Posts Tagged ‘financial power of attorney’

Probate Judge’s Unique Guardianship Orders Overturned

AUGUST 1, 2016 VOLUME 23 NUMBER 29
At Fleming & Curti, PLC, we handle a lot of guardianship and conservatorship proceedings. We even act as guardian (of the person) and/or conservator (of the estate) in some cases — particularly when family members are unavailable or unable to agree on the best course of action. But one thing we consistently maintain: if there is any reasonable way to avoid a guardianship or conservatorship proceeding, it should be explored first. Court proceedings are expensive, interfere with the autonomy of the subject of the proceedings, and seldom result in entirely happy outcomes.

The most common way to avoid guardianship and conservatorship, of course, is for a person to sign a durable power of attorney (two, actually — one for health care and another for financial authority) naming someone to act on behalf of the signer. When confronted with a preexisting power of attorney, probate judges normally will appoint a guardian or conservator. Of course, if the person named in a power of attorney is acting improperly, the court will not hesitate to intervene. But usually a valid power of attorney avoids the need for court proceedings.

Of course, some family disputes can be intense — and often over the oddest and smallest issues. Take, for example, the case of Hazel McNabb (not her real name), an 89-year-old Indiana woman with six children. Her family’s disagreements arose, and hardened, over what to do after Hazel’s home was damaged by a tornado in 2013. Two of her children thought the bathroom could be repaired and used after the storm; four children felt that her bathroom should be remodeled.

Almost a decade before, Hazel had signed health care and financial powers of attorney, naming son Patrick and daughter Molly as co-agents. It was Molly and Patrick who thought no remodeling was required, and the other four children (Michael, Bridget, Kevin and Gabrielle) complained that, in the aftermath, Molly had begun to isolate them from their mother and cut them out of the discussions about her care.

Believing that Hazel’s mental faculties were declining, and that Patrick and Molly could not be trusted to act in her best interests, Kevin filed a petition asking for appointment of the four children as co-guardians. The probate judge held a hearing, and fashioned an unusual order: the judge appointed all six children as co-guardians, each with specific, limited authority.

Under the probate judge’s order, Michael (a priest) was appointed as guardian over Hazel’s “spiritual needs and affairs.” Bridget, a hairstylist, was appointed guardian over Hazel’s “health care needs and hygiene” (and specifically instructed to ensure that her hair and nails were styled on a regular basis). Molly, who had been named in the power of attorney, was appointed as guardian over Hazel’s “personal” finances (what in Arizona we might call conservatorship — though the limitation to “personal” finances is confusing). Kevin and Patrick were appointed as co-guardians to handle Hazel’s “business ventures” (though the nature of those business ventures is not clear from the appellate court opinion). The probate judge also set out a schedule of visitation to make sure each child would have regular contact with Hazel.

At the same time he entered this complicated order, the probate judge instructed all Hazel’s children that they needed to work together, and to keep Hazel’s interests in mind at all times. He directed that they were all to consider Hazel’s “input and feelings concerning a specific issue before making a decision.”

One odd result from this order is based on Indiana’s law on guardianship: if a preexisting power of attorney is in place, a guardian has no authority over the items managed through the power of attorney unless the probate judge expressly orders revocation of the power of attorney. Since that was not done in Hazel’s case, it meant that Patrick and Molly, the two agents, would still have authority over all health care and financial decisions. Unsurprisingly, those two children declined to accept their appointments as, essentially, limited conservators of a portion (each) of Hazel’s property. Instead, they appealed the probate judge’s findings and order.

Molly and Patrick argued that Hazel was not, in fact, incapacitated at all — and if she was, no guardian was necessary because the power of attorney was working as she had intended. The Indiana Court of Appeals disagreed about the finding of incapacity, but agreed that the existence of the power of attorney might make the unusual guardianship order unnecessary.

According to the appellate court, when a power of attorney is in place it might be unnecessary to appoint a guardian at all. In fact, since the power of attorney was not revoked by the probate judge, the guardians really had no power — the agents named in the power of attorney held all the authority. While agreeing that Hazel was incapacitated, the Court of Appeals reversed the order appointing multiple guardians and remanded the case for the probate judge to reconsider whether there was any need for a guardianship at all. Guardianship of Morris, July 12, 2016.

The probate judge in Hazel’s case should probably be commended for his attempt to bring her family back to the table to discuss her care together. Nonetheless, consideration for her wishes should mean that the default outcome will be recognition of her power(s) of attorney — unless it can be shown that the agents are behaving inappropriately, or failing to act.

