Be Careful Granting Power of Attorney

Power of Attorney abuse has emerged as a serious problem for elderly people who are vulnerable to people they trust more than they should, reports the Sandusky Register in the article “Consumer beware: Understanding the powers of a Power of Attorney” The same is true for a Durable Power of Attorney for Health Care document, which should be of great concern for seniors and their family members.

This illustrates the importance of a Power of Attorney document: the person, also known as the “principal,” is giving the authority to act on their behalf in all financial and personal affairs to another person, known as their “agent.” That means the agent is empowered to do anything and everything the person themselves would do, from making withdrawals from a bank account, to selling a home or a car or more mundane acts, such as paying bills and filing taxes.

The problem is that there is nothing to stop someone, once they have Power of Attorney, from taking advantage of the situation. No one is watching out for the person’s best interests, to make sure bank accounts aren’t drained or assets sold. The agent can abuse that financial power to the detriment of the senior and to benefit the agent themselves. It is a crime when it happens. However, this is what often occurs: seniors are so embarrassed that they gave this power to someone they thought they could trust, that they are reluctant to report the crime.

Similarly, an unchecked Health Care Power of Attorney can lead to abuse, if the wrong person is named.

The following is a real example of how this can go wrong. An adult child arranged for their trusting parent to be diagnosed as suffering from dementia by an unscrupulous psychiatrist, when the parent did not have dementia.

The adult child then had the parent admitted into a nursing home, misrepresenting the admission as a temporary stay for rehabilitation. They then kept the parent in the nursing home, using the dementia diagnosis as a reason for her to remain in the nursing home.

The parent had to hire an attorney and prove to the court that she was competent and able to live independently, to be able to return to her home.

Meet with an experienced estate planning attorney to discuss your situation and figure out who might become named as Power of Attorney and Health Care Power of attorney on your behalf. The attorney will be able to help you make sure that your estate plan, including your will, is properly prepared and discuss with you the best options for these important decisions.

Reference: Sandusky Register (Feb. 5, 2019) “Consumer beware: Understanding the powers of a Power of Attorney”

Farmers, Don’t Make These Five Estate Mistakes

First mistake: some farmers think they don’t have to do anything because the federal estate tax exemption is so high, and their net worth is well under the limit. However, just because the estate tax exemption has doubled until 2025, does not mean they don’t need estate planning. The article “5 Estate Planning Mistakes You Don’t Want To Make” from Ag Web takes readers through some big mistakes that have been made by farm families in the past.

The estate exemption will only be this high for a limited period of time. When the Tax Act expires in 2025, the exemption will be back down to $5.5 million per person and $11 million for a couple. However, there is an election in 2020. There is no guarantee that the limits will remain in place until 2025.

The family is a bigger risk to the future of any family business than taxes. Blended families, stepparents, siblings and half-siblings and how family relationships work or don’t work is the bigger reason why family farmers, ranchers and business owners need estate and succession planning.

Second, people make a huge mistake in trying to treat their children the same. Fair does not always mean equal. Think about who is working on the farm, and who is not. Who is going to do a great job maintaining the family legacy, and who has already left to live in another state? Be mindful of the difference in your children, and talk with them, individually and in a group, so they know what your intentions are.

Third, you cannot simply title your property, so your kids and your spouse own it together and it passes to them when you die. It sounds nice and simple, but it’s a huge mistake. People think they want to do this to avoid probate, but it creates many problems. For one thing, if you just add names on property and there is no bill of sale, you create a taxable gift. What happens if one of your children gets divorced? Their name is on the deed, their spouse may be entitled to a portion of your farm, and suddenly your wife, children, and an ex-wife are all owners of the property.

Fourth, the plan to “sell off the farm, when I retire” plan is a terrible tax burden to place on yourself. If you sell the last crop and auction off the equipment, there will be a big income tax bite. Farmers tend not to pay a lot of income taxes. They sell this year’s grain next year, and they deduct next year’s expenses this year. They buy equipment in December and then depreciate it, but then when you do a retirement sell off, you get all the taxes that you’ve been pushing away all at once.

