Can a Power of Attorney Protect My Assets as I Get Older?

Elder law attorneys help protect individuals as they grow older and then protect their beneficiaries when they pass away.

The Street’s recent article entitled “Guide to Protect Your Assets as You Age – Power of Attorneys” asks us to think about visiting your family doctor for the last 30 years but then needing to see a specialist for the first time. That’s because your family doctor isn’t a specialist, and they might miss something. The article explains that elder law attorneys are the specialists of the legal profession—they take a fresh look at a client’s situation and develop strategies to protect them and their families from the risks as we grow older.

Elder law attorneys show you how to protect yourself and your family. When partnering with an elder law attorney, they make certain that your estate goes to your family as you intended, with little or no tax liability.

An important tool for elder law attorneys is the Power of Attorney (POA). There are two of them: a medical POA and a financial POA. These allow you to designate a trusted agent to make your medical and financial decisions, when you are unable.

Unfortunately, the coronavirus pandemic has placed everyone in difficult circumstances. As a result, many hospitalized patients are without the proper estate planning documents. While things are letting up some, hospitals, nursing homes, and assisted living homes have shuttered their doors to visitors and non-essential workers in an attempt to minimize the spread of this disease. As a result, many patients are unable to get these documents signed.

Although some states initially prevented electronic signatures and notarization that would keep contact to a minimum, many have now permitted patients access to elder law and estate planning attorneys, when needed. These states have signed executive orders that allow for electronic signatures, which has been a huge help. Even so, this can be challenging for an elder individual.

Financial powers of attorney are not all the same either. They are just one tool in the toolbox.

A power of attorney can have a list of things you will permit your designated agent to do for you. Many of these documents do not give your agent enough power to protect you. That’s because they limit your agent’s abilities. That may sound good when you first sign them, but the result is that it makes things harder for your family, if you have a stroke and your loved one needs to protect your finances.

Reference: The Street (Sep. 24, 2020) “Guide to Protect Your Assets as You Age – Power of Attorneys”

Why Everyone Needs an Estate Plan

Many people think you have to be a millionaire to need an estate plan and investing in an estate plan is too costly for an average American. Not true! People of modest means actually need an estate plan more than the wealthy to protect what they have. A recent article from TAPinto.net explains the basics in “Estate Planning–Getting Your Affairs in Order Does Not Need to be Complicated or Expensive.”

Everyone needs an estate plan consisting of the following documents: a Last Will and Testament, a General Durable Power of Attorney and an Advance Medical Directive or Living Will.

Unless your estate is valued at more than $11.58 million, you may not be as concerned about federal estate taxes right now, but this may change in the near future. Some states, like New Jersey, don’t have any state estate tax at all. There are states, like Pennsylvania, which have an “inheritance” tax determined based on the relationship the person has with the decedent. However, taxes aren’t the only reason to have an estate plan.

If you have young children, your will is the legal document used to tell your executor and the court who you want to care for your minor children by naming their guardian. The will is also used to explain how your minor children’s inheritance should be managed by naming trustees.

Why do you need a General Power of Attorney? This is the document that you need to name a person to be in charge of your affairs, if you become incapacitated and can’t make or communicate decisions. Without a POA in place, no one, not even your spouse, has the legal authority to manage your financial and legal affairs. Your family would have to go to court and file a guardianship action, which can be expensive, take time to complete and create unnecessary stress for the family.

An Advance Medical Directive, also known as a Living Will, is used to let a person of your choice make medical decisions, if you are unable to do so. This is a very important document to have, especially if you have strong feelings about being kept alive by artificial means. The Advance Medical Directive gives you an opportunity to express your wishes for end of life care, as well as giving another person the legal right to make medical decisions on your behalf. Without it, a guardianship may need to be established, wasting critical time if an emergency situation occurs.

Most people of modest means need only these three documents, but they can make a big difference to protect the family. If the family includes disabled children or individuals, owns a business or real estate, there are other documents needed to address these more complex situations. However, simple or complex, your estate and your family deserve the protection of an estate plan.