Would the same result occur in Arizona courts? Probably not — or at least not for the same reasons. Arizona does not have a law like the Indiana statute giving continuing priority to agents under a durable power of attorney. Instead, the relative authority between a guardian, conservator and agent under one or more powers of attorney are somewhat unsettled in Arizona law. A person is able to indicate their preference for who should be appointed as guardian or conservator, and in practice a power of attorney will usually avoid the need for court involvement — but there is less clarity about the legal status than in Indiana law.

Court Sets Aside Agent’s Transfers to Self Using Power of Attorney

JUNE 13, 2016 VOLUME 23 NUMBER 22
John Richardson was 86, living on his family farm in rural Nebraska, when he became ill enough that he could no longer take care of himself. His long-time companion Elaine had been living with him and providing care, but she could no longer handle his care, either. John’s nephew Larry moved in to help with care.

As is our usual practice, the names of most of the principals in this story have been changed.

Within about a month of his arrival at the farm, Larry had been named as agent on a power of attorney signed by his uncle John and prepared by John’s long-time lawyer. The power of attorney included language allowing Larry to do anything John could have done for himself, “including but not limited to the power to make gifts.”

John had no children. He did have four nieces and nephews, including Larry. He had signed several wills over the years, each one leaving most of his property to his nieces and nephews and naming his attorney to be the personal representative of his estate. That was the status of his estate planning as of the time he gave a power of attorney to Larry.

As Larry took care of John, he learned from John’s companion Elaine about a brokerage account in John’s name. Larry used his power of attorney to get more information from the broker, and then used it again to liquidate the account. He transferred some of the account to John’s other nieces and nephews, and put one portion of the proceeds into his uncle’s checking account. He then used John’s checking account to pay some of his own bills.

Two months after that, Larry used his power of attorney again — this time to sign a deed transferring his uncle’s farm to himself and the other nieces and nephew. The transfer deed did retain a life estate for John.

At about the same time as the deed transferring the farmland, John’s companion Elaine moved out of the farmhouse. Several months later Larry was arrested and charged with abuse of a vulnerable adult and theft by deception.

Meanwhile, John contacted his attorney once again, and asked him to prepare a new will. This will left nothing to Larry or the other nieces and nephew; instead, the bulk of John’s estate would go to a charitable foundation.

Shortly after the new will was signed, John’s attorney decided that it would be better if he had not prepared John’s last will. Accordingly, he arranged for another attorney to meet alone with John, and prepare a second new will. That document substantially mirrored the other will, leaving the bulk of John’s estate to charity.

John died about a month later, and his last will was admitted to probate. As personal representative, his attorney sought return of the farm property and the brokerage account transferred by Larry. The probate court agreed with the attorney’s position, and ordered that a “constructive trust” be imposed on the properties for the benefit of John’s estate.

The Nebraska Court of Appeals reviewed the decision, and concurred. According to the appellate court, the key question was whether John’s power of attorney expressly authorized Larry to benefit himself. Since the general rule is that an agent may not transfer assets to himself, any evidence that Larry had done so would be viewed closely and could support a presumption of improper behavior by Larry.

Interestingly, the appeal was filed not by Larry but by John’s other nieces and nephew. They argued (among other things) that the presumption of breach of fiduciary duty by Larry did not apply to them — after all, they had not taken any steps to transfer anything to themselves, and should not be penalized as if they had done so. The Court of Appeals, however, was unimpressed by this argument, and upheld the probate court’s order reversing the transfers.

The appellate court also responded to John’s nephew and nieces’ argument that he was aware of the transfers signed by Larry, and did nothing about them. The fact of his knowledge (or lack of knowledge) was irrelevant, ruled the judges — the transfers exceeded Larry’s authority and were void regardless of John’s knowledge. Stehlik v. Rakosnik, May 17, 2016.

Since the events involved in John’s case, Nebraska has adopted a uniform multi-state law governing powers of attorney (the Uniform Power of Attorney Act). The Court of Appeals decision takes pains to note that it addresses only the general common law principles in place before the adoption of that Act, and the rules might now be different. The uniform law has now been adopted by almost half of the states (not including Arizona).

 

Management of Risk in Guardianship and Powers of Attorney

DECEMBER 14, 2015 VOLUME 22 NUMBER 46

Imagine: you have just been named as guardian for your aging father. You are responsible for his medical care and decisions, his comfort and his placement. You were appointed, in part, because of your concern about his safety at home — you are thinking perhaps he needs to be moved to a safer location. Your job is to eliminate — or at least dramatically reduce — the risk that he might fall in his home, that he might wander, that he might not take his medications. Right?

Not exactly.

If you were grappling with this common-place scenario several decades ago, the answer might have been clear. Legal scholars and advisers generally agreed that the primary standard governing guardians should be to protect the “best interests” of their wards. That usually meant protection from risk first, and addressing emotional and psychic needs after physical protection could be afforded.

