How Does Power of Attorney Work?

Questions often arise about how different estate planning documents work together, and they are frequently very good questions. Powers of Attorney (POA) are some of the most commonly used estate planning documents and they are also some of the most misunderstood estate planning documents, says nwi.com in a recent article “Estate Planning: Do Powers of Attorney lapse?”

A POA is a document that authorizes another person to act on behalf of the person making or signing the document. The person named in a POA can also be referred to as the Attorney-in-Fact, or AIF. The authority granted to the AIF is usually spelled out in the document itself. Some POA documents grant a wide range of authority, while others are limited to a specific action. An estate planning attorney can create a POA that suits a person’s particular needs, which is far better than a generic document that may not be accepted because it is too broad.

There are also different types of POAs. Durable POAs usually do not terminate upon a person’s incapacity and are frequently drafted for the purpose of caring for a person in case they are incapacitated. There are also other limited or special POAs that only work for a specific date or time frame. At the end of that time frame or upon that date, the POA terminates.

It’s important to note, however, that all POAs terminate upon the death of the maker or principal. The only power that can survive after the death of the maker is the authority to dispose of the maker’s remains, and that varies by state. This means that the POA will not nominate an executor, and cannot do anything to give someone authority over your body or your property after you die.

A POA can also be terminated at any time by the principal. This termination should be in writing, and it can be terminated by revoking the POA within the terms of a new POA, or by execution of a revocation. Either way, the person should notify the AIF that they no longer have the authority to act under the revoked POA, and any entity who may have a copy of the revoked POA should be notified that it is no longer valid. The revocation can also be recorded at the county recorder’s office. An estate planning attorney in your state will know what rules apply in your area.

When a POA was created is also important. Although a POA signed years ago is still legally valid, estate planning attorneys often look at the date of execution for the simple fact that banks and other financial institutions are reluctant to accept POAs that were created too long ago. In that case, institutions sometimes will require an affidavit affirming that the document is still valid and that the AIF has the authority to act under it.

However, it is recommended that when you have your estate plan reviewed every three or four years, you also have your estate planning attorney update the Power of Attorney. This way there is less of a chance that a bank or other institution will balk at the document. The same goes for your health care proxy, also known as a Health Care Power of Attorney.

Reference: nwi.com (November 3, 2019) “Estate Planning: Do Powers of Attorney lapse?”

What Happens to Older Pets, When People Go into Nursing Homes

Americans love their pets. Cats, dogs, birds, fish, and exotic animals bring families joy and companionship. There are millions of pets in homes all over the United States. A family might have a cat or dog for ten years or much longer. An older person might have a pet to increase a feeling of safety and to ward off loneliness and depression. Let’s explore what happens to older pets when people go into nursing homes.

Although some assisted living centers allow some pets (subject to restrictions on the size, type, and the number of animals), generally speaking, nursing homes do not allow residents to keep their pets in the facility. The options a person has will depend on many factors, such as available relatives or friends who could take in the pet. Some of the more common things that happen to older pets, when the owner goes into the nursing home include:

  • The pet gets to continue living in the home, because the nursing home resident’s spouse, friend or other relative remain living in the house. This situation is usually the best option for the pet. They stay in familiar territory and do not get disrupted by having to live somewhere else.
  • A friend or relative takes in the pet for the older loved one. The animal has to adjust to a different location, owner and schedule. However, at least they have a home.
  • The pet gets re-homed through a rescue organization. Sometimes these groups are breed-specific, like the entities that find homes for retired greyhound racing dogs.
  • The animal gets taken to a shelter. Some shelters serve as no-kill adoption centers, but many are not. If the pet gets adopted, they get a chance at life with a new family. If no one takes them, they will likely get euthanized.
  • The pet gets abandoned. Tragically, millions of animals get left every year to fend for themselves. While life on the streets is hard enough for a young, strong cat or dog, an older pet is unlikely to survive.
  • The animal has the good fortune of getting rescued by a no-kill sanctuary or a non-profit agency that takes in older pets.

There are not enough sanctuaries or agencies to meet the need of all of the older pets without homes. However, with a little detective work, you can probably find one or two in your area. Posting the question on social media can help you find a place for a pet to get to live out their golden years.  You can also check with local pet rescue and lost pet groups on social media for suggestions about where to take an older pet, so they do not get abandoned or euthanized.

If you or a family member are in the market for a pet, consider adopting an older one. Although a cute puppy is hard to resist, an older animal can actually be a better pet for a family with children. Older pets tend to be more settled and patient than high-energy young ones. The older pet is also likely already trained, so you will have less work on your hands. You can also have the satisfaction of knowing that you saved a life.

