Estate Planning in Different States

Estate planning in different states addresses key nuances between the states’ laws for people who move or spend much time in other states.

In this very mobile society, clients often move from state to state.  Whether the move is due to job opportunities, to be close (or far) from family or just for a change of scenery, many people will live in multiple states in their lifetime.  They often don’t realize that estate planning laws vary greatly from state to state and understanding the difference could have a significant impact on whether your estate plan is effective.  It is best to get this straight shortly after moving, says The National Law Review in the recent article “Updating Your Estate Plan: What Michigan Residents Need to Know When Moving to Florida.”

It’s not just people from Michigan who move to Florida who need to have their estate plans reviewed, if they are snowbirds or making a full-time move—it’s anyone who moves to another state, from any state. However, Florida’s popularity makes it a good example to use.

Florida restricts who is permitted to serve as a Personal Representatives under a will. The personal representative, also known as an executor, must be a descendant or ancestor of the decedent, a spouse, brother, sister, aunt, uncle, nephew, niece or descendant or ancestor of any such person or a Florida resident.

Florida doesn’t recognize “no contest” clauses in trusts or wills. It also does not recognize unwitnessed testamentary documents, which are handwritten documents even if they are in your own handwriting. By way of example, Texas does and have had to utilize that option during the COVID-19 lockdowns.

Florida also has a special set of laws, known as the Homestead laws, designed to protect a decedent’s surviving spouse and children. You may have had other plans for your Florida home, but they may not be passed to the people you have designated in your non-Florida will, if they don’t follow the Sunshine State’s guidelines.

Power of Attorney laws differ from state to state, and this can create huge headaches for families. In many states, powers of attorney can be “springing,” meaning they become effective upon disability. In Florida, once a Durable Power of Attorney is signed, it is effective. Florida may accept a power of attorney from another state, but Florida law will be applied to the agent’s actions, and restrictions will be based on Florida law, not that of another state.

Estate planning in different states is very unique when it comes to estate planning documents concerning medical and financial decisions while you are living, these are also different. I routinely tell people that if you relocate, you have to change these documents.  A living will names a person, known as a “Patient Advocate” in Michigan or a “Health Care Surrogate” in Florida, who is authorized to make decisions regarding end of life care, including providing, withholding, or withdrawing life-sustaining treatment. In Michigan, you need two doctors to certify a patient’s incapacity for non-life-or-death decisions. In Florida, only one doctor is needed.  Even simpler, these documents will not be reviewed by attorneys.  They will be reviewed by medical professionals rendering care to you.  So, it is best to give them the format they anticipate so there is not delay in providing care to you.

On a broader prospective, estate administrations are very different in different estates, and that leads to different goals in estate planning.  I’m admitted in Pennsylvania, New York and Texas.  In Pennsylvania, we frequently used wills as the primary estate plan vehicle because the probate process is easy to initiate, and all of the work of an estate administration exists whether or not you are using a trust.  In New York, we almost exclusively used trusts.  Probate was far more involved and expensive, which made living trusts extremely helpful to clients. In Texas, we definitely draft more trusts as they are still beneficial, but it isn’t nearly as critical as it is in New York.   To make it one step worse, Pennsylvania has inheritance taxes, New York has estate taxes, and Texas has neither.  Those are three very different estate planning realities.

As a final point, if you expect to relocate in the future and are considering estate planning, I strongly recommend a living trusts.  Trusts tend to be portable as they go outside of the court probate process, which is where many of the state nuances lie.  This is also helpful because clients who move often have real estate in multiple states.  Real property in multiple states potential means multiple probates, which people don’t expect.

So, if you are planning on a move or even if you just spend substantial time outside of your home state, meet with your estate planning attorney to understand how any and all of your estate planning documents will work—or not—when you are in another state.

Reference: The National Law Review (June 30, 2021) “Updating Your Estate Plan: What Michigan Residents Need to Know When Moving to Florida”

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Effect of Adding Someone to Your Bank Account

Clients constantly, often at the suggestion of their bank, add someone to their bank accounts.  This could be an elderly parent adding a child so they can write checks for them, or perhaps adding the names of beneficiaries so they own the account at death or can use that money to help someone else.  Regardless of the reason, it is critical to understand that adding another person to your bank account provides both of you with complete access to the account and has a big impact on your estate plan, as well as other issues such as taxes or Medicaid.  It is critical to understand these implications and the different ways you can do this, explains the article “What are my rights when someone adds me to a bank account?” from Lehigh Valley Live.

A joint account is a bank or investment account shared by two individuals, although more than two people may be on an account. They have equal access to funds, as well as equal responsibilities for any fees or expenses associated with the account. If there are transactions, depending upon the rules of the institution, all owners may be required to sign documents. The key is how the account is titled. That’s the controlling factor in determining how the assets in the account are divided, if one of the owners dies. There are several different types of joint ownership.