Let’s spin the hypothetical back in time a few years. You are talking with your still-capable father about his wishes. Presciently, you ask him this question: “So, Dad, if you were at risk of falling here in your home and the only way to be sure you were safe would be to move into a nursing home or assisted living facility, would you want to go?” What do you suppose he would have said?

He probably would have asked for more information. How much risk? How serious of an injury? What might the facility look like? What other limitations might he have to endure?

We manage risk in our daily lives all the time. We make decisions from brushing our teeth to crossing the street outside a crosswalk to skydiving or motorcycle riding — and we weigh the likelihood of injury from each action constantly and almost unconsciously. When put in charge of someone else’s care, however, it human nature to try to eliminate risk altogether. That is not the way your father managed his life before you were appointed as his guardian, and it is not the way you should make decisions for him now.

Over the last several decades, legal writers have developed a concept of “substituted judgment” to guide decision-making by guardians. The doctrine is misleadingly named — though it may sound like you, as guardian, are to substitute your judgment for your father’s, it means exactly the opposite. When making decisions for your father, you should start with a good-faith attempt to figure out what your father would want and substitute that decision for the one you would otherwise make on his behalf.

Does that mean you can never place your father in a more-controlled facility? Of course not. But it does mean that you need to make an open-eyed analysis of his likely wishes, and try to emulate his approach to the decision if he were making it for himself. Are there less-restrictive ways to reduce the risk to a suitable level (but not to zero)? What other negative effects might flow from the proposed decision? What would your father do?

Is this principle universally applied? Perhaps not, but it is clearly the law in Arizona and likely the rule in most other U.S. states. It is definitely the modern trend in legal thinking.

Does this concept only apply to guardianships? No — it applies to health care powers of attorney, financial powers of attorney, conservatorships (of the estate), and trust administration. In fact, it applies to even informal, unsanctioned decision-making, like when you consent to medical treatment as next of kin.

Do these rules apply only to big decisions? No, they apply to even (perhaps especially) the small decisions — visiting schedules, travel, caretaker changes and everything else.

Is it important that our hypothetical talks about your father? What about your mother? Your brother, your daughter, or anyone else? The same thinking applies to any substitute decision-maker for an adult — though it is obviously much, much harder to apply in the case of a person who never had the opportunity to develop a risk profile of their own. In other words, decision-making for your son who was born with a profound disability does not require you to try to figure out what he would have decided if he had been competent for at least a brief period after his eighteenth birthday — though it wouldn’t hurt to try to think through what a similarly-situated person might reasonably decide.

Does this mean you have to live with the real possibility of a disastrous outcome? No, it doesn’t mean that you must engage in risky behavior. It only means that you must realistically weigh the possibility of a bad result in protecting your father. Might he slip away from the care home, get lost in the desert and have a terrible outcome? Yes — but it’s not too likely, and probably doesn’t justify locking him into his room at the facility.

In other words, you might try applying a special variant of the “golden rule.” What decision would you want him to make for you, if the roles were reversed? Might he have come to the same conclusion that you are now reaching?

Good luck handling your job as substitute decision-maker. It can be emotionally draining, and physically tiring. You will find it much more satisfying, we predict, if you will think about management, rather than elimination, of risk.

The Myth of the Simple Will

JUNE 15, 2015 VOLUME 22 NUMBER 22

“I don’t want anything complicated,” said our new client. “I just want a simple will.”

For almost four decades, we’ve been waiting for the client who wants a complicated will. We’re still waiting.

We hear the “I only want a simple will” request often. What clients really mean, of course, is “I want a cheap will.” That is, they don’t want to pay a lot for the legal advice or preparation of elaborate documents.

Our favorite variation is the client who wants a simple will, then tells us their assets are straightforward and their family situation ordinary. You know — the half-interest in a summer cabin in another state, the oil and gas interests in two other states and the closely-held family corporation that is worth somewhere between $1,000 and $10,000,000. And family situation? You know — one child has a developmental disability, another a drinking problem and the third is married to a spendthrift. But we’re just going to disinherit one, split things between the other two and trust them to work everything out.

We send a questionnaire to our prospective estate planning clients, so that we can figure out at least some of the possible issues during our first meeting — which is much more productive if we have the information at hand. Clients sometimes show up without having filled out the questionnaire, since they aren’t sure they want to hire us (hah! who wouldn’t want to hire us?) and they don’t want to go through the trouble of collecting information. More dangerous, though, are the clients who intentionally leave some of their assets off the questionnaire — in a misguided attempt, we suspect, to minimize the cost of their estate planning. That’s a little like not mentioning to the dentist that you have a persistent and painful temperature sensitivity on one tooth, hoping that it won’t need any expensive work.