References: Huffpost. “Pet Retirement Home Rescues Dogs In Their Golden Years.” (accessed November 8, 2019) https://www.huffpost.com/entry/vintage-pet-rescue_n_5c141e0de4b049efa7524659

‘Bye Bye Love’ Rocker Ric Ocasek Cuts Wife Out of Will

In a world where many stars have their estates dragged through the probate court, it can be a relief to see a celebrity use estate planning documents to accomplish their post-death goals. One example is Ric Ocasek.

The language in the will was very clear, according to the article “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will” from Page Six. There was no provision for his wife Paulina since they were in the process of divorcing. He added that even if he died before their divorce was finalized, she was not to receive any elective share “… because she has abandoned me.” This highlights the fact that Ocasek thought through different possibilities, and the lack of ambiguity makes it easier for a court to administer the will.

It was Porizkova who found Ocasek’s body in September while bringing him coffee as he recovered from recent surgery. The couple had two sons together and had called it quits in May 2018, after being married for 28 years. They met on set during the making of the music video for the Cars’ song “Drive.”

A filing with Ocasek’s will stated that his assets included $5 million in copyrights, but only $100,000 in tangible personal property and $15,000 in cash. The document did not detail the copyright assets.

That may seem like a small estate for someone with Ocasek’s fame. However, an attorney who examined the document told The New York Post that it was likely the Cars’ frontman probably had more assets protected through trusts, yet another indication that Ocasek was very intentional about his estate plan.

Like other high-profile performers who have considerable assets and who are savvy about finances, it’s possible that he has many more millions of dollars. Thanks to proper planning, however, they will not pass through probate and will be protected from the public view and scrutiny. That is why people use trusts, especially when they are public figures.

The Cars’ singer also seems to have left two of his six sons out of the will. The children he had with Porizkova were not left out of the will. Even though this may seem harsh, it’s possible that the sons who were left out of the will were compensated through other means. There may have been trusts set up for them, or life insurance proceeds.

The document indicates that the will was signed on August 28, less than a month before his death.

Ocasek died of heart disease on September 15. At the time, he also suffered from pulmonary emphysema. Mario Testani, his friend, and business manager is named as the executor.

The advance planning done in Ocasek’s estate is a lesson in how trusts and other estate planning methods can be used to maintain an individual’s privacy, even if some of their other assets pass through a will.

Reference: Page Six (Nov. 7, 2019) “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will”

Second Marriages Need A Plan to Protect Children and New Spouses

There are a number of issues in estate planning that are more important in second and subsequent marriages, as discussed in the article “Estate planning documents for second marriages” from the Cleveland Jewish News. A couple who each have children from a prior marriage are planning to marry again and blend their families. Consequently, the couple needs to address income taxes, a prenuptial agreement, pension and 401(k) benefits, Social Security, college funding, cost-sharing, and estate planning documents.

Here’s an example of how important estate planning is for blended families. A couple who each have children from their prior marriages get married. Twenty years later, the husband dies. He had wanted to provide for his second wife, so his will stated that all his assets went to his wife. They had the understanding that on her death, those assets would go back to his children.

What actually occurred was that his wife lived a long time after he passed, and she simply combined their assets. When she died, the money went to her children, and her husband’s children received nothing. The husband’s children didn’t believe that he meant to do that, but because of the lack of planning, that’s exactly what happened.

What were the alternatives? He could have set up a marital trust that would have held the assets for his second wife on his death, but upon the wife’s passing, would have gone back to his children. The trust document could prohibit the wife from transferring the assets in the marital trust to her children, and instead, guarantee that any assets remaining at her death would go to his children.

It’s wonderful to have a verbal agreement with your spouse, but if you don’t set up a formal legal plan, there’s no way to be sure that assets will be distributed as intended.

Another way to ensure that children from a blended family receive what they are intended is to have an independent person or entity, like a bank or a trust company, oversee a marital trust.

Other important documents include a durable financial power of attorney, durable health care power of attorney and a living will declaration.

Just as important as remarriage, anyone who has been divorced needs to review their estate planning documents to ensure that they reflect their new marital status, especially when they marry again. That is also the time to review beneficiary designations that appear on insurance policies, 401(k)s, pensions, retirement accounts, and investment accounts.

There’s no “set it and forget” plan for estate documents, so before you walk down the aisle a second time, or shortly after you do so, speak with an estate planning attorney to clarify your goals and put them into the appropriate estate planning documents.