Fifth is the one that dooms so many families, both farmers and non-farmers. You can’t copy your neighbor’s estate plan and hope it will work. Every family is different, and no matter how small your town, everybody does not know the exact details of everybody else’s business. The farmer down the road may do a lifetime gifting that works for them—and lands your family in an unfixable situation.

Estate planning is very specific, and every family has its own needs. Talk with an estate planning attorney, who has experience with farm families and succession plans.

Reference: Ag Web (Jan. 15, 2019) “5 Estate Planning Mistakes You Don’t Want To Make”

Your Most Important Asset Is Not Your Bank Account

It’s hard to think about getting older. When something is challenging, the usual human response is to procrastinate. We can’t slow down the aging process, but we can prepare for it. One of the things that needs to be done to prepare for aging, is discussed in the article from The Mercury titled “REINVENTING RETIREMENT: Your most important asset—it’s not what you think.” Good health is definitely important, but there’s something else to consider: your independence.

We hate to think about becoming dependent upon others, but that is often what occurs with aging. This is an asset that needs to be planned for and managed, like any other. Here are some tips for each decade:

Health Care Directives in Your 50s. You need to have a will and you need to have it updated, as the years go by. However, in mid-life you need to make sure to have a living will and power of attorney. Estate planning is a tool used to protect your independence and your wishes as you grow older. These two documents are a critical part of your estate plan. A health crisis or an accident can happen to anyone, but planning can ensure that your wishes are followed. Put your wishes on paper, with an attorney, so that they are enforceable. Just telling someone what you want, is not going to do it.

Home and Belongings in Your 60s. The kids are out of college and have their own careers and families. Do you still need that big house? Downsizing could bring you tremendous freedom now. Yes, you have to go through all of your belongings which is a lot of work. However, consider how your life would change if you had less stuff, a smaller home and lower bills? This one move could change how your retirement succeeds—or fails.

Stay Connected in your 70s and 80s. Connecting with your community is critical at this time of life. When you are actively engaged with your community, you’ll be busy with activities that you enjoy. You will hopefully be making contributions that draw on your years of experience and knowledge. Hope and having a purpose in life is not just for the young. The healthiest and most independent lives, are lived when people are engaged with other people, with a life that has meaning and purpose.

Planning for your retirement is about much more than your bank account. Speak with an estate planning attorney to make sure that your estate plan protects your independence, conveys your wishes and plans the coming stages of your life to be as rewarding—or maybe more fulfilling—than the past.

Reference: The Mercury (Feb. 10, 2019) “REINVENTING RETIREMENT: Your most important asset—it’s not what you think”

How Do I Prepare my Parents for Alzheimer’s?

Can your mom just sell her house, despite her diagnosis of Alzheimer’s?

The (Bryan TX) Eagle reports in the recent article “MENTAL CLARITY: Shining a light on the capacity to sign Texas documents” that the concept of “mental capacity” is complicated. There’s considerable confusion about incapacity. The article explains that different legal documents have a different degree of required capacity. The bar for signing a Power of Attorney, a Warranty Deed, a Contract, a Divorce Decree, or a Settlement Agreement is a little lower than for signing a Will. The individual signing legal documents must be capable of understanding and appreciating what he or she is signing, as well as the effect of the document.

The answer the question of whether the mom can sign the deed to her house over to the buyer.  is likely “yes.” She must understand that she’s selling her house, and that, once the document is signed, the house will belong to someone else. A terminal diagnosis or a neurodegenerative disease doesn’t automatically mean that an individual can’t sign legal documents. A case-by-case assessment is required to see if the document will be valid.

The fact that a person is unable to write his or her name doesn’t mean they lack capacity. If a senior can’t sign her name (possibly due to tremors or neurodegeneration), she can sign with an “X”. She could place her hand on top of someone else’s and allow the other person to sign her name. If this is completed before witnesses and the notary, that would be legal.