Why do we even care about what assets you own? Isn’t it because we can charge you more if we know how wealthy you are?

No.

We need to know about your assets to figure out whether you have an estate tax issue. Are you pretty sure you aren’t worth the $5 million that is required before federal estate tax concerns? OK — but what about state estate taxes? Though Arizona doesn’t have one, the state where you have that summer cabin might impose one. And have you added in the face value of your life insurance policies? Also the trust your grandfather left for you, which you don’t think of as “yours”? Also the possible inheritance from your parents? Those questions are all on the questionnaire, so that we can discuss them with you.

One of the principal questions we are going to talk about with you is whether you should have a living trust. Don’t worry — we’re not going to order you to do anything. But we do want to be able to give you a realistic estimate of the cost of probating your estate, and what you might reasonably do to avoid or minimize that cost. Without good information, we can’t give you either estimate.

There are real costs associated with choosing a “simple” will. We want to be able to estimate those for you, so that you can make informed decisions. By the end of our initial conversation, we will almost certainly be able to give you a flat-fee estimate of the cost of preparing your estate plan, with at least a couple variations for you to consider. Then you can decide how much simplicity you can afford.

How often do our clients end up with what might be called a simple will? If we get to define “simple,” our estimate is about half the time — or perhaps slightly less often than that. But even clients with those simple wills also have financial powers of attorney, health care powers of attorney (with living will provisions) and an instruction letter; the entire product of our representation will almost always amount to at least a dozen pages of lawyer language. We’ll also provide a translation/guide to the documents, and we are very interested in helping you to understand the options, your choices and the documents themselves; we don’t charge more for answering questions, and we like to get the opportunity.

A word about flat fees: almost all of our estate planning is done on a “flat-fee” basis. We will quote you a fee in our initial consultation, and that’s what we will charge. Do you need four drafts and extensive revisions? No additional cost. Do you love the first draft, and need no changes? Great — we got it right. But we don’t reduce our fee for doing a good job on the first pass, either. We think that arrangement makes it easy and comfortable for both of us. You get as many appointments, revisions and discussions as you need. We get the comfort of knowing that we heard all your concerns and questions, and that we’ve had an opportunity to address everything.

Even a short, inexpensive will is not simple. It is a profound document, and it isn’t even possible to figure out what it ought to say until we’ve talked through some of the issues.

Oh, and whether your estate plan is simple or complex, inexpensive or less inexpensive, it needs to be reviewed and (probably) revised every five years or so. But that’s a different concern we need to grapple with.

Which is Better: Guardianship or Power of Attorney?

SEPTEMBER 8, 2014 VOLUME 21 NUMBER 32

Here’s a question we get asked a lot: “which is better for me to get for my mother — a guardianship or a power of attorney?” Sometimes the questioner is checking on the difference between a conservatorship and a power of attorney or (less commonly) a guardianship and a conservatorship. But the question almost always has the word “better” embedded somewhere.

The question itself is misleading, and our answer almost never satisfies. The problem is simple: if your aging parent needs someone to make decisions (medical, placement, financial or other decisions) for him or her, you almost never have a choice about whether to pursue getting a signed document (like a power of attorney) or a court order (like a guardianship or conservatorship). Why not? Because if your parent is able to sign a power of attorney, he or she is probably not a candidate for a guardianship or conservatorship. Conversely, if you could get a guardianship or conservatorship order, your parent probably can’t sign a power of attorney.

A word about language, and the peculiarities of Arizona law: in Arizona (and in some but by no means all other states) a “guardianship” is a court proceeding in which one person is given decision-making authority over another person’s medical care, placement and personal decisions. A “conservatorship” is a similar court proceeding, but with the end result that one person is given authority over another person’s finances. And Arizona does not have a procedure (as some other states do) for a “voluntary” conservatorship, which would allow the court to appoint a conservator even though the person in question is fully competent but willing to allow appointment of a conservator.

In order to have the court appoint a guardian or a conservator in Arizona, you would need to show that your parent (or other family member, or friend for whom you are ready and appropriate to act) is unable to make and communicate responsible decisions. That, actually, is the magic language for a guardianship; conservatorship requires you to be able to show that your parent, family member or friend is unable to provide proper management of his or her assets.

A power of attorney, on the other hand, does not involve courts at all. Signing a power of attorney is a voluntary act undertaken by a competent individual who understands the purpose and effect of his or her signature. As you can see, that is likely not possible for most people for whom a guardian and/or conservator could be appointed.

