Power of Attorney: Planning for Incapacity

Powers of attorney let you plan for your incapacity.
A power of attorney names a person to make decisions for you under rules that you establish, and ensures someone can handle your affairs if you cannot.

Without a durable power of attorney, helping a family member or loved one who cannot act on their own becomes far more difficult and stressful. Powers of attorney, also known as POAs, typically give the agent specific powers to conduct the principal’s (person creating the power of attorney) financial business, explains the Aiken Standard in the article “The durable power of attorney.”

For financial powers of attorney, there are different types, including non-durable, springing and durable. A non-durable POA is time limited.  It either expires at the end of a set amount of time or upon the death or incapacity of the principal.  Non-durable powers of attorney are typically used for specific circumstances, such as real estate closings or for transferring car titles.

The durable power of attorney is in effect from the moment it is executed. It is not revoked if the person becomes incapacitated (hence the term “durable”), nor by the passage of time. The person can alter or terminate a durable POA at any time before he or she lacks capacity, however, and it does end when the person dies.

Springing powers of attorney become effective at a future date. They “spring” into power, according to the terms of the document. That may be the occurrence of a particular event, like the person becoming incapacitated or disabled. They can be problematic, as there will be a need to prove that the person has become incapacitated and/or disabled.

The advantage of the durable power of attorney is that it remains in effect even after the person has become impaired. You can choose to let your agent act right away or make it springing as described above.  It is often prudent to make them effective immediately so that if time is of the essence (i.e., there is an emergency that requires quick action), there is no need to prove incapacity or that a condition has occurred.

In addition to a financial POAs, there’s also a healthcare power of attorney, which is a separate document that gives the named person the authority to make medical decisions when the principal is not able to do so.  There are also several other documents which plan for incapacity, such as living wills and HIPAA releases, which should be considered as well.

In Texas, powers of attorney rules are strict, so how they are drafted is very specific.  They provide for many powers or restrictions to the agent which the principal should consider when preparing a power of attorney, such as whether his or her agent should be compensated, whether the agent can make gifts and naming successor agents if the first cannot serve.

Power of attorney documents should be created and executed, along with a complete estate plan, long before an individual begins having problems in aspects of their lives.  These documents are essential as part of planning for incapacity.  See my past article for more detailed information.  https://www.galliganmanning.com/estate-planning-when-faced-with-a-serious-illness/

When they are signed, it is necessary for the person to have mental capacity. They have to be able to be “of sound mind.” If they have been diagnosed with dementia or Alzheimer’s, it is necessary that all these documents be prepared as soon as possible.

Without a durable power of attorney, family and friends won’t be able to make important financial decisions, pay bills, make healthcare decisions and engage in any kind of Medicaid planning. If a person does not create a power of attorney and then suffers a health problem which makes them unable to handle their own affairs, anyone who wanted to take on any of these responsibilities would have to go to court and be appointed the person’s guardian. It’s much easier to tackle these tasks in advance, so that the family can act on their loved one’s behalf in a timely and effective manner.

Reference: Aiken Standard (August 24, 2019) “The durable power of attorney”

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Understanding Why a Will is Important

A Will is an important estate planning tool that describes your wishes for your property after death and who is responsible to see your wishes through.

These questions presented by The Westerly Sun in the article “Making a will is an important legal step,” may seem very basic, but many people don’t really understand how a will works and why they are such an important part of estate planning. Let’s go through these fundamentals about wills.

A will is a legal document that must be prepared under very strict standards to explain your wishes about how you want your estate–that is, your property, money, tangible possessions, and real estate—distributed after you die.

A will also does more than that.  A will, which is sometimes referred to as a “Last Will and Testament,” also makes clear who is going to be in charge of your affairs after death, by naming them as executor of your estate.

A complete estate plan includes a will and several other documents, including a power of attorney, healthcare power of attorney and potentially a trust.  The goal of all of these documents is to make it easier for your surviving spouse or loved ones to take care of you and your affairs, if you become too ill to speak on your own behalf or when you die.

Your will provides instructions about what happens to your estate. Who should receive your money and property? These instructions must be followed by the person you choose as your executor. The local probate court must give its approval, and then the estate can be distributed.