One is “Joint Tenants with Rights of Survivorship,” or JTWROS. If one of the account owners should die, the assets in the account go directly to the surviving account holder. These assets do not go through probate.  Often people assume this is what they have on their bank accounts, but in most cases this is not the default setting.

Then there’s “Tenants in Common,” or TIC. With TIC, each individual account owner has the right to designate a beneficiary for their portion of the assets upon their death. The assets might not be split 50/50. How the account is titled lets the account owners divide ownership however they want.  This is important because in an estate situation, the decedent owns 50% of the account.  So, if client leaves a Will giving everything to their neighbor, instead of their spouse

Another one: “Joint Tenants by the Entirety.” This describes a married couple who own real estate or a financial account as a legal entity with equal ownership. Neither person may transfer their half of the property during their lifetime or through a will or a trust. When one spouse dies, the entire account goes to the surviving spouse and it transfers without passing through probate.  As an aside, this isn’t applicable in all states.  From my knowledge, it exists in Pennsylvania, but not Texas or New York.

I should note as well that Texas includes the ability to add a check signer to bank accounts.  In theory this means a person, such as an adult child, who is given express authority to sign checks on your behalf.  For what it’s worth, clients frequently believe what they are doing is adding a name to an account “just to write checks.”  However, I have found that banks always create one of the joint account options listed above.  Simply put, it is easier and cleaner for them, and so that’s how they do it.

Power of Attorney or POA is a completely different thing. A POA is a legal document giving a person the authority to act on behalf of another person for a specific transaction or general legal and financial matters. Just as there are numerous types of joint ownership, there are numerous types of POA.

A general POA gives a person the power to act on behalf of the principal for all legal, property and financial matters, as long as the principal’s mental capacity is sound. The Durable POA gives authority to a person to act on behalf of the principal, even after the principal becomes mentally incapacitated. Special or limited power of attorney gives authority to act only for specific matters or transactions. A Springing Durable POA provides authority to act only under certain events or levels of incapacitation, which is defined in detail in the document.

You can be both a joint owner of an account and a power of attorney. These are two different ways to help a parent with financial and legal activities. An estate planning attorney can help create the POA that best fits the situation.

Reference: Lehigh Valley Live (June 10, 2021) “What are my rights when someone adds me to a bank account?”

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What Is a POD Account?

Also called a “POD” account, a payable on death account can be created at a bank or credit union and is transferable without probate at your death to the person you name.  We frequently utilize these types of accounts as part of a larger, comprehensive estate plan.  So, I wanted to provide some information about what these accounts are and how to use them.

Sports Grind Entertainment’s recent article entitled “Payable on Death (POD) Accounts” explains that there are different reasons for including a payable on death account in your estate plan. You should know how they work and very critically, how it works with your greater estate plan, when deciding whether to create one. Talk to an experienced estate planning attorney who can help you coordinate your investment goals with your end-of-life wishes.

The difference between a traditional bank account and a POD account is that a POD account has a designated beneficiary. This person is someone you want to receive any assets held in the account when you die. A POD account is really any bank account that has a named beneficiary.

There are several benefits with POD accounts to transfer assets. Assets that are passed to someone else through a POD account are not subject to probate. This is an advantage if you want to make certain your beneficiary can access cash quickly after you die. Even if you have a will and a life insurance policy in place, those do not necessarily guarantee a quick payout to handle things like burial or funeral expenses or any outstanding debts that need to be paid. A POD account could help with these expenses.

Know that POD account beneficiaries cannot access any of the money in the account while you are alive. That could be an issue if you become incapacitated, and your loved ones need money to help pay for medical care. In that situation, having assets in a trust or a jointly owned bank account could be an advantage. You should also ask your estate planning attorney about a financial power of attorney, which would allow you to designate an agent to pay bills and the like in your place.

We often utilize POD account designations so that bank accounts can be transferred to a trust upon death.  This is provides for bank accounts to avoid probate on an account while still directing the assets to a trust which spells out your wishes for your assets.  This avoids the need to close and open new accounts in many situations.

One thing I would stress however, is that many people suggest POD accounts as a way to avoid probate so that an estate plan is not necessary.  Without elaborating, every case in which I’ve ever encountered this has been a disaster.  A POD account is not an estate plan substitute, it is a tool in the tool box.

Similarly, bankers often suggest these accounts to clients as a probate avoidance tool.  That has it’s merits of course, but what if you are using a will-based estate plan?  If so, adding beneficiaries actually removes these accounts from your estate plan, and often creates problems for the executor or beneficiaries.

If you are interested in creating a payable on death account, the first step is to review your estate plan and talk to your estate planning attorney about the effect such an account will have on your assets.

Reference: Sports Grind Entertainment (May 2, 2021) “Payable on Death (POD) Accounts”

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