So the question is usually not which approach would be “better” — it is which approach is possible. If the individual is not able to sign a power of attorney, we usually add our own question to the mix: is getting a guardian and/or conservator appointed the best way to handle the problems that have arisen — is it even necessary to pursue guardianship or conservatorship?

Now pose the question differently. You are a fully competent adult, thinking about your future. You are worried about having someone available and able to take over your personal (health care) and financial decisions if you should be come unable to do so yourself. Is it better for you to sign a power of attorney, or should you simply rely on the legal system to establish a guardianship and/or conservatorship when the time comes for you?

The answer to THAT question is easy, at least in the vast majority of cases. The cost, difficulty, and invasion of your personal dignity involved in a guardianship/conservatorship almost always makes it better for you to sign a power of attorney now, while you can make your own choice. Who should NOT sign a power of attorney? Really only people who have no one trustworthy enough to take responsibility (and there are people in that unfortunate situation — to many people, in our experience) should make a conscious decision to NOT sign a power of attorney.

Notice that we have not distinguished here between (a) health care powers of attorney and (b) financial (or “general”) powers of attorney. That’s because the same values and decisions apply to both. But, in Arizona, at least, there is one important difference between the two levels of urgency: your next of kin (and some others, if you do not have close family members) might have the authority to make health care and even placement decisions for you even though you have not signed a power of attorney (and no court proceedings have been initiated). Family members — even spouses — do NOT have any authority to handle your finances without a power of attorney, however.

Which is better? If you are in a position to plan for yourself, it is almost always a good idea to choose an agent (you can choose different financial and health care agents, if you’d like) and sign powers of attorney. Do it now — don’t wait until you actually “need” the documents, because that will almost certainly be too late. Don’t rely on your belief that everyone knows what you want — that carries no weight in the legal system, unless it has been reduced to writing.

If you’re facing the problem from a child’s perspective, we’re sorry to say that it’s almost never relevant to tell you which approach is “better.” Usually it is a question of which is available. We can help, but it is likely to be more expensive and difficult if your parent (or spouse, or even child) didn’t get around to signing a power of attorney.

Making Your Power of Attorney More Useable — and Useful

MAY 26, 2014 VOLUME 21 NUMBER 19

If you have had your estate plan prepared or reviewed by one of the lawyers at Fleming & Curti, PLC, you almost certainly have signed a durable power of attorney. You may have signed a document prepared by another lawyer, or even found one online or in a document kit. Regardless of where you got your power of attorney, it is probably the single most important document in your estate plan. It is the Rodney Dangerfield of legal documents — it seldom gets the respect or attention it deserves.

Why is the power of attorney so important? Because there is a high likelihood that you will experience a period of diminished capacity before your death, and a high likelihood that no probate proceedings will be required when you do die. Your will is an important document, but it has no usefulness while you are still alive. Your health care power of attorney is an important document, but it is less likely to be pivotal in handling your personal affairs at the end of your life. Your trust is important, but even if you transfer all of your assets to the trust’s name there is the possibility that assets will slip out of the trust over the years — making your power of attorney essential to get assets retitled after your capacity diminishes but before your death.

No doubt about it — your financial power of attorney is a central component of your estate plan. It is also probably the single most dangerous document you will ever sign. Think about the power you are giving to the agent you name in your power of attorney: it is a literal license to steal. Of course you can trust your family and close friends — but you should know that when exploitation of vulnerable seniors does occur, it is almost always involves misappropriations using a power of attorney.

So if this document is critically important, and terribly dangerous, what should you consider before signing it? There are number of pieces of advice we can give you about your financial power of attorney:

