Posts Tagged ‘power of attorney’

Undue Influence and Limited Capacity Do Not Necessarily Justify Conservatorship

OCTOBER 31, 2016 VOLUME 23 NUMBER 41
In our legal practice, we frequently deal with individuals with limited capacity. Sometimes we speak of them being “incapacitated” or “incompetent.” Sometimes they are “disabled,” or qualify as “vulnerable adults,” or are subject to “undue influence.” But each of those terms means something specific, and some variations even do double duty (with two related but distinct meanings). A recent California case pointed out the confusion engendered when litigants rely on similar but different terms.

Aaron, a widower in his late 90s, lived alone after the death of his wife Barbara. He had no children of his own, though he and his wife had raised Barbara’s daughter Connie together after their marriage — when Connie was four. Aaron’s other nearest relatives were two nieces, Cynthia and Diane. He didn’t have much contact with Cynthia and Diane, though that might have been because his late wife had discouraged contact over the years they were together.

Connie was actively involved in overseeing Aaron’s care. She arranged for his doctor’s visits, went to his home at least twice a week to check on him, helped pay his bills and generally watched out for him. She was concerned about his ability to stay at home, and on several occasions she found herself summoning the local police to make welfare checks on her stepfather.

After Aaron fell in his home, refused treatment, and suffered a frightening seizure, he was diagnosed as having a subdural hematoma (from his fall). He spent some time in a hospital, but was anxious to return home. His physician noted that he had a poor score on the mental status exam administered in the hospital, and diagnosed him as having dementia. He was discharged to a nursing facility, with Connie’s help.

Aaron hated the nursing home, and the assisted living facility Connie helped move him to after that. He insisted that he could return to his own home. About this time, his nieces began to visit him, and they tried to assist. They disagreed with his placement, and niece Cynthia prepared a power of attorney for Aaron to sign, giving her authority over his personal and financial decisions. After he signed the document, he asked his attorney to write to Connie, asking her to return his keys and personal possessions so that he could return home.

Connie filed a petition for her own appointment as conservator of Aaron’s person and estate (California, confusingly, refers to guardianship of the person as conservatorship). While that proceeding was pending, Aaron went to his attorney’s office and changed his estate plan — instead of leaving everything to Connie, he would split his estate into three equal shares, with one each for Cynthia, Diane and Connie’s daughter.

The probate judge heard evidence in connection with Connie’s conservatorship petition, but denied her request. The judge found that Aaron was clearly subject to undue influence, and might lack testamentary capacity — but he didn’t need a conservator (of his person or his estate).

How could that be? Connie appealed, but the California Court of Appeals ruled that the probate judge was correct. At the time of the hearing on the conservatorship petition, according to the appellate court, Aaron was alert, oriented and able to describe his wishes. The fact that he might have been incapacitated when he signed the powers of attorney, or that he might have been subject to undue influence when he changed his estate plan, was not dispositive of the question of his capacity at the time of the conservatorship hearing. Furthermore, the mere fact of incapacity would not be enough; by the time of the trial Aaron had a live-in caregiver who could help him manage his daily needs, and that could support the probate judge’s determination that no conservator (especially of the person) would be necessary.

Aaron and his attorney also argued that Connie didn’t actually have any standing to file a court action in the first place. After all, she was his stepdaughter, and not even a blood relative. The Court of Appeals rejected that notion; any person with a legitimate interest in the welfare of a person of diminished capacity has the authority to initiate a conservatorship proceeding. Conservatorship of Mills, October 20, 2016.

So what do the various terms mean, and how are they different? “Capacity” (and “competence”) usually refers to the ability to make and communicate informed decisions. “Testamentary” capacity is a subcategory, and requires that the signer of a will must have an understanding of his or her relatives and assets, and the ability to form an intention to leave property in a specified manner. “Vulnerable adult” is a related term, but is used in most state laws to refer to a person whose capacity is diminished, and whose susceptibility to manipulation or abuse is therefore heightened. “Undue influence” can arise because of limited capacity, but refers to the actions of third persons which overpower the individual’s own decision-making ability. “Disability” is, perhaps, the least useful of the terms — attaching the term does not say much about an individual’s ability to make their own decisions, since disabilities can be slight or profound, physical or mental (or, of course, both), and subject to adaptive improvement in any case.

