The Importance of the “Durable Power of Attorney”

I have read others’ opinions implying the  relative lack of importance of the Durable Power of Attorney for asset management (“DPOA”) as an estate planning tool — as if it were somehow a “throwaway” or an “extra” document.  Even in my own counseling of clients, I often get the question: I am asking you to prepare a trust.  I will also have a Will.  Why do I also need this document?”  In the past I explained that the “durable power of attorney ‘fills in the gaps’ left by other documents.”

My explanation was certainly true — but the significance of this document goes much further.  After my own experience caring for a parent and using my own estate planning document, I can say this:  It is an extremely powerful and useful tool.  Trusts are important, as are Wills.  However, the DPOA for asset management is indispensable.  As a caregiver I would have been lost without that document, and I otherwise might have been required to open an expensive conservatorship.

An example is in order: My first use of the DPOA was with a major credit card company.  With the onset of her dementia, my Mother left a tangled web of charges and confused billing.  The company would not even speak to me until I produced the DPOA.  After receiving the document, they resolved the issue without incident.  If I was unable to provide this document, I would have been unable to resolve the issue.

I continued using it throughout my Mother’s disability, all the way up to the time of her death.  I was able to access phone records and resolve billing issues.  Unfortunately, banks were unwilling to honor my form, which is not unusual.  It is possible under some circumstances to compel a party to accept a durable power of attorney in California, under Probate Code section 4541(f), but the time and expense involved (yes, even for an attorney!) can make enforcement impractical or undesirable.  Banks usually insist upon their own form.  However, in a worst circumstance, it may still be possible to force them to accept the form.

Even forgetting that problem, this powerful document was indispensable.  Yet, there must be care in both preparing DPOA, and in selecting the appropriate agent

I will address these issues in later posts.

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An Alzheimer’s/Chronic Stress Link?

It seems like there is a new study every few months concerning the causes of Alzheimer’s disease.  However, this new study from the University of Kuopio in Finland, reported in the U.K. Express, suggests that lifestyle may be a significant contributing  factor in developing the disease.  The link between the long term effects of stress and Alzheimer’s could “run the gambit,” causing mild memory impairment on one end of the spectrum, to Alzheimer’s on the other.

The study from the University of Kuopio is only one of several.  The article goes on to report:

Scientists at Gothenberg University in Sweden found those who complained of repeated periods of stress, including irritation, anxiety or sleeping problems were significantly more likely to develop dementia in old age than those who led worry-free lives.

As part of the new study, researchers will track the volunteers’ levels of cortisol, released by the body in response to chronic stress. A number of illnesses are known to develop earlier or made worse by chronic stress including heart disease, diabetes, cancer and multiple sclerosis. 

Stress can lead to high blood pressure which increases the risk of a heart attack because the heart has to work harder to pump more blood around the body. Cholesterol is also linked to the condition as it is a by-product of cortisol.

Describing the findings, Professor Holmes of the University of Southampton commented that “all of us go through stressful events.  We are looking to understand how these may become a risk factor for the development of Alzheimer’s.  Bereavement or a traumatic experience, possibly even moving home, is also a potential factor.”

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Some giving is tax free

This blog and so many others dwell on taxes, and how to avoid them. It is easy to forget that the gift of our time is tax free – and can be a much more meaningful gift than money.

Joplin, Missouri is my birthplace.  Although I have not lived there since I was very young, for a variety of reasons I still consider Joplin “home.” Not only is the country beautiful, but the people are down to earth and genuine. I believe there is a wonderful Easter story within a recent news article in the Joplin Globe detailing how some non-resident volunteers, cleaning up in the aftermath of Joplin’s May 22, 2011 EF5 tornado, fell in love with the town and moved there.