Reference: TAPinto.net (Sep. 23, 2020) “Estate Planning–Getting Your Affairs in Order Does Not Need to be Complicated or Expensive”

Can I Fund a Trust with Life Insurance?

A trust is a legal vehicle in which assets are legally titled and held for the benefit of another party, the beneficiary, explains Forbes’ recent article entitled “How To Fund A Trust With Life Insurance.” The article says that trusts are often funded with a life insurance policy. This will provide assets to be used after the death of the insured for the benefit of their family. If you are a parent of minor children, the combination of life insurance and a trust may be the best way to make certain that your children have their financial needs satisfied and also make sure the assets are used in ways you want.

Trusts are either revocable or irrevocable. A revocable living trust is the most frequently used type of trust. It has some major benefits, like the ability to avoid probate, which can be an expensive and lengthy process. Assets in a revocable trust are accessible much more quickly than those left through a will.  Because they’re revocable, the person who creates the trust (the grantor) can also make adjustments to the trust, as their situation changes.

A grantor will fund the trust with assets for the trust beneficiaries. For parents of minor children, funding a trust using term life insurance is an inexpensive tactic to make certain that your children are cared for after your death. Typically, each parent buys a life insurance policy, and in a two-parent household, usually each spouse names the other as the primary beneficiary with a revocable living trust as the contingent beneficiary.

If the second parents were to die, the life insurance policies would pay to the trust. The trustee would manage the trust assets for the minor children. Funding a trust with life insurance also benefits heirs, because it provides liquidity right after your death. Other assets like investment accounts and real estate can be very illiquid or have tax consequences. As a result, it can take a while to get to that equity.

On the other hand, term life insurance is a fast and tax-free funding way to build a trust. Purchase a term life policy that will last until your children are adults and out of college. In making the life insurance paid to a trust with your children as beneficiaries, you also have some control over the assets. If you name minor children as beneficiaries on a life insurance policy, they won’t be able to use the money until they are an adult. Some children may also not be financially responsible enough to manage money as young adults in their 20s.

If you already own a life insurance policy and want to create a trust, you can transfer ownership of the policy to the trust. Work with an experienced estate planning attorney.

Reference: Forbes (Sep. 17, 2020) “How To Fund A Trust With Life Insurance”

The Biggest Social Security Blunders in Retirement

Fox News’ recent article entitled “These mistakes will take a huge bite out of your Social Security income” shares what we should and shouldn’t do.

  1. Not working a full 35 years. Your Social Security benefits are calculated based on your wages during your 35 highest-paid years of work. However, for each year you don’t have an income on record, you’ll have a $0 factored into your personal equation. That’s going to mean a lower monthly benefit. Therefore, to avoid this, be sure you put in a full 35 years in the workforce. It may actually help boost your benefit, by avoiding those dreaded $0 years. It will also potentially factor higher wages into your calculation.

Many people earn more money later in their careers. If your earnings are now at their highest, and you work another year to make it a full 35, you may be adding a salary that’s far more than what you earned 30 years before (even though your previous wages will be adjusted for inflation when determining what monthly benefit you get).

  1. Not delaying until your full retirement age to file. You won’t be entitled to collect all of your benefits until you reach full retirement age (FRA). Your FRA will depend on your year of birth, and if you were born in 1960 or later, it’s 67. Born in 1959 or before? It’s 66, or 66 and a number of months.

You can file for Social Security as early as age 62, but for each month you sign up prior to your FRA, your benefits are reduced on a permanent basis. That’s bad news if you don’t have a lot of money in retirement savings and need those benefits to ensure that you’re able to make ends meet in retirement.

  1. Delaying benefits beyond age 70. Just as you get the option to sign up for Social Security before FRA, you can also delay benefits past FRA and boost them by 8% a year in the process. But don’t postpone your filing too long! When you hit age 70, you stop accruing the delayed retirement credits that increase your benefits. Therefore, delaying beyond that point could mean missing out on income.
  2. Retire in a state that taxes your benefits. Social Security benefits may be taxed on the federal level, if your earnings exceed a certain threshold. However, some states also tax Social Security. These 13 states tax benefits to some degree: CO, CT. KS, MN, MO, MT, NE, NM, ND, RI, UT, VT, and WV. Some states have lower earner exemptions.