Reference: Cleveland Jewish News (May 7, 2019) “Estate planning documents for second marriages”

Handling Your Aging Loved One’s Finances

Sometimes a loved one starts having trouble managing their money because of confusion, cognitive decline, Alzheimer’s disease, or some other form of dementia. When that happens, you might find yourself having to serve as their money manager. Here are some things you need to know about handling your aging loved one’s finances.

Changes to Make Now

Time is of the essence because your loved one must be cognitively able, or in legal terms, have “capacity”, to take the steps needed to have someone else help. In other words, they must understand that they are letting someone else take control of their finances. Things that require capacity include adding a trusted friend or relative to a bank account or creating a power of attorney the money manager can use to handle their financial matters. Once your aging loved one becomes incapacitated, they will not be able to hand the reins over to someone else.

At that point, the only option is to go to court and obtain a guardianship or conservatorship. These processes can take months or longer, and they often cost thousands of dollars in legal fees for the lawyer who files and handles the conservatorship, court costs, and payment to the person the court appoints to represent your loved one.

People often challenge changes that a person makes when in the early stages of Alzheimer’s or after a certain age. The way to counter this situation is to get a letter from your loved one’s doctor at the same time your relative signed the power of attorney or made the joint account. The doctor’s letter should say your relative was of sound mind at that time.

How to Avoid Elder Financial Abuse

Sadly, the vast majority of people who steal from older adults are the people they trust the most. Family members, friends, clergy, and financial professionals commit the lion’s share of elder financial abuse. To prevent this outcome for your loved one, you have two options:

  • Have two people in charge of your loved one’s finances instead of only one. The two people can alternate the responsibility monthly or quarterly. This arrangement provides automatic oversight of each person’s actions. You could, for example, have a close relative and a dear friend serve as the two money managers.
  • Use a money management service. These companies can take care of things like paying the bills and balancing the checkbook for your aging relative. You should have a relative or friend go over the reports from the company every month, to check for fraud on the part of the company. Your local National Association of Area Agencies on Aging can provide names of money management programs in your area.

When a money manager starts handling your loved one’s finances, they should prevent identity theft and fraud by canceling and shredding your relative’s debit cards and credit cards. They should also close the accounts at online shopping services, such as PayPal or Venmo.

Keep All Transactions Above Suspicion

Because incapacitated people are so vulnerable to theft and fraud, the people who manage your loved one’s money and other assets should take precautionary measures to make it clear they are acting in your relative’s best interests. Always write the reason for the payment on the memo line of the check. Never commingle funds. Do not borrow from the account. Do not use your loved one’s assets for purchases that benefit anyone other than your relative. Do not use their assets for your own benefit, like driving their car to work.

Every state has different regulations, and this article covers the general law. You should talk to an elder law attorney near you to understand how the laws in your state apply to your specific relative.

References: AARP. “Managing a Loved One’s Money.” (accessed July 11, 2019) https://www.aarp.org/caregiving/financial-legal/info-2017/managing-someone-elses-money.html?intcmp=AE-CAR-LEG-EOA1

Do Name Changes Need to Be Reflected in Estate Planning Documents?

When names change, executed documents with the person’s prior name can become problematic. For example, what about a daughter who was named as a health care representative by her parents several years ago, who marries and changes her name? Then, to make matters more complicated, add the fact that the couple’s daughter-in-law has the same first name, but a different middle name. That’s the situation presented in the article “Estate Planning: Name changes and the estate plan” from nwi.com.

When a person’s name changes, many documents need to be changed, including items like driver’s licenses, passports, insurance policies, etc. The change of a name isn’t just about the person who created the estate plan but also their executors, heirs, beneficiaries and those who have been named with certain legal powers through power of attorney (POA) and health care power of attorney.

It’s not an unusual situation, so there are some different solutions that can address this situation. It’s pretty common to include additional identifiers in the documents. For example, let’s say the will says, “I leave my house to my daughter Samantha Roberts.” If Samantha gets married and changes her last name, it can be reasonably assumed that she can be identified. In some cases, the document may be able to stay the same.

In other instances, the difference will be incorporated through the use of the acronym AKA—Also Known As. That is used when a person’s name is different for some reason. If the deed to a home says Mary Green, but the person’s real name is Mary G. Jones, the term used will be Mary Green A/K/A Mary G. Jones.

Sometimes when a person’s name has changed completely, another acronym is used: N/K/A, or Now Known As. For example, if Jessica A. Gordon marries or divorces and changes her name to Jessica A. Jones, the phrase Jessica A. Gordon N/K/A Jessica A. Jones would be used.

