to name as trust beneficiaries; and
  • Under what situations you’d like assets to be distributed to beneficiaries.

It is an irrevocable trust. As a result, the transfer of assets is permanent. Therefore, be sure beforehand that this type of trust is appropriate for your estate planning needs.

Discretionary trusts can protect your beneficiaries from their own poor money habits, while preserving a legacy of wealth for future generations.

A properly structured discretionary trust can also have some estate tax planning benefits. Ask your attorney to explain this to you when you meet.

Reference: The Facts (March 7, 2022) “Your Estate Plan Could Improve with This Type of Trust”

Why Shouldn’t I Wait to Draft my Will?

There are countless reasons why people 50 and over fail to write a will, update a previous one, or make other estate planning decisions. Market Watch’s recent article entitled “We beat up 6 of your excuses for not writing a will (or updating an old one)” takes a closer look at those six reasons, and how to help overcome them.

Excuse No. 1: You have plenty of time. Sure, you know you need to do it. However, it’s an easy thing to move down on your priority list. We all believe we have time and that we’ll live to be 100. However, that’s not always the case. Set up an appointment with an experienced estate planning lawyer ASAP because what gets scheduled gets done.

Excuse No. 2: You don’t have a lot of money. Some think they have to have a certain amount of assets before estate planning matters. That isn’t true. Drafting these documents is much more than assigning your assets to your heirs: it also includes end-of-life decisions and deciding who would step in, if you were unable to make financial decisions yourself. It’s also wise to have up-to-date documents like a power of attorney and a living will in case you can’t make decisions for yourself.

Excuse No. 3: You don’t want to think about your death. This is a job that does require some time and energy. However, think about what could happen without an up-to-date estate plan. Older people have seen it personally, having had friends pass without a will and seeing the children fighting over their inheritance.

Excuse No. 4: It takes too much time. There’s a misconception about how time-consuming writing a will is. However, it really can be a fairly quick process. It can take as little as 2½ hours. First, plan on an hour to meet with the lawyer; an hour to review the draft; and a half-hour to sign and execute your documents. That is not a hard-and-fast time requirement. However, it is a fair estimate.

Excuse No. 5: You’d rather avoid making difficult decisions. People get concerned about how to divide their estate and aren’t sure to whom they should leave it. While making some decisions in your estate plan may seem final, you can always review your choices another time.

Excuse No. 6: You don’t want to pay an attorney. See this as investment in your loved ones’ futures. Working with an experienced estate planning attorney helps you uncover and address the issues you don’t even know you have. Maybe you don’t want your children to fight. However, there can be other issues. After all, you didn’t go to law school to learn the details of estate planning.

Reference: Market Watch (March 12, 2022) “We beat up 6 of your excuses for not writing a will (or updating an old one)”

What are Biggest Estate Planning Mistakes?

The Huffington Post’s recent article entitled “The Biggest Mistakes People Make In Their Wills, According To Estate Lawyers” explains that your last will and testament is one of the most important legal documents you’ll ever have. A will lets you state where you want your property, minor children and debts to go after you die. It also allows you to appoint an executor to carry out your wishes. The lack of a will is a common tragic mistake. Just about everyone over the age of 18 needs some estate planning. The following are some of the major estate planning mistakes:

  1. Assigning co-executors. You should name only one executor, with alternate executors. Many testators want to make all their children responsible for administering the estate. However, that’s a really bad idea. If you have two executors, and they don’t agree, who gets the final say? However, if you’re set on naming more than one, make it an odd number so it’s majority-rule.
  2. Thinking a will is all you need to avoid probate. Probate is the legal process of administering a person’s estate whether they die with a will or without one (i.e., “intestate”). Although a valid will can say where assets are allocated, it will likely not avoid the probate process if there are assets titled solely in your name. If you have a will in place, but a bank account doesn’t have a beneficiary designation, the assets likely have to go through the probate process before being distributed according to the terms of your will.
  3. Being too vague about items with sentimental value. When people pass away, relationships change. Money can change people. Children who got along so well when you were alive may not get along as well when you’re gone and not there to mediate between them. If you’re too general, a term may be based on interpretation. If people interpret it differently, there’s a problem. If you know that someone wants a specific item, write it down.
  4. Failing to update your will to reflect life changes. The biggest mistake people make when it comes to doing wills or estate plans is their failure to update those documents. There are a number of life events that require the documents to be updated, such as marriage, divorce and births of children. It is recommended that your estate plan be revisited every few years.
  5. Failing to hire an experienced estate planning attorney. It’s important to get your estate planning documents correct. This is because when the documents are executed, the difference between a good set of documents and those drafted by a non-attorney (or one who doesn’t practice in this area of law) can mean considerably more time, money and stress.

Reference: Huffington Post (March 8, 2022) “The Biggest Mistakes People Make in Their Wills, According to Estate Lawyers”