Don’t slash your Social Security income and struggle in retirement because of these mistakes.

Avoid these mistakes to be certain that you get as much money from Social Security as you’re entitled.

Reference: Fox News (Sep. 14, 2020) “These mistakes will take a huge bite out of your Social Security income’

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How Can Siblings Settle Disputes over an Estate?

When your parents pass away, their assets are often divided between their children. However, if there’s no will to answer any legal questions that may arise, siblings can fight over the assets. Some even take the matter to court. It would be great to avoid these battles because, in many cases, a fight over an estate between the siblings can end their good relationship and enrich attorneys, instead of family members.

The Legal Reader’s recent article entitled “Tips to Help Siblings Avoid or Resolve an Estate Battle” says that the following tips can help people in this situation or assist them in preventing the fight entirely, when there are no instructions for the distribution of certain assets.

Use a Family Auction. With a family auction, siblings use agreed upon “tokens” to bid for the estate items they want.

Get an Appraisal. The division of an estate between the siblings can get complicated and end in a fight, if the siblings want different pieces of the estate and have to work out the value difference. If, for example, the siblings decide to split the estate unevenly, and one gets a car and another a house, it’s worthwhile to engage the services of an appraiser to calculate the value of these assets. That way, those pieces of smaller value can be deducted from ones of higher value for fairer distribution.

Mediation. If siblings historically don’t get along, they may battle over every trinket left as an inheritance, no matter how immaterial. In that case, you should use a mediator to help divide the estate fairly without a court battle.

Take Turns! Sometimes, if there are several siblings involved in the division of assets, they can take turns in claiming the items within the estate. All siblings naturally have to agree to the idea with no hard feelings involved. Just like Mom would have wanted!

Asset Liquidation. If everything else fails, the easiest way to divide the assets and the estate between the siblings is to go through asset liquidation and split the proceeds.

As you can see, there are a number of ways to deal with the division of the estate and assets and prevent the legal battle between the siblings. To avoid hard feelings, stay calm, be reasonable and ask your siblings to act the same way.

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Reference: The Legal Reader (Aug. 24, 2020) “Tips to Help Siblings Avoid or Resolve an Estate Battle”

 

What are Power of Attorney Options?

FedWeek’s recent article entitled The Options in Granting Powers of Attorney” explains that a power of attorney designates someone else to handle your affairs, if you can’t.

Here are the major types:

  • Limited power of attorney. This allows an agent to act on your behalf under specific circumstances, like a home sale closing that you can’t attend, and/or for a defined period of time.
  • General power of attorney. Gives broad authority to your agent, who at any time can write checks to pay your bills, sign contracts on your behalf and take distributions from your IRA.
  • Springing power of attorney. This isn’t effective when you execute it, but rather “springs” into effect upon certain circumstances, such as your becoming incompetent. You can say in the document what’s needed to verify your incompetency, like letters from two physicians stating that you no longer can manage your own affairs.

A power of attorney is important because your agent can act, if you become incapacitated. To serve this purpose, a power should be “durable,” so it will remain in effect if you become incompetent. Other powers of attorney may not be recognized, if a judge determines that you no longer can manage your affairs.

Without a power of attorney, your family may have to ask a judge to name a guardian to act in your best interests. A guardianship proceeding can be expensive and contentious. You might also wind up with an unwelcome interloper managing your finances. To avoid this situation, designate a person you trust as agent on your durable power.

A health care power of attorney, also known as a health care proxy or a medical power of attorney, should be a component of a complete estate plan. This document names a trusted agent to make decisions about your medical treatment, if you become unable to do so.

The person you name in your health care power doesn’t have to be the same person that you name as agent for a “regular” power of attorney (the POA that affects your finances).

For your health care power, chose a person in your family who is a medical professional or someone you trust to see that you get all necessary care.

Depending on state law, it may go into effect when a doctor (whom you can name in the POA) determines in writing that you no longer have the ability to make or communicate health care decisions. For more information, click here.

Reference: FedWeek (Aug. 26, 2020) “The Options in Granting Powers of Attorney”

 

How Far Did a Phoenix Man Go to Get His Grandparents’ Trust Funds?