One such story is Michelle Tatela, a Chicago pediatric nurse turned volunteer, who pulled up stakes and moved to Joplin after the tornado:

She applied for a traveling nurse job in Tulsa, Okla., and an Oklahoma nursing license, put her two Labradors, Morgan and Maisy, in the back of her Jeep, and found a Joplin apartment — nothing fancy, just some place to shower, leave the dogs and sleep, and began calling Joplin home.

“Some thought it was crazy, others saw it coming. My brother said, ‘You just need to move there,’” she recalled.

Tatela has spent her days ever since doing “whatever needs to be done — painting, taping, mudding, organizing college kids, bringing supplies to the job site.”

“I get paid,” she said, “just not with money.”

“The people here are exceptional. I feel like there is something here special that you don’t find everywhere else. They are kind and appreciative. They don’t focus on what they lost, but what they have. It is teaching me lessons and I have grown in a way I’ve never grown before. You can’t put a paycheck on that.”

“We, as people, seek out the company of others like us,” she said. “I have found that here. I fit in.”

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Gift Tax Audits?

There is a new reason to take the necessity of filing gift tax returns seriously.  Not only are filing returns legally required, but the IRS is in the process of major compliance crackdown, which began in California at the end of 2010, and appears to be now going nationwide.

Intra-family real property transfers are, actually, fairly easy to track.  Every property transfer in California requires the filing of “Change of Ownership Report” with the County Assessor, and is maintained in State Board of Equalization records.  In California, if the transfer is a gift, the transfer may be exempt from reassessment if it is between certain family members, and as a bona fide gift it may also be exempt from documentary transfer taxes.  Therefore, there is an incentive for family members to file forms with the transfer demonstrating that the property is being gifted.  In an apparently unprecedented move, the IRS recently sought to compel the California State Board of Equalization to turn over its records regarding such transfers for little or no consideration, in In Re the tax liabilities of John Does, Case No. 2:10-mc-00130-MCE-EFB (N. D. Cal.).

This effort is only a part of a larger initiative – which some tax professionals call the “low hanging fruit.”  The IRS is also attempting to obtain similar types of transfer records for: Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, Texas, Virginia, Washington, Wisconsin, and Ohio.

Please also note that the necessity of filing a gift tax return not only applies to outright gifts, but also below market sales.  The IRS will “deem” the difference between the fair market value and the “sale” price to be a gift.

The solution is fairly straightforward: File a gift tax return for transfers to any single donee for gifts exceeding the annual exclusion amount of $13,000.  Even if the gift is within the amount of the donor’s lifetime exclusion, no tax may be owed.  However, the return should be filed.  Otherwise, you could have a nasty audit-surprise.

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Consumer Reports Examines Legal Estate Planning Software

Consumer Reports examined three software and internet products, concluding that buyers should beware, reporting that “among the problems we found in one or more of these products: outdated information, insufficient customization, incompleteness, inability to handle some tax issues, and lack of flexibility.”

This was essentially my conclusion when blogging on this subject several days ago, here.   However, Consumer Reports did find a useful purpose for purchasing the software, which is for education.  Consumer Reports concluded: 

One good use for this software: education. Going through the interview forces you to think about issues such as, “Who should be the alternative executor?” in a way that simply reading a book on wills does not. Taking a practice run on either Rocket Lawyer or WillMaker—and determining in advance issues such as who will be the guardian and who will get Aunt Minnie’s brooch—might save you time at the attorney’s office.

(Hat tip to Prof. Beyer’s Wills, Trusts & Estates Prof. Blog)

 

 

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Thoughts on Using Internet Legal Estate Planning Services

I recently had a prospective client ask: “Why should I hire you, when I can go to an internet service and obtain a trust?”  This was a good question – one which deserves a fairly involved answer.

I realize that some attorneys feel threatened by the many internet services.  I also realize that there are some “do-it-yourselfers” (who are few and far between) who are quite happy to research and become acquainted with the practical and tax effects of their plans.  I also know that there are a number of attorneys who absolutely love these websites and services, making it their business to fix and deal with the errors.