However, in the situation where the sisters-in-law had such similar names, most attorneys want to have the documents changed to reflect the name change. First, the names are too similar, as are their relationships with the testator. It is possible that someone could claim that the person wished to name the other person. It may not be a strong case, but challenges have been made over smaller matters.

Second, the document being discussed in the case above is a healthcare designation. Usually, when a health care power of attorney form is being used, it’s in an emergency. Would a doctor make a daughter prove that she is who she says she is? It seems unlikely, but the risk of something like that happening is too great. It is much easier to simply have the document updated.

In most matters, when there is a name change, it’s not a big deal. However, in estate planning documents, where there are risks about being able to make decisions in a timely manner or to mitigate the possibility of an estate challenge, a name change to update documents is an ounce of prevention worth a pound of trouble in the future.

Reference: nwi.com (October 20, 2019) “Estate Planning: Name changes and the estate plan”

Tailoring a Caregiving Plan to Your Family

If you have a family member who needs ongoing assistance because of a disability, severe medical issue, or a chronic illness, you might need to create a schedule within the family for providing care to that loved one. Few of us can afford to hire a private nurse for a family member. Many people who need caregiving need someone available 24 hours a day, even if some of that time is watching over the person rather than providing medical attention.

Public assistance programs provide limited, if any services, so most families have to figure out who can pitch in and help care for the loved one. If you are like most people, you could use some suggestions on tailoring a caregiving plan to your family. Recent legislation could make that task easier.

The Inherent Problems of Caregiving

People who are already working full-time and raising their families often end up taking shifts along with other relatives. The situation can go on like this for years. The caregivers become exhausted, physically, emotionally and financially.

Resentment can build if some of the family caregivers feel they are doing more than their fair share, while others are not doing their part. Years later, the primary caregivers can get accused of undue influence if the person who received help gives a larger portion of the estate to the primary caregivers out of gratitude.

Why Congress is Paying Attention to the Challenges of Family Caregiving

Our population is aging. By 2026, the baby boomer generation will start to turn 80 years old. Many people in their eighties need long-term care, either in the home or a facility. The high numbers of baby boomers and the declining birthrates mean there will be more people needing family caregiving and fewer relatives available to provide those services.

Family caregiving takes a massive chunk out of our economy each year. Experts say 40 million people in the United States provide unpaid caregiving services to their adult loved ones, who have limitations in their daily activities. The experts on aging value these services at around $470 billion a year.

Another 3.7 million Americans take care of a disabled child under the age of 18. Some people have to provide caregiving for both an older adult and a child. People in the field estimate that about 6.5 million people in our country fall into this category.

The caregivers face immediate and long-term financial crises because of the time they devote to the needs of their vulnerable loved ones. In the moment, the caregiver might have to cut back on work hours or leave a paying job to be there for the family member in need. Losing a paycheck and benefits can put a caregiver into economic hardship. Many caregivers live in poverty in later years of their lives because it was impossible to contribute to retirement savings or the Social Security system during the long years of caregiving.

Congress is working on measures to provide more public resources for family caregivers. The “Recognize, Assist, Include, Support, and Engage (RAISE) Family Caregivers Act,” which was passed in January of 2018, requires the Secretary of Health and Human Services to investigate how families are currently handling caregiving, and then to create strategies for state and communities to support caregiving families. Increased assessments and service planning dovetailed with education, support, and respite options can impact financial security and workplace issues of caregivers.

Until more support is given to caregivers on an official level, families will have to make do with coordinating care on their own. Be sure to have honest and open discussions frequently with everyone involved.

References: AARP. “Building a Family Caregiving Strategy to Align with the Real Needs of Families.” (accessed October 31, 2019) https://blog.aarp.org/thinking-policy/building-a-family-caregiving-strategy-to-align-with-the-real-needs-of-families 

Remaining Fair in Estate Distribution

Treating everyone equally in estate planning can get complicated, even with the best of intentions. What if a family wants to leave their home to their daughter, who lives locally, but wants to be sure that their son, who lives far away, receives his fair share of their estate? It takes some planning, says the Davis Enterprise in the article “Keeping things even for the kids.” The most important thing to know is that if the parents want to make their distribution equitable, they can.

If the daughter takes the family home, she’ll need to have an appraisal of the home done by a certified real estate appraiser. Then, she has options. She can either pay her brother his share in cash, or she can obtain a mortgage in order to pay him.

Property taxes are another concern. The taxes vary because the amount of the tax is based on the assessed value of the real property. That is the amount of money that was paid for the property, plus certain improvements. In California, property taxes are paid to the county on one percent of the property’s “assessed value,” also known as the “base year value” along with any additional parcel taxes that have become law. The base year value increases annually by two percent every year. This was created in the 1970s, under California’s Proposition 13.