A 36-year-old Phoenix man stands accused of threatening to kill his brother to get his inheritance from his grandparents. Fox 10 (Phoenix) News’ recent article entitled “Lawyer details ‘murder,’ ‘kidnapping’ plan over an inheritance between brothers” says that Ross Emmick has been charged with extortion, stalking and conspiracy to commit murder.

There are three brothers in this case. Two, including the suspect, were adopted out of the family when they were small, and the other says he had no idea he had brothers. The trouble started when changes were made to their grandparent’s trust. Documents showed scratched out names and clear changes made to a trust created back in 1998 by James and Jacqueline Emmick, the grandparents.

They were diagnosed with dementia in 2019, a few weeks before changes were made. The beneficiaries were their sons, who died before they’d ever get the inheritance. That is when the changes were made by Ross.

Ross is said to have talked his grandparents into naming him as the successor trustee, which allows a person to manage the assets for the benefit of the beneficiaries. However, Ross’ only job was to provide information to the beneficiaries—his two brothers, Patrick and the victim (who asked to remain anonymous).

Ross thought he could simply change the names of the beneficiaries. Patrick claims that in addition to the changes to the will, Emmick allegedly stole thousands of dollars before his grandfather died in June 2019.

Ross actually stole a bunch of money from James before he died and then walked out with $50,000 after his death, Patrick said.

“He tried to get some forms notarized for Power of Attorney, and the witness on the original, which was a housekeeper, said that they were in a stable condition and mentally, they weren’t, and even the notary had said that,” said Patrick.

A large part of that was gambled away by Ross, an attorney for one of the brothers said. It wasn’t a well-administered trust, he said.

The brothers agreed to drop the case and divide the rest of the trust. However, that is when investigators say Ross began threatening the other two brothers.

Reference: Fox 10 (Phoenix) News (Aug. 22, 2020) “Lawyer details ‘murder,’ ‘kidnapping’ plan over an inheritance between brothers”

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Social Security Benefits: Timing Is Everything

Not knowing when you will be eligible to receive all of the benefits earned through your work history can hurt a retirement plan, says a recent article from CNBC.com titled “Here’s what to you need to know about claiming Social Security retirement benefits.” Equally problematic? It is letting fears of the program running out of money before you can get your fair share influence your decision.

If you get the timing right and use a combination of your retirement savings and Social Security benefits in the right time and the right order, your money may last as much as seven years longer. However, remember that there are many rules about Social Security and retirement fund withdrawals. Here are three big blind spots to avoid:

Not knowing when to take full benefits.

Age 62 is when you are first eligible to take Social Security benefits. Many people start taking them at this age because they don’t know better or because they have no alternative. If you start taking benefits at age 62, your monthly benefits will be reduced.

There is a difference between eligibility and Full Retirement Age, or FRA. When you reach FRA, which is usually 66 or 67, depending upon your birth year, then you are entitled to 100% of the benefits based on your work record. If you can manage without taking Social Security benefits a few more years after your FRA, those benefits will continue to grow—about 8% a year.

Most Americans simply don’t know this fact. If you can wait it out, it’s worth doing so. If you can’t, you can’t. However, the longer you can wait until when you reach your full amount, the bigger the monthly check.

How many ways can you claim benefits?

This is where people make the biggest number of mistakes. There are many different ways to take Social Security benefits. People just don’t always know which one to choose. First, once you start receiving benefits, you have up to a year to withdraw your application. Let’s say you need to start benefits but then you find a job. You can stop taking benefits, but you have to repay all the benefits you and your family members received. This option is a one-time only event.

Another way to increase benefits if you start taking them early, is to suspend them from the time you reach your FRA until age 70. However, you have to live without the Social Security income for those years.

Expecting the worst scenarios for Social Security.

Social Security headlines come in waves, and they can be disconcerting. However, a knee-jerk reaction is to take benefits early because of fear is not a good move for the long term. There are a number of proposals now on Capitol Hill to strengthen the program. Benefits may be reduced, but they will not go away entirely.