In Aaron’s case, it might well be that his amended estate plan will be found to have been invalid as a result of undue influence, and his new powers of attorney might be set aside on the same basis. He might even be found to have been a vulnerable adult and any transactions benefiting his nieces might be subject to challenge. But he apparently had the level of capacity necessary to make his own personal and financial decisions at the time of the hearing on the conservatorship petition.

As an aside, there’s another issue in Aaron’s court decision: the inappropriate reliance on scores obtained on short mental status examinations. Typically, medical practitioners ask a short series of questions (“What is the year?”, “Please repeat this phrase: ‘no ifs, ands or buts'” and the like) as a way of determining whether further inquiry should be made into dementia and capacity questions. Aaron variously scored 14, 18, 24 and 20 on 30-point tests administered by several interviewers, and both the probate court and the Court of Appeals seem to have thought that the results demonstrated his fluctuating capacity (and general improvement). Those scores are only suggestive of incapacity, and should be an indicator that further testing might be appropriate. There is no bright-line score for determining incapacity on the basis of those short examinations.

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).

 

Not Every Cognitively-Impaired Senior Needs a Conservator

SEPTEMBER 28, 2015 VOLUME 22 NUMBER 35

We handle a lot of guardianship and conservatorship proceedings at Fleming & Curti, PLC. We also meet with a lot of clients (or potential clients) and help them figure out how not to initiate a guardianship or conservatorship proceeding — we subscribe to the modern view that court involvement ought to be avoided when possible, and that people ought to be allowed the greatest possible autonomy and self-direction.

The view that court proceedings should be used sparingly is shared by the judges we work with in Arizona. That has not always been the case, and it is not necessarily true in every courtroom. It is easy for judges to get protective about the individuals they see in court, and sometimes judges can overreact.

We read this week about such a case, from Michigan. It involved a 74-year-old woman we’ll call Martha and her three daughters Dana, Diane and Dora. Martha’s husband (and the father of the three girls) had died a year before the legal troubles began, and Martha had spent some time in a hospital and a brief spell in a nursing home. Although she had returned to her home, she was a little weak and confused.

Martha had named Dana as agent in a power of attorney, and had made her co-trustee of the trust that held all of Martha’s assets. During the period of Martha’s illness, though, Dana had misused her position and had actually used some of Martha’s funds for her own benefit. Martha filed a court proceeding asking for an accounting from Dana. In the course of that family dispute, Dana asked the court to appoint a conservator to handle Martha’s finances.

Martha objected vigorously, but the judge ordered a psychological evaluation to address whether she could manage her own finances, and also appointed an attorney to act as Martha’s “guardian ad litem“. Both the psychologist and the guardian ad litem reported that Martha had memory limitations, but was not improperly using her funds or at any apparent risk of losing assets. Both noted that she had signed new documents naming another daughter, Diane, as her trustee and agent; that appeared to be appropriate and effective.

The judge hearing the dispute between Martha and Dana thought otherwise. He noted that the reports indicated Martha had “poor arithmetic and quantitative skills” and otherwise appeared to have diminished capacity. Michigan’s law (like Arizona’s) does not require a finding of incapacity before appointment of a conservator of the estate; the probate judge decided to appoint daughter Diane as conservator.

Diane did not think she needed to be Martha’s conservator. She thought that the trust and power of attorney were sufficient to allow her to help protect her mother. Martha also continued to believe that she did not need a conservator. Diane filed an appeal on behalf of her mother. Dana (still embroiled in her dispute with Martha over trust administration) disagreed, and argued that a conservator was necessary.

The Michigan Court of Appeals sounded a clear call for maximum individual autonomy and self-direction. It is not enough, ruled the appellate court, to show that Martha’s capacity is diminished by her memory and reasoning problems. Before a conservator can be appointed, it would also be necessary to show that Martha was unable to manage her own finances — or arrange for their proper management and protection.

Michigan’s conservatorship statutes (again, like Arizona’s) specifically direct the probate court to apply the law in a way that tends to “encourage the development of maximum self-reliance and independence,” noted the judges. In Martha’s case, she had appropriately chosen Diane to oversee her finances and had understood and signed the power of attorney and trust documents necessary to effect that change. Indeed, she had managed to monitor Dana’s handling of her finances sufficiently to observe that she had a problem that needed to be corrected. Appointment of a conservator was unnecessary and in fact impermissible in those facts. Bittner-Korbus v. Bittner, September 8, 2015.

