Can I Revoke a Power of Attorney?

I wanted to cover something of a follow-up to last week’s blog entry entitled Why Won’t My Power of Attorney Work which you can find here: https://www.galliganmanning.com/why-wont-my-power-of-attorney-work/.  In that article I talked about limitations to powers of attorney and scenarios when they won’t work or at least not well.  In this article, I want to briefly address how to revoke a power of attorney.  The recent article from nwi.com entitled  “Estate Planning: Revoking a power of attorney” also addresses this topic.

A Power of Attorney (POA) is a document that allows another person to act on your behalf. The person designated is referred to as the “Attorney in Fact” or the “Agent.”  However, sometimes a family faces difficulty because the choice of agent no longer makes sense, or perhaps was only needed for a brief time.  Even worse, the family may determine the agent is a bad actor whose authority needs to end.

If the creator of the POA wants to revoke it, they have to do so in writing.  They should also identify the person who is to be revoked as the POA and must be signed by the person who is revoking the POA.

Here’s the tricky part: the agent has to know it’s been revoked.  Unless the agent has actual knowledge of the revocation, they may continue to use the POA and financial institutions may continue to accept it.  If you are revoking a power of attorney because the agent isn’t suitable or a bad actor, you have a problem.  You can’t slip off to your estate planning lawyer’s office, revoke the POA and hope the person will never know.

Another way to revoke a POA, and this is the preferred method, is to execute a new one. In most states, most durable POAs include a provision that the new POA revokes any prior POAs. By executing a new POA that revokes the prior ones, you have a valid revocation that is in writing and signed by the principal.

If you already had an acting agent and you created the new POA, send them a copy and retain proof that you did so to demonstrate they were aware of the new POA and new appointment.

If the POA has been recorded for any reason such as use in a real estate transaction, the revocation should reference that fact and should be recorded just as a new POA would be filed to replace the old one. If the POA has been provided to any individuals or financial institutions, such as banks, life insurance companies, financial advisors, etc., they will need to be properly notified that it has been revoked or replaced.

Two cautions: not telling the bad and having her find out after the principal has passed or is incapacitated might be a painful blow, with no resolution. Telling the person during lifetime and before there are issues is a good idea. A diplomatic approach is best: the principal wishes to adjust her estate plan and the attorney made some recommendations, this revocation among them, should suffice.

Talk with your estate planning lawyer to ensure that the POA is changed properly, and that all POAs have been updated.

Reference: nwi.com (March 7, 2021) “Estate Planning: Revoking a power of attorney”

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Does Your State Have an Estate or Inheritance Tax?

There is a lot of focus recently on the federal estate and gift tax and the potential for changes due, and rightly so.  The tax rate is 40% of amounts gifted and left at your death above the exemption amount, which is likely to go down.  But, what a lot of people don’t consider is that some states have their own estate taxes, and in a few cases, inheritance tax.  Texas has neither, but I thought a blog on state estate and inheritance taxes would be a good follow-up to my recent blog on issues to consider when moving to a new state.  See that here:  https://www.galliganmanning.com/should-you-update-your-estate-plan-if-you-move-to-a-new-state/

Although it has fallen out of favor recently, many states still have either an estate tax, inheritance tax or some combination.  According to The Tax Foundation’s recent article entitled “Does Your State Have an Estate or Inheritance Tax?”  17 states and the District of Columbia all apply some or both of these taxes.  Hawaii and the State of Washington have the highest estate tax rates in the nation at 20%, and there are 8 states and DC that are next that apply a top rate of 16%. Massachusetts and Oregon have the lowest exemption levels at $1 million, and Connecticut has the highest exemption level at $7.1 million.    For the New York readers, the estate tax exemption is at nearly $6 million and applies rates from about 3% up to 16% depending on how far you exceed the exemption.

6 states have inheritance taxes.  Inheritance taxes, unlike estate taxes, apply a tax rate based relationship of the decedent to the beneficiary, meaning it applies even if the estate is relatively small.  Nebraska has the highest top rate at 18%, and Maryland has the lowest top rate at 10%. All 6 of these states exempt spouses, and some fully or partially exempt immediate relatives.  For you Pennsylvania readers, this could be anywhere from 0% to spouse and 15% to individuals who aren’t close family members.

Estate taxes are paid by the decedent’s estate, prior to asset distribution to the heirs. The tax is imposed on the overall value of the estate less the exemption applicable to that state. Inheritance taxes may be due from either the estate or the recipient of a bequest and are based on the amount distributed to each beneficiary.