If you have a valid will, it is admitted to probate (a court process) upon your death, and then your wishes are followed. If you don’t have a will, you are said to have died “intestate.” The laws of the state, and not you, and not your loved ones, decide what will happen to everything you own that is subject to the intestacy process. Usually this means that assets are distributed to family members based on their degree of kinship with you.  In Texas, it also means there may be a separate process to determine who those heirs are, which can be time intensive and costly.

It also may not be what you wanted. If you have minor children, the Court may appoint a guardian for those children, or may establish a court monitored trust for the property they receive until they are old enough to handle their own affairs.  All of these extra steps and complexity make a will necessary.

Many clients chose to also use trusts as part of their estate plan and coordinate the trust with the will.  This provides the added benefit of avoiding the probate process, making administration even easier.  Even if you use a trust in your estate plan, you may still need a will in conjunction with that trust.   See here for more details.  https://www.galliganmanning.com/how-do-trusts-work-in-your-estate-plan/

No one likes to think about dying, or becoming incapacitated, but by planning ahead and working with an experienced estate planning attorney to prepare a will, you can determine what you want to happen, and protect those you love.

Reference: The Westerly Sun (August 18, 2019) “Making a will is an important legal step”

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Amending a Trust: What are your Options?

If your trust no longer meets your needs, there are many ways to amend the trust to serve your goals for you and your loved ones.

A son has contacted an elder law estate planning attorney now that mom is in a nursing home and he’s unsure about many of the planning issues, as reported by the Daily Republic. The article, “Amending trust easier if parents can make informed decision,” describes the family’s situation.

The son has numerous valid concerns about paying his parents’ bills, managing their assets and avoiding personal liability if they are sued.  The author addresses these concerns for the son, but I’d like to focus on one point: updating and amending the trust.

All estate plans change over time as an individual’s needs and wishes change.  Sometimes the trust will anticipate these changes, such as naming a successor trustee to take over when the trust creators can no longer make financial decisions.  In the son’s case, that might be enough.  However, if the trust doesn’t address the issue or if the trust makers’ needs and wishes change substantially, it is sometimes necessary to amend a trust.  Sometimes it is good to amend a trust for tax reasons, such as Mary describes here:  https://www.galliganmanning.com/higher-estate-tax-exemption-means-you-could-save-income-taxes-by-updating-your-estate-plan/

If his parents have a revocable or living trust and have the capacity to handle their financial affairs, they can choose to amend the trust themselves.  This is by far the best and cheapest option as the parents can review the trust each year, put their son in charge of their affairs if they wish and make other appropriate changes.  They can do this very easily by either making an amendment or restating the trust.  Restating is amending the trust by rewriting the terms of the trust with the changes without actually creating a new trust.

If his parents do not have the capacity to make financial decisions, that doesn’t mean the son can’t amend the trust.  Often powers of attorney permit an agent to amend a trust if the principal (person who makes the power of attorney) is incapacitated.  Now, the powers of attorney will usually have limitations built in.  For example, they may require the agent to follow the principal’s “testamentary intent.”  This means that the beneficiaries of the estate plan should be generally the same.  So, if the son wasn’t a beneficiary of the trust, he can’t make himself one now. He also still needs to act in the best interest of the principal.  But, amending the trust to protect the assets and better care for his parents is just fine.

Let’s say the trust is an irrevocable trust, or perhaps the power of attorney doesn’t permit amending the trust, what then?   There are still options.

Some trusts include “trust protectors.”  This is a person named in the trust who can amend the trust in limited ways to make sure it still works.  A trust protector is usually a trusted individual, occasionally an attorney, who can make amendments to the trust.  Depending on the reason for the change, it is also possible to ask a Court to modify the trust.   It’s even possible sometimes to “decant” a trust.  Decanting is not really amending a trust, it is creating a whole new trust with new terms, and then transferring the assets from the old trust to the new one.  These techniques are more complex and expensive, but very helpful, especially with very out-of-date trusts that haven’t been reviewed or amended in some time.

The key point is that is important to review and keep your trust up to date.  But, even if you have a trust that is old or doesn’t work well, there are many ways to amend a trust to ensure proper administration of the assets for you and your beneficiaries.

Reference: Daily Republic (Aug. 10, 2019) “Amending trust easier if parents can make informed decision”

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