  1. Sign one. Yes, it is dangerous — but it is important to have one in place. Arizona lawyers will tell you that the Arizona probate process is not as complicated, expensive or time-consuming as people think it is — but the similar process for getting control of living people’s financial affairs (called “conservatorship”) is everything people think they should hate about probate. No power of attorney in place when you become incapacitated? Your spouse can not handle your finances automatically. Your will provides no assistance. Your finances are likely headed to probate court.
  2. Consider opting for a “surviving” power of attorney rather than a “springing” power. Many of our clients are uncomfortable signing a power that could be used while they are still competent to manage their own affairs. They say (and reasonably so) that they want to handle everything themselves so long as they are able to — and there’s no reason to expose their assets to problems unless they become incapable. Fair enough, but if you do not trust your named agent to behave properly while you are still able to watch, why would you ever put them in charge of your affairs precisely when you are most vulnerable? Do you realize that by making the power effective only upon your incapacity, you are forcing us to get some kind of certification that you have become incapacitated? And what about the time when you are just making slightly foolish decisions, or have just become somewhat inattentive — do you really mean to prevent your agent from acting during those times? Nationwide, the trend is toward powers of attorney that “survive” your incapacity, rather than “springing” into existence when you become incapacitated.
  3. Sign your bank’s power of attorney form, too. The powers of attorney we prepare are works of art. They cover countless items that you would never think of, and even your bank’s lawyers would never think of. They are beautifully crafted, and they are worth every penny you pay for them. But your bank is stuck on this odd notion that their two-paragraph form is better, and they will keep trying to get you to sign it. We say: give up. Just sign their form AND the beautifully-crafted power of attorney we prepare. It will make your agent’s job easier. The same thing goes for your brokerage house, too — let’s get their form and get it signed. Let us help you get the right form, too, since the bank teller or brokerage house clerk you talk to will often hand you the wrong form, and you’ll end up creating a joint tenancy account with your agent rather than giving them a power of attorney.
  4. Learn the language. Impress your neighbors, friends, and bankers. The person named in your power of attorney to handle your affairs is called your “agent” (or, if you want to be more old-fashioned, your “attorney-in-fact”). They are not your power of attorney — that term is just for the document itself. So when your agent signs documents for you, they can sign as something like: “John Doe, as agent for Janet Rose” or “Janet Rose, by her agent John Doe.” This, of course, assumes that your name is Janet Rose, and your agent’s name is John Doe. You might need to make appropriate changes.
  5. Make sure your agent knows where to find the document. You don’t have to give any of your estate planning documents to your family while you’re still alive. Some people prefer privacy. Some do like to hand out copies, and that is also fine. But whether you actually give a copy of the power of attorney to your agent or not, we do urge you to let him or her know that it will be his or her job to get the document and take charge if something should happen to you. That means you have to keep the document somewhere it can be located, and update your information as you update the document.
  6. Update your power of attorney. Speaking of keeping things current, we do think it is a good idea to sign a new power of attorney every five years or so — even if you are not making any changes. Our beautiful form (see above) changes gradually over time as we add new items (our latest additions to the language of most powers of attorney: provisions for pets, and for your online accounts). The law changes gradually, and old documents are usually grandfathered in when there are changes. But it just makes sense to try to have a document that was signed in the same decade (or so) as it is being used.

We hope those tips help. Let us know if they trigger anything that makes you think you need to update your documents.

 

More Definitions for Estate Planning Terms

FEBRUARY 10, 2014 VOLUME 21 NUMBER 6

Last week we gave you short definitions of some common estate planning terms, like “will” (and “pourover will”), “trust” (including both “living” and “testamentary” trust), “grantor trust” and more. This week we want to continue that project with another batch of common terms:

Durable power of attorney — sometimes called a “financial” or “general” power of attorney. The key is that the power of attorney continues (or becomes effective) even if you become incapacitated. This is simultaneously the most important and most dangerous document that most people will sign with their estate planning. Why dangerous? Because it gives such broad, mostly unchecked power to someone else to handle your finances.

Living will — a document by which you give directions about how you would like to be cared for (or what care you would prefer not to have) at the end of life. That’s not the only time the living will is effective (or important), of course, but that’s what people usually think of. This is the document you might sign to direct that you not receive artificially-supplied food and fluids at a time when you are no longer able to make decisions yourself. OR you might direct that you DO want food and fluids (and/or other care) provided in such a situation.

Health care power of attorney — you can designate someone else to make medical decisions for you if you become unable to make or communicate decisions yourself. That person is called your “agent” or “attorney-in-fact,” and the document that names them is your health care power of attorney. That’s the term usually used in Arizona, by the way — other states might use different terms for the same concept.

Advance directive — any document by which you provide for medical decision-making in the event that you become incapable is called an advance directive. The most common advance directives are health care powers of attorney and living wills, but there are others. In Arizona, for instance, you might have an advance directive about mental health care decisions, or rejecting resuscitation measures, or even giving someone authority to decide when you should stop driving. These are a little bit more specialized, and you should talk with your attorney about them.

UTMA accounts — UTMA stands for “Uniform Transfers to Minors Act”, and it refers to a law that has been adopted in some form in every American state. It amounts to a simple sort of mini-trust set out in the law — rather than pay to have a trust set up for a minor, you can simply make a gift to a UTMA account. That makes it easy and inexpensive. It also means that you are stuck with the terms of that legislative trust, but it’s one way to make gifts to children and grandchildren.

529 plans — as long as we’re writing about children and grandchildren, we should mention these popular methods of making gifts. “529” refers to the section of the Internal Revenue Code which both permits and governs these accounts. Once again, it is a simple and inexpensive way to make a gift to your child or grandchild, provided that the primary purpose of your gift is to pay for future educational costs. Ask your attorney (and also your accountant and financial planner) for more information and direction if this idea seems appealing.