As I mentioned earlier, most states have been steering away from estate or inheritance taxes or have upped their exemption levels because estate taxes without the federal exemption hurt a state’s competitiveness. Delaware repealed its estate tax at the start of 2018, and New Jersey finished its phase out of its estate tax at the same time, though it still applies its inheritance tax.

Connecticut still is phasing in an increase to its estate exemption. They plan to mirror the federal exemption by 2023. However, as the exemption increases, the minimum tax rate also increases. In 2020, rates started at 10%, while the lowest rate in 2021 is 10.8%. Connecticut’s estate tax will have a flat rate of 12% by 2023.

In Vermont, they’re still phasing in an estate exemption increase. They are upping the exemption to $5 million on January 1, compared to $4.5 million in 2020.

DC has gone in the opposite direction. The District has dropped its estate tax exemption from $5.8 million to $4 million in 2021, but at the same time decreased its bottom rate from 12% to 11.2%.

So, it is of course a good idea to consider reviewing your estate plan when relocating, but especially if you move to states that have estate or inheritance tax.  Talk to an experienced estate planning attorney about how estate and inheritance taxes affect you in your new state.

Reference: The Tax Foundation (Feb. 24, 2021) “Does Your State Have an Estate or Inheritance Tax?”

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Should you Update your Estate Plan if you Move to a New State?

Moving to a new state might mean estate plan changes for legal reasons, but more likely because of your change in circumstances.

I recently had a discussion with a client regarding whether and how they should update their estate plan if they move to a new state.  That conversation comes up frequently, so I thought it would be a great topic for a blog article.

The U.S. Constitution requires states to give “full faith and credit” to the laws of other states. As a result, your will, trust, power of attorney, and health care proxy executed in one state should be honored in every other state.  However, even if they are “valid” in another state doesn’t mean they will work well under that state’s laws or that they will work as well in practice, as described in Wealth Advisor’s recent article entitled “Moving to a New State? Be Sure to Update Your Estate Plan.”

Your last will should still be legally valid in the new state. However, the new state may have different probate laws that make certain provisions of the will invalid or no longer ideal.  By way of example, Texas has a unique form of probate in which there is an independent executor.  This minimizes court involvement in the probate which is what most clients prefer.  We often revise wills of clients moving to Texas to authorize independent executors.  Similarly, other states might have other unique provisions that you would want to utilize in that state.

This can also happen with revocable trusts, however trusts tend to be more portable.  Once a trust is funded, you can change any provisions you need to ensure it works in that state and you can elect that state’s laws.  So, it might need to be updated, but often is more portability.

You may also want to update your estate plan if you move to a new state to change your powers of attorney and health care directives. These estate planning documents should be honored from state to state, but sometimes banks, medical professionals, and financial and health care institutions will refuse to accept the documents and forms.  Each state has very specific roles on how these are created and what they can accomplish, so it is typically advisable to create new ancillary documents based upon the law of the new state.

It is also helpful to keep in mind that it is practically important to redo ancillaries documents because lawyers and judges aren’t the ones reviewing them.  Court systems will know how a will or trust applies under that state’s law because lawyers are involved in the process.  Incapacity documents such as the power of attorney and health care directives are reviewed by non-legal professionals such as title companies, doctors, bankers or their support staffs.  So practically speaking, it is easier to give them what they expect to see as they won’t have the expertise to recognize whether an out of state document is valid.

You should also know that the execution requirements of your estate planning documents may be different, depending on the state.

For example, there are some states that require witnesses on durable powers of attorney, and others that do not. A state that requires witnesses may not allow a power of attorney without witnesses to be used to convey real estate, even though the document is perfectly valid in the state where it was drafted and signed.

When you move to a different state, it’s also a smart move to consult with an experienced estate planning attorney because interstate moves often mean another change in circumstances that would necessitate a change to the estate plan.  For example, the move might have been because of a change in income, marital state or to support a family member in ill health.  You can see here for other reasons to consider updating your estate plan at that point.  https://www.galliganmanning.com/when-to-update-your-estate-plan/

Moreover, there may be practical changes you want to make. For example, you may want to change your trustee or agent under a power of attorney based on which family members will be closer in proximity or to someone familiar with the new property.  This is also a good time to review trust funding as you will have new assets.

For all these reasons, when you move out of state it’s wise to have an experienced estate planning attorney in your new home state review your estate planning documents.

Reference: Wealth Advisor (Jan. 26, 2021) “Moving to a New State? Be Sure to Update Your Estate Plan”

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