Considering all of this, there are certainly some who are considering these services.  For those, I have some thoughts and suggestions to consider:

1.    Recognize that these preparation services are not being upfront.  Even if you choose to use these services, be very careful in believing the hype and sales techniques which they employ.  For example, one major service states that it is not a legal service, but a “self help” service.  However, when a company provides you with documents and represents that they are legally sufficient, it is a legal help, not “self help.”  They only say this to try to avoid the accusation that they are practicing law without a license.

 2.    “Acceptance” by courts mean little.  Another hype phrase I have heard from one major service is that the documents they prepare have been “accepted” by in courts of all states.  That is a very silly claim: One fairly old probate case involved a man who scrawled a handwritten will (i.e., a holographic will) on the plaster wall next to his bed before he died, giving his estate to his girlfriend.  The plaster wall was accepted into evidence.  The moral of the story: The threshold for being “accepted” by a court is very, very low.  The real issue is: Do the documents reflect your wishes?  If so, how do you know, and will the “document preparation service” explain it to you?

3.    Funding can get complicated.  One major aspect of any estate plan is “funding” the plan – in other words, placing assets into the name of the trust.  If a trust is not funded, it is either useless, or great expense is required in making it effective.

4.    You may need to get legal assistance at some point.  Usually some court or court filing proceeding is required to give effect to a will.  A trust will need administration, and you may need the assistance of an attorney when it comes time to administer the trust.

If you are considering a “service” these are some matters to consider.  Also, there are many poorly written documents floating around, written by attorneys or otherwise, so please beware.  If you are serious about planning your estate, I recommend that you go to an attorney whom you trust, and ensure that the task is done properly.  Otherwise, do your research, and keep your expectations low – because in life, and beyond, you usually get what you pay for.

By the way, the client who prompted this blog entry hired me.

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Tax Deal in the Offing

I have posted periodically about the estate tax, which is set to return next year with an individual exclusion of $1 million.  However, as part of the tax negotiations between Congress and the President, it appears that there may be a deal: A return of the estate tax, but with a $5 million exclusion, and a maximum rate of 35%.  The following is from an article in the New York Times:

In addition to a two-year extension of the income tax rates enacted under President George W. Bush, the deal includes a one-year extension of jobless aid for the long-term unemployed. Officials said negotiators were also close to an agreement to restore the federal estate tax, which lapsed at the start of this year, with an exemption of up to $5 million per individual, and a maximum rate of 35 percent.

Mr. Obama, on a visit to Winston-Salem, N.C. on Monday, said the two sides were working toward an agreement that would prevent a tax increase at the start of the year when the Bush-era rates are due to expire.

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End of Year Planning

There are a number of “quick and dirty” ways to do some year end estate planning to minimize tax liability — especially if you need to get assets out of your estate or if you would simply like to gift this year.

The gift tax rate is 35% this year, and is now set to jump to 55% next year — with the possibility that Congress will retroactively raise the gift tax rate this year to a higher rate. You may be surprised, but yes: Congress has the power to pull a “rope a dope” on all of us by first giving taxpayers a break, but then after a gift is made, retroactively raising tax rates.  But also remember: Most of us do not really have to worry about paying gift tax, given the $13,000 per person exemption (and most of us do not gift past that anyway).  And on top of the yearly exemption, there is the Unified Lifetime exclusion of $1,000,000.

There is an interesting article in Trusts & Estates, concerning year end gifting using what estate and financial planners know as “Qualified Disclaimers.” A disclaimer is a basic “I don’t want it” response to a gift, where someone’s gift is rejected. If it is rejected, it can flow back to the giver, or to another contingent beneficiary in the event a trust is established. Either way, it can be a way to “have your cake and eat it too,” because you can gift this year (at a lower 35% rate), and if Congress changes the tax rate (or if other circumstances change), the gift may be disclaimed within a 9 month period, and it can come back or go somewhere else.  A taxpayer’s version of “touche”!