Reference: CNBC.com (Aug. 24, 2020) “Here’s what to you need to know about claiming Social Security retirement benefits”

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Estate Planning for Asset Distribution

Without proper planning, your will determines who inherits your property—everything from your home, car, bank accounts and personal possessions. Your spouse may not necessarily be your heir—and that’s just one of many reasons to have an estate plan.

An estate plan avoids a “default” distribution of your possessions, says the recent article “Asset distribution when we die” from LimaOhio.com.

Let’s say someone names a nephew as the beneficiary of his life insurance policy. The life insurance company has a contractual legal responsibility to pay the nephew, when the policy owner dies. In turn, the nephew will be required to provide a death certificate and prove that he is indeed the nephew. This is an example of an asset governed by a contract, also described as a named beneficiary.

Assets that are not governed by a contract are distributed to whoever a person directs to get the asset in their will, aka their last will and testament. If there is no will, the state law will determine who should get the assets in a process known as “intestate probate.”

In this process, when there is a last will, the executor is in charge of the assets. The executor is overseen by the probate court judge, who reviews the will and must give approval before assets can be distributed. However, the probate court’s involvement comes with a price, and it is not always a fast process. It is always faster and less costly to have an asset be distributed through a contract, like a trust or by having a beneficiary named to the asset.

If a will only provides limited instructions, the state’s law will fill in the gaps. Therefore, any assets that pass-through contracts will be distributed directly, assets noted in the will go through probate and anything else will go usually to the next of kin.

A better course of action is to have an estate attorney review all of your assets, determine who you want to receive your property and make up a plan to make this happen in a smooth, tax-efficient manner.

Reference: LimaOhio.com (Aug. 22, 2020) “Asset distribution when we die”

 

Planning for Nursing Home Expenses

The question raised in the article “Fact or Fiction: I Can Protect My Assets from a Nursing Home with a Revocable Trust” from New Hampshire Business Review is frequency asked, and the reason for it is understandable. Any form of long-term home care is costly and can quickly decimate a lifetime of savings. There are ways to protect assets, but a revocable trust is not one of them.

There are some reasons why a person might find a revocable trust attractive. For one thing, if the grantor (the person who creates the trust and is also the trustee (i.e., the person in charge of the trust)), there is no loss of control. It is as if you still own the assets that are in the trust. However, when you die, the assets in the trust don’t go through the probate process. Instead, they go directly to the beneficiaries named in the trust documents. A revocable trust also lets you make specific provisions for beneficiaries and beneficiaries with special needs.

There is a trust that can be used to protect assets from the cost of long-term care. It is the irrevocable trust, which must be properly prepared by an estate planning attorney and done in a timely fashion: five years before the person needs to go to a nursing home.

The difference is in the name: the irrevocable trust is irrevocable. Once it is created, you (the grantor) may not change it. Once an asset is placed in the trust, you don’t own it. The trust is the owner. You can’t change your mind. The grantor may also not serve as the trustee of the trust.

You have to be prepared to give up complete control of the assets that go into the trust.

Some people think simply by handing over their assets in the trust to their children, they’ve solved everything. However, there are problems. If your children are sued or run into debt problems, that lifetime of saving which is now in their control is also subject to creditors or claims. If you need to enter a nursing home within five years of your handing over the assets, you also won’t be eligible for Medicaid.

The best course of action is to meet with an estate planning attorney and discuss your overall estate plan. You should have a frank conversation about your wishes, what kind of a legacy you want to leave behind and your bigger picture for the world after you’ve passed. The attorney will help work out a plan that will protect you, your spouse, your assets and your family.

Remember that an estate plan is not a one-and-done document. Every three or four years, or as “life happens” and changes occur in your life, you should touch base with your attorney. A new family member by marriage, birth or adoption, may call for some changes to your estate plan. It might also be affected by the sadder events of life; death, divorce, or a significant health change. All require a phone call and a discussion to ensure that your estate plan still achieves your goals and protects those you love.

If you have any questions about your current estate plan, or would like a consultation click here.

Reference: New Hampshire Business Review (July 30, 2020) “Fact or Fiction: I Can Protect My Assets from a Nursing Home with a Revocable Trust”