A hard part of Alzheimer’s is that a person’s mental clarity can come and go. Capacity can be fluid in the progress of a neurodegenerative or other terminal disease. Because of this, the best time to sign critical documents is sooner rather than later. No one can say the “window of capacity” will remain open for a certain amount of time.

Some signs should prompt you to move more quickly. These include things like the following:

  • Short-term memory loss;
  • Personality changes (e.g., unusual anger);
  • Confusing up or forgetting common-usage words and names; and
  • Disorientation and changes in depth perception.

Any of the signs above could be caused by dementia or many other problems. Talk to your parent’s physician and an elder law attorney. He or she can discuss the options, document your parent’s legal capacity, and get the right documents drafted quickly.

Reference: The (Bryan TX) Eagle (February 7, 2019) “MENTAL CLARITY: Shining a light on the capacity to sign Texas documents”

Why You Should Have an Advance Directive

An advance directive is a legal document that states a person’s preferences for medical treatment and medical decision-making, reports Valley News in an informative article titled “Advance Directives Provide Clear Guidance for Care.”

There are two components that make up an advance directive: a durable power of attorney and a treatment preferences section.

The durable power of attorney for health care allows you to appoint someone to make medical decisions, if you lack the capacity to make those decisions for yourself.

The treatment preference, which is sometimes referred to as a living will, lets you specify what kind of treatment you would want in a difficult circumstance. Treatment and care preferences usually focus on what you would want at the end of life or if you were in a permanently unconscious state. There are other preferences that can be expressed, including pain control, blood transfusions, mental health care and spiritual care. Another preference: who should—and should not—be involved in discussions about treatment.

Most people want to express their wishes to avoid aggressive measures being taken to extend their lives, when the end result will be suffering and a delay of their passing. Others chose to avoid the financial burdens that may or may not result in any kind of change in their health or the quality of their life.

Some have these documents prepared to make it clear that they want to spend their final months, weeks or days at home with loved ones with care only to relieve pain or care, so they can be conscious and able to speak with those around them.

Advance directives are a blessing to loved ones since they do not have to make hard choices in a crisis situation. They know what their aging parent or spouses wishes.

It’s important to choose the person you want to be responsible for your care well in advance. Make sure it’s someone you trust, who knows you well and will be able to make hard decisions in a highly emotional time. They’ll also have to be able to communicate with your doctors and family members.

These documents are bound by the laws of your state, so speak with an estate planning attorney who practices law in your state of residence. They’ll be able to prepare these documents on your behalf, along with a will and other estate planning documents.

Reference: Valley News (Sep. 1, 2018) “Advance Directives Provide Clear Guidance for Care”

Will Stepmother Take Dad’s Money When He Dies?

Here’s a savvy and responsible stepmother—she called for a meeting with the estate planning attorney. At age 57, married to a 72-year old man with three kids from his first marriage and two kids from their marriage, she wanted to make sure that his wealth didn’t become a source of agitation for the family, when he passed. That, says Forbes, typifies how the “new” American family has changed, in the article “How Long Will Stepmom Live? And Other Vexing Estate Planning Questions for Modern Families.”

The stepmother did not want to be seen as rapacious or coming between the kids and their inheritance.

The solution was as follows: money for the stepmother was left to a marital trust with provisions for her benefit, while the children received accelerated inheritances through a series of Grantor Retained Annuity Trusts (GRATs), a qualified personal residence trust for a vacation compound and annual exclusion gifts.

Here’s another example: a male descendent of a wealthy family acknowledged that he had fathered a child without being married to the child’s mother. He had to seek legal determination to ensure that the child would be cared for.

Welcome to today’s new family. They include three-parent families, artificial reproductive heirs and blended families. These are all hot issues in the world of estate planning and attorneys are now addressing these new dynamics.

There are five basic questions that must be addressed when creating an estate plan today:

Who? Who gets your money and your stuff?

How much? How will it be divided among heirs?

When? Will it be at a specific age, or just when you die?

Outright versus in trust? With a trustee, you name a person who will control your assets.