“Crummey” trusts — sometimes called “irrevocable life insurance trusts” (or abbreviated as ILITs), these trusts are a method of transferring assets (often, but not always, life insurance) to future generations without making the gift outright and absolute. The nutshell version: you make a gift of less than the annual exclusion amount (see below) to a trustee, and the trustee notifies the beneficiary that they can take out the gift. When they don’t remove the gift, for tax purposes the transfer is treated as having been made by the beneficiary, so the gift is deemed to have been completed. These trusts are often used to allow gifts of the annual premium amount for life insurance, or to make gifts without giving the beneficiary a chance to misspend the gift.

Annual gift tax exclusion amount — there is a tremendous amount of misunderstanding about this concept. In 2014 you can make a gift of up to $14,000 to any person without having to explain yourself to the Internal Revenue Service or anyone in the federal government. Your spouse can do the same thing — even if it is your money that funds the gift. You (and your spouse, if he or she participates) can do the same thing for as many individuals as you’d like. Here’s the misunderstanding part, though: if you give, say, $20,000 to one person, that doesn’t mean you pay an gift tax, or you have to get government approval. It just means you have to file a gift tax return — and if the amount you total up from all of those returns over your lifetime gets to $5,000,000 (it’s actually more than that, but we’re trying to make this simple) then you might have to pay a gift tax. This $14,000 figure, by the way, has absolutely nothing to do with Medicaid eligibility (yes, you can make a $14,000 gift — but it might make you ineligible for Medicaid even though it’s blessed by the IRS).

And, finally, this perennially popular concept/term:

EINs — “Employer Identification Numbers” are issued by the Internal Revenue Service for probate estates, trusts, and other entities that might have to file income tax returns. When someone asks for your “TIN” they mean that they want either your individual Social Security Number or the appropriate EIN. Even if the trust or estate does not have employees (and even if it never will) it still gets an Employer Identification Number (EIN). Does your trust need to have an EIN issued? That is an enduringly popular question, which we have addressed several times before (and undoubtedly will again).

Attorney Disciplined for Advice to Ignore POA Limitations

JANUARY 3, 2011 VOLUME 18 NUMBER 1
Lawyers, of course, grapple with ethical issues constantly. Elder law attorneys see particular ethical issues recur frequently. Sometimes the lawyer’s eagerness to accomplish the client’s wishes can cloud the lawyer’s ethical judgment. Sometimes the lawyer’s fascination with what might be done can even gallop ahead of the client’s wishes.

None of that is terribly profound or original. Last month, however, we were reminded of how easy it is to get enamored of a particular legal stratagem even though it may not be appropriate in a given case. The notion surfaced in the form of a Minnesota disciplinary proceeding involving attorney Donald W. Fett.

Mr. Fett was consulted by a man (we’ll call him Richard here, just to give him a name) whose brother (let’s call him Martin) was failing. Martin had moved into a nursing home, where he was likely to spend the rest of his life. Martin was unmarried, had no children, and was worth a little more than $600,000.

Martin had already signed a power of attorney naming Richard as his agent. Minnesota law provides a simplified form for powers of attorney, and it has a space where the signer can indicate whether his agent will have the authority to make gifts, including to himself. Martin had checked the line to give Richard the power to make gifts of Martin’s property, but not to Richard himself.

Mr. Fett knew that Martin’s money would be used up in relatively short order if it had to be spent on his nursing home care. Richard had told him that Martin would not want that to happen if it could be avoided, and Mr. Fett could see a way to allow at least a portion of Martin’s money to be protected. In a letter to Richard, and in several follow-up communications, he outlined his plan.

Basically, Mr. Fett suggested that Richard could make a gift of nearly all of Martin’s money, leaving him less than $3,000 (the asset limit in Minnesota for Medicaid assistance with long-term care — note that the limit is even lower in most states). That would make Martin ineligible for Medicaid assistance, but only for a limited time. The money that Richard had given away could be given back over the next couple of years, and then the ineligibility period would expire and Richard could keep the remaining money aside until after Martin’s death. That way at least a portion of his assets could go to the people he had named in his will — including Richard, his other siblings, and some charities.

The fly in the ointment for Mr. Fett’s advice: Martin’s power of attorney had expressly prohibited gifts to Richard himself. In order for the plan to work, though, Richard would have to be confident that Martin’s money would be used to benefit Martin during the ineligibility period. It was a conundrum.

Mr. Fett’s proposed solution was to have Richard liquidate all of Martin’s investments, transfer them to a bank account in Richard’s and Martin’s names as joint owners, and then withdraw them from the bank into his own name. That way, he apparently reasoned, Richard wouldn’t be using the power of attorney in a way that was prohibited — he would instead be using general rules governing joint accounts.