The Trusts & Estates article gives a specific example:

Take the following example: Tom Clark would like to gift $2 million of marketable securities to his son Bill.  He establishes a trust naming Bill as primary beneficiary and his wife, Mary Clark as contingent.  The trust is drafted to qualify as a completed gift for tax purposes, and Tom funds the trust with the $2 million securities portfolio.  The family now has nine months (assuming Bill is age 21 or older) to decide if they want the gift to stand.  Should Congress enact a retroactive increase in the gift tax, Bill will simply disclaim his interest in the trust, which then flows to Mary as contingent beneficiary.  The entire transaction is gift tax-free if this option is triggered since the gift is now between spouses.  And if the gift tax rate isn’t increased retroactively, the Clarks have locked in the lower gift tax rate by completing the transaction in 2010.

I know this is somewhat confusing, but there are a number of non-conventional solutions to estate planning available to all of us, and which are especially useful for the wealthy. For middle income individuals, the conventional solutions are often the best: A Will, powers of attorney, and sometimes (especially if you own real property), a trust.

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Wills, Trusts & Planes, Trains & Automobiles…

Estate planning is a very different type of legal practice. Unlike defending or filing a lawsuit – your concern is not compensation or protecting yourself from a perhaps non meritorious legal matter. Instead, you are doing something most of us truly do not want to do, which is to face our own mortality.

The very same with me: Even though I was a lawyer for many years before preparing my own trust, I completed and funded it just before going on a chaperon trip to the Midwest with my wife.

Therefore, a recent article in the e-newsletter Private Wealth caught my eye. It noted the complaint of many estate planning attorneys that some clients do not execute their estate planning documents even after they are prepared (actually, that sounds all-too familiar). It also noted that many clients go to their estate planning attorneys sometimes just hours before traveling – sometimes calling their attorneys while at the airport. For example, Ms. Kaufman, an attorney at an state planning firm in Washington D.C. recounted:

Nearly every year, a few weeks or days before he leaves on a trip to Europe, a client of Kaufman’s calls her about his will. She makes changes, if necessary, sometimes getting him into the office “literally on his way to the airport,” she says.

Kaufman also recounts how a couple who had been working on a new estate plan for about three years suddenly realized they were not happy with the guardianship provisions in their existing wills. The impetus: A long trip they had just embarked on without the kids. Kaufman wrote codicils addressing the issue and emailed them to the couple, who stopped at a bank in a town along the way and signed them before a notary and witnesses.

So, relax.  If you are a procrastinator. . . join the club

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On the Estate Planning "Conversation"

I have seen a wide range of attitudes among clients. Without getting into too much detail, I have seen everything from gratitude to suspicion. I realize that many clients are sometimes pulled into an estate planning meeting unwillingly — by spouses, or (perhaps more often) due to their own feeling that they “have to do” something about their estate plans.

It IS, after all, an inherently uncomfortable subject. Without a doubt, I am sure that many clients would rather go out to a nice dinner, or throw a party, than meet with and then hire a lawyer to prepare estate planning documents.

I’m sure that some of my clients would even prefer a meeting with their dentist.

A recent New York Times article addresses this difficulty of opening up “The Conversation” with a family member. Here is the opening excerpt of an article addressing this even touchier family dynamic:

For many people, estate planning is both a private matter and a morbid topic — not something that parents and their adult children want to discuss. While having these conversations takes a lot of courage, they can help avoid surprises, lead to better financial planning and promote family harmony.

Julie Busch, a vocational consultant in Seattle, asked her father, Russell, about his estate plan last summer after learning he had brain cancer. She was surprised to find that Mr. Busch, a lawyer specializing in American Indian rights, did not even have a will.

Take heart. These are difficult issues (and I know this from personal experience), from my own life. For me, it was no easier than it is for my clients.

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