Who represents you? An agent and a fiduciary, with a power of attorney who acts on your behalf, if you become incapacitated, an executor who is in charge of administering your estate, and a trustee who manages any trusts created.

Modern families don’t want old-school estate planning solutions. They want to know that their estate plan will work for their situation, which may not match the old “Mom, Dad, Brother, Sister, Brother” construct. So, how should you handle the distribution of wealth for non-traditional families? If a child dies, and a live-in partner is rearing the children, should there be money for the children in a trust? What about taking care of the surviving partner, even if they were not married?

What about late-in-life marriages? If there’s a huge gap in years between grandparents and grandchildren, how will family wealth be passed down? Funding 529 trusts is one answer, and trusts are another. If the age gap is so big that grandparents never meet their grandchildren, a statement of intent in documents can be used to convey the goals and wishes the grandparents have for their grandchildren.

Providing for all children equally isn’t always the goal of the modern family. Some might think their ex-spouse will provide for children and leave them fewer assets than they would have, if that were not a factor. However, don’t assume that, even if you can’t have that conversation with your ex. If your intention is to distribute assets in unequal portions, you may save your loved ones a lot of pain and fighting, by either talking with them about it while you are still living or leaving a letter behind explaining your decision-making process.

It’s hard to tell what changes will come to families in the future, but one thing will remain the same: the need for an estate plan, done with the guidance of an experienced estate planning attorney, is essential.

Reference: Forbes (Jan. 29, 2019) “How Long Will Stepmom Live? And Other Vexing Estate Planning Questions for Modern Families”

Being Forward-Thinking About Assisted Living to Avoid a Crisis

We always think there will be time to plan for assisted living, until something happens and then we are facing an emergency. When a loved one is discharged from the hospital and can’t return home, there’s little or no time to find the right place for them to live. As Next Avenue advises in the article “Planning Ahead for Assisted Living,” don’t wait for the emergency.

Many people deal with assisted living this way. Adult children uproot their lives and relocate to be near their aging parents. Spouses feel helpless when their husbands or wives refuse to even consider moving to a facility, yet they are not safe at home.

The senior often pushes back against leaving their home, which is understandable. However, when illness or aging takes a toll, it’s just a matter of time before they understand, usually the hard way.

One woman was the very model of aging-in-place, until turning 85. Then illnesses and a chronic condition started making it hard for her to move around. When she was taken to the hospital, she had to take a clear look at her situation. It was distressing, but she realized she had to make a change.

By 2030, the number of Americans age 65 and older is expected to increase dramatically, and for the first time in our country’s history, the number of older Americans will be higher than the number of children.

We may not know what life has in store for us. However, we can plan ahead.

Some people start looking at CCRCs–Continuing Care Retirement Communities. These are facilities that include independent living, assisted living and nursing home care, all on the same property. Some have secured memory care for those living with dementia.

Research the costs, policies, and programs of the long-term facilities you may be considering. There are different services offered. Assisted living facilities are state-licensed housing communities that offer residents a range of services. They usually do not offer medical care. A skilled nursing facility/nursing home will have medical services.

Services in assisted living communities vary. Some offer meals and help with bathing, dressing and mobility, medication management, education and social activities. They may be large or small, with residential homes, where three or four residents live with a paid caregiver. Those are known as “adult foster homes.” Others are “assisted living homes,” which usually have 10 or so residents. In these facilities, the caretakers don’t live in the house, but 24-hour care is provided.

Here are some questions to ask, when visiting assisted living communities:

  • Is the facility clean? Does it smell?
  • What is the culture and atmosphere of the place?
  • Are the residents and employees smiling, or does everyone look downcast?

It is recommended that people visit the facility several times, at different times, to get a better sense of the facility.  You should also eat in the dining room a few times. Are people friendly? How is the quality of the food? Set up a meeting with the people who run the facility and your family members.

Don’t dismiss the concerns of your loved ones when visiting facilities. They need to be comfortable, and it’s very important for them to have a voice in making this decision.

Reference: Next Avenue (Jan. 21, 2019) “Planning Ahead for Assisted Living”

Should a Professional Serve as a Trustee for Your Estate?