Richard was apparently suspicious of Mr. Fett’s advice, and eventually he consulted another attorney. That resulted in a complaint to the Minnesota disciplinary commission, the Office of Lawyers Professional Responsibility. After hearings the Office recommended that Mr. Fett be publicly reprimanded and placed on probation for a year.

The Minnesota Supreme Court agreed, and upheld both the discipline and the sanction. The Court’s opinion takes a dim view of Mr. Fett’s argument that he was not really recommending a course of action in violation of the limitation in the power of attorney. The Court notes that even if Richard could have used the joint tenancy account to circumvent the limitations of his brother’s power of attorney, Mr. Fett’s correspondence with his client failed to explain the distinction in sufficient detail to allow Richard to make an informed decision about how to act.

The Court notes that Mr. Fett’s failure to give his client complete information could have subjected Richard to serious problems. He might be held liable to return all of Martin’s money, and perhaps even triple the amount transferred. He could even be criminally charged. Mr. Fett gave him none of that information. His failure to fully inform his client was also a failure to provide competent representation, and a violation of the ethics rules for lawyers.

Mr. Fett had been a lawyer for over thirty years, and had limited his practice to estate planning and elder law matters for about six years prior to his contact with Richard. Because of that experience in the practice, and particularly in elder law, the Court determined that the sanction could be higher than would otherwise be implemented. Mr. Fett also had a history of disciplinary actions, having appeared before the Office of Lawyers Professional Responsibility five times over two decades.

The Court also considered mitigating factors such as lack of harm to either Richard or Martin (Mr. Fett’s advice was not followed) and lack of improper motive or harmful intent on Mr. Fett’s behalf. Those were not sufficient to offset the recommendation for a public reprimand, however. In Re Petition for Disciplinary Action Against Fett, November 24, 2010.

Is there a larger message in Mr. Fett’s disciplinary proceeding? We think there is, and it is this: just because a legal strategy might work, it does not follow that it must be implemented, or even that it is a good strategy. Careful consideration of all the negatives is important, and complete information should be shared with the client.

Some Advice About Selecting Fiduciaries For Your Estate Plan

APRIL 20, 2009  VOLUME 16, NUMBER 37

When it comes time to complete estate planning, our clients usually have clear ideas about who should receive their property, what health care decisions they would want made — even how they feel about cremation, burial, organ donation and most of the other issues that must be addressed. What stumps more clients than any other issue? Who to name as trustee, personal representative (what we used to call an “executor”), and agent under health care and financial powers of attorney.

Some of the common questions we hear from clients about whom to select:

Is it acceptable to name a child who lives out of state? Yes, at least in Arizona, which does not require in-state residency for any of the various fiduciary roles. With e-mail, fax machines, overnight delivery and other modern communications options, there is usually little difficulty for your son on the east coast (or even your daughter in Japan) to communicate. In fact, we frequently observe that we may have an easier time communicating with your the Iowa sister you named as agent than your nephew who lives on the east side of Tucson.

There is one small exception to that rule, and it is more practical than legal. We generally counsel that the ideal health care agent should live near you. Reviewing medical records, talking to doctors and caretakers, and developing a clear picture of your condition is much easier for someone nearby.

Can I name several, or all, of my children as co-agents, co-trustees, etc.? Yes, though we may try to discourage you from naming multiple fiduciaries. To the extent that you are trying to avoid family disputes, it is our experience that giving everyone equal authority tends to encourage disagreements. We will probably suggest that you might want to name your daughter (the banker) as financial agent, and your son (the nurse practitioner) as health care agent — and each as back-up to the other. If you really want to give them joint authority, though, there is no legal reason not to do so.

Speaking of which, is it better to name different people to health and financial roles, or give the same person authority over everything? There is no clearly correct answer. You know your family (and their strengths and weaknesses) much better than we do. If there is one person who is capable in all areas, by all means give that person authority as health care agent, financial agent, personal representative and trustee. You can segregate the roles as a means of providing checks and balances, or to give everyone reassurance that you value their input.

Do I have to tell everyone involved who will have which authority? No. But as a practical matter, we encourage you to do so. We want your daughter to realize, for instance, that she is the one who needs to make arrangements if something should happen to you. We hate to see someone show up, ready to act — and then find out they have no role. That creates confusion, and obviously can engender hard feelings.

We hope that you will share your estate planning documents with all your family (and any non-family members named as trustee, agent, or personal representative). There is no legal requirement that you do so, but it does increase the likelihood that any problems can be worked out while you are still alive, competent and in charge of your own decisions.

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