Here’s the issue: the overall increase in the value of real property has outpaced the assessed value of real property. Longtime residents who purchased a home years ago still enjoy low taxes, while newer residents pay more. If the property changes ownership, the purchase could reset the “base year value,” and increase the taxes. However, there is an exception when the property is transferred from a parent to a child. If the child takes over ownership of the home, they will have the same adjusted base year value as their parents.

If the house is going from the parents to their daughter, it seems like it should be a simple matter. However, it is not. Here’s where you need an experienced estate planning attorney. If the estate planning documents say that each child should receive “equal shares” in the home, each child receives a one-half interest in the home. If the daughter takes the house and equalizes the distribution by buying out the son’s share, she can do that. However, the property tax assessor will see that acquisition of her brother’s half interest in the property as a “sibling to sibling” transfer. There is no exclusion for that. The one-half interest in the property will then be reassessed to the fair market value of the home at the time of the transfer—when the siblings inherit the property. The property tax will go up.

There may be a solution, depending upon the laws of your state. One attorney discovered that the addition of certain language to estate planning documents allowed one sibling to buy out the other sibling and maintain the parent-child exclusion from reassessment. The special language gives the child the option to purchase the property from the other. Make sure your estate planning attorney investigates this thoroughly, since the rules in your jurisdiction may be different.

Reference: Davis Enterprise (Oct. 27, 2019) “Keeping things even for the kids”

Another Good Reason to Update Your Estate Plan: Taxes

Gift, estate and generation-skipping transfer tax (GST) exemptions have doubled as a result of the Federal Tax Cut and Jobs Act, raising them to historic highs. The exemptions, which are all linked in a unified estate and gift tax, had been scheduled to increase to $5.6 million per person in 2018, but they were modified to reach the current level of $11.2 million per person, or $22.4 million per couple. The inflation-adjusted exemption for 2019 is $11.4 million per person or $22.8 million per couple.

In the article “Updating estate plan could save heirs in taxes,” the Atlanta Business Chronicle asks why this matters to an individual or couple whose net worth is nowhere near these levels.

When the most that could be transferred to heirs was under a million dollars, everyone worried about the estate tax. Since the estate tax was so much higher than the capital gains tax, it was never considered a big deal if a person paid the capital gains tax on selling, because it was less costly than paying the estate tax.

Now with the new exemption, trying to move assets out of estates and into trusts may not be the best solution to preserve wealth and minimize taxation.

In the past, a trust would be created, and the maximum amount of funds placed into the trust for use when the grantor (the person who created the trust) died. The goal was to provide income for the spouse until the spouse’s death, at which point the money bypassed the estate and went directly to the beneficiaries, who would pay income tax on the funds.

If a person owned $10,000 worth of stock at their death and the trust required it to be placed into a bypass trust instead of transferring it to the spouse, the heirs would pay taxes on gains upon the sale of stock. In a case where the stock held in the bypass trust increased to $100,000, then $90,000 of that would be considered taxable gain. If, instead, the stock was transferred to the surviving spouse and it was sold upon the spouse’s death, that stock would receive a stepped-up basis of $100,000 and there would be no income tax on the sale of the stock.

Note that the law creating the present $11.4 million limit is currently set to end at the end of 2025 when the tax exemption will return to $5 million (adjusted for inflation).

Another aspect of estate tax planning relates to the source and account types of the inheritance. For instance, heirs who receive money from Individual Retirement Accounts (IRAs) have to pay taxes when they withdraw funds from the account. IRA money is not taxed when it goes into the account, but the growth is taxed when the money is taken out.

As an alternative, IRAs could be converted to Roth IRAs, although they would be taxed immediately on conversion. If the Roth IRA is held for five years, funds withdrawn are tax-free and can be taken out whenever the owner wishes.

However, because current exemption amounts may not be available after 2025, or if further changes to tax laws are made, another strategy for individuals who wish to make significant lifetime gifts is to make those gifts with the current high levels. Because of the way the transfer tax systems interact, those lifetime gifts will not be taxed at death if the total of taxable gifts is less than the exemption amount in the year the gift is made.

Some experts advise that wealth be distributed between tax-deferred accounts, like 401(k)s, after-tax money, like the Roth IRA and taxable accounts, which include brokerage accounts. The goal is to be able to respond when changes are made to the tax code.

Reference: Atlanta Business Chronicle (May 31, 2019) “Updating estate plan could save heirs in taxes”