Officers at trust companies often hear comments that it hardly seems necessary to have a professional involved in administering an estate. After all, they ask, how difficult can it be? Serving as a trustee can actually be extremely complex, says Kiplinger in the article that explains it all: “Why You May Need a Pro Trustee: Trust Administration is Not Just Common Sense.” Here’s one of many examples of how much can go wrong.

Let’s call our client Linda. She wants to identify a successor trustee. Linda’s parents had identical estate plans with trusts that were set up for Linda and her two siblings Jack and Diane. Linda was the family’s responsible one, so she received her share in each estate outright and served as the trustee for the other separate trusts, two for Jack and, two for Diane, since the second of her parents died some 10 years ago. This is not unusual—parents will often give the responsible person in the family, the role of trustee, when their siblings are seen as less likely to perform the necessary tasks.

These four trusts were close in value, with about $440,000 in each. They were identical in other ways: the trustee had the power to pay from income and principal each year for the beneficiary’s health, maintenance and support, but there was no requirement to distribute anything. Linda had done a great job, in keeping with her reputation. For 10 years, she recorded every transaction. Because she knew her siblings resented her serving as trustee, she never paid herself a fee.

Linda was tired, and she wanted to let someone else be in charge of the trusts.

When the trusts were presented to an institutional trust officer, it was clear why the trusts had never been merged. Linda’s mom had executed an amendment to the estate plan, after Linda’s dad died that ensured that when these siblings passed (that would be Jack and Diane), the trusts would pass to their descendants. Linda’s mom executed this amendment, so that when Jack and Diane passed away, the trust from the mother would be divided among her surviving children. This meant that Linda would get another share, and Jack and Diane’s children would get less benefit from that trust.

Linda’s mom thought she was doing a good thing. However, her decision put Linda in a bad position. She became an “interested” trustee, with the power to make decisions that would eventually put more funds into her pockets or diminish her share. Of course, that would only happen if she outlived her siblings.

Linda had been diligent and responsible, insuring that the trusts had the exact same asset allocation and investments, paying out income from the trust and when one called asking for money, giving both the same additional amount from the mother’s trust and the father’s trust, even though any distributions made from the mother’s trust make her less likely to receive a larger share in the future. She also made the same distribution for the other sibling, to keep things even.

However, Linda’s actions, while seemingly very prudent and fair, could be interpreted as a breach of trust that leaves her open to a lawsuit judgment against her.

Her sister Diane had few or no other income sources. Each year, she spent every penny she got, just to get by. Diane requested additional distributions every year. When Diane dies, Jack will receive an additional share of Diane’s trusts, if he survives her.

Jack had plenty of income and assets. If Diane survived him, she’d receive a share of one of his trusts. But wait—Jack’s been receiving funds from the trust that was to have benefited his spouse and dependents, not Diane. Therefore, while Linda’s been trying to keep everything fair, she has actually been undermining the trusts that may pass to Jack’s descendants, by distributing funds Jack didn’t even need. Linda could have made distributions from her mother’s trusts to increase the chances that Jack’s and Diane’s descendants would receive a greater share at their parent’s death.

Linda didn’t see the larger picture, and as a result has made 10 years of decisions that could create a serious financial problem for herself, if one of her siblings is litigious.

This is one example of how even the best of intentions and integrity have the potential to create a trust nightmare. An estate planning attorney would have seen the vulnerabilities in this distribution plan and advised the trustee how to best deal with the administration of the trusts to protect themselves and the other heirs.

Reference: Kiplinger (Jan. 14, 2019) “Why You May Need a Pro Trustee: Trust Administration is Not Just Common Sense”

How Do I Plan the Succession of My Business?

The San Antonio Business Journal’s recent article, “Plan your exit even if you never plan to leave your business,” explains that many owners think it’s okay to delay preparing for their business exit. Some think there’s no reason to plan for their exit whatsoever, because they’re willing to die in the business. Owners should always have an exit plan prepared and ready. Things change, like health, the economy, and opportunities. Be ready and consider these three key ways exit planning can help you and your business—even if you don’t intend to leave.

Decrease your taxes. Whether you ultimately decide to sell your business, transfer ownership or die working, you probably don’t want to pay more taxes than you have to. There are two ways exit planning can help minimize taxes, even if you truly want to work until you die. If your business value increases, your estate can benefit from a step-up in basis, if your ownership transfers pursuant to your estate plan. This saves your estate or beneficiaries from paying duplicate taxes on the entire business value.

The lifetime exclusion for gift and estate taxes is now to the point where most small and mid-sized business owners don’t need to pay estate taxes, if owners have created an appropriate estate plan. Your exit plan lets you leverage these benefits, since estate planning is a vital component in proper exit planning.

Protect your values. If you created a work culture that’s so unique and strong that it helps your company stand out in the marketplace or your business gives back to the community through charity work, exit planning lets you pursue and preserve your progress toward those objectives. Exit planning strategies can foster the culture you’ve built, protect the employees who made the business a success, and help you build the legacy you want. Exit planning can help keep your chosen values front and center and protect its value, even without your presence.

Growing your business. Everyone wants their business to grow in value, but many business owners get to a point where they can’t grow the company any more, by simply doing the same things they’ve been doing. However, exit planning concentrates on building business value, whether you exit or not. These activities can help you increase your business’ growth potential, by emphasizing value drivers. Those are the aspects of your business that make it attractive to buyers. When it’s done the right way, installing value drivers can make your ownership even more fulfilling—concentrating on certain value drivers can let you focus on only your favorite tasks within the business and delegate your least favorite responsibilities to other qualified employees.

Use exit planning to address concerns about the future of your business, family, and employees.

Reference: The San Antonio Business Journal (October 16, 2018) “Plan your exit even if you never plan to leave your business”

Planning for Three Financial Phases of Retirement: Spending Down, Final Spending and Legacy

In pre-retirement earning years, all our attention is focused on accumulating assets. However, the information you need during the accumulation years is different than for the remaining years, according to a useful article from Financial Advisor titled “A Successful And Secure Retirement—Spend-Down Strategies: Part 1.”

The biggest difference in the strategies during the accumulation and withdrawal strategies, is that there’s a greater emphasis on long-term tax planning. Taxes are often the single biggest expense for investors. To make sure that you meet your goals, which includes having the IRS take the smallest piece of your assets, a plan must be created to focus on paying the least amount in taxes, while you are alive and even after you have passed.

The first phase of decumulation, which occurs at different times for different people (and for some people, never occurs) usually comes with a low tax rate. It often starts with retirement, when the paychecks are not coming in and, ideally, you are not yet drawing Social Security or pension benefits. This would allow your Social Security benefits to continue to grow and keep you in a low tax bracket.

The spend-down phase begins, when you start taking withdrawals from tax deferred retirement accounts. This typically starts the year you turn 70½ and start taking RMDs (Required Minimum Distributions). This is the time to be careful, since your tax rate will likely jump up from the amount it was when you were not yet taking RMDs or getting Social Security or pension benefits. The goal is to manage your retirement income, in order to minimize taxes.

The final-spending phase begins all too soon, especially when medical costs and long-term care costs increase dramatically. Given their tax deductibility, as things currently stand, this may provide another period with very low tax rates.

The legacy phase begins upon your death, or on the death of the surviving spouse. The goal is the tax efficient transfer of remaining wealth to heirs and charities and preparing heirs for the assets they will inherit. An estate plan should be in place long before this phase is reached, so that your assets are passed seamlessly to family members and charities.

As a person moves through these stages of post-retirement spending, there are many strategies that can be used to minimize tax liability and maximize the growth of assets. A balance must be found between spending, managing tax burdens and preparing for a legacy.

Speak with your estate planning attorney, who can help you navigate tax planning.

Reference: Financial Advisor (Jan. 21, 2019) “A Successful And Secure Retirement—Spend-Down Strategies: Part 1”