The Michigan appellate court’s approach is consistent with what we see in Arizona, and what we like to implement in our practice. Is it possible to assist and protect the mildly impaired senior without recourse to the court? If so, we favor that alternative. Creating a trust, naming a trusted family member or friend as agent under a power of attorney, setting up a mechanism for monitoring finances — all of these approaches can help reduce the need for conservatorship or other court involvement.

It is worth observing that this is not just a matter of self-determination — it is also an issue of economics. Court oversight of a conservatorship tends to be an expensive undertaking. It can also be frustrating for both the subject of the proceedings and the conservator.

Of course conservatorship is an expense (and a frustration) that absolutely has to be incurred in many cases — but it should not be the default choice or even undertaken lightly or regularly. Our first effort is usually to try to figure out an alternative that provides both assistance, protection and even peace of mind.

[A word of warning about the principles we discuss in this article: not every state uses “conservator” and “guardian” the same way that Michigan (and Arizona) does. This case, and our observations about it, apply to conservatorship of the estate under Michigan’s law, which is very similar to Arizona’s.]

Managing Your Digital Assets With an Eye on Mortality

SEPTEMBER 22, 2014 VOLUME 21 NUMBER 34

For a while it was just an interesting academic problem: what would happen to your Facebook page, your Instagram photos, and your Pinterest collection if you died? And what about your e-mail account(s), your shopping login information and the passwords for all of those different online arrangements?

It became less of an esoteric question when several things started happening:

  1. More and more, people organize their entire lives online. You may be paying your bills, ordering medications, managing bank and brokerage accounts, and even posting automatic updates at various websites.
  2. Suddenly, some of those digital assets started having real economic value. Not only your airline frequent flyer miles, but the real dollar income from linking your Pinterest account (like pilot Dan Ashbach did) can add up.
  3. People started dying. Well, truth be told, they have been dying for a long time. But now some of them have LinkedIn, PayPal and Google Plus accounts. What happens to those accounts?
  4. Other people started losing the ability to manage their own affairs (again, that’s been going on for more than just a few years) — and family members started figuring out how to manage accounts, pay bills, and (oops) take money out of accounts online, anonymously and without any legal authority or oversight.

What does all this mean for your estate planning? It should be clear that you need to think about your online and electronic presence, and how to allow someone to take the appropriate actions when you become disabled or upon your death. “Appropriate” may mean something different to you than it does to your neighbor, and so it is also important that you make clear what you want done with your digital assets, and that you know about any legal constraints or limitations.

Let’s start with passwords. You know that you’re not supposed to reuse passwords, and that you should change your passwords on a regular basis. Maybe you have made the decision not to change the password for your favorite sandwich shop ordering site every sixty days, or to use the same password for your car rental and airline reservation accounts. Even so, you probably have a lot of passwords, and a challenging problem managing them.

Now think about getting those passwords to your spouse, or child, or successor trustee. Do you write them down somewhere? That would be very insecure, and a lot of work — you need to update the list every time you change a password (or add a new account). Where can you keep it that it is available and secure? A password-protected file on your computer? Which computer, and how hard is it to break the password protection on your favorite word processor, and what happens if your computer hard drive fails (as it most assuredly will, sooner or later)?

Take a look at password utility programs, like LastPass, or RoboForm, or Password Box (there are dozens of others). There are free ones (or at least free versions), but you might have to pay a few dollars (or even a few dollars a year). The best of them keep your passwords in an encrypted online space, and install in your local browser. Most even work on your iPhone or Android phone or tablet. Now you only have one password to remember, change and pass along — the password manager takes care of those changes for all the other passwords.

How do you pass along the password information on death or disability — without giving anyone access right now? Look into something called a “dead man’s switch.” The concept is borrowed from train locomotives. In the electronic world, it works like this: you set up an account, and it sends you a message every 30 (or 60, or 90 — you usually can change the the timing) days. You respond by telling the program that you’re still OK, and nothing happens for another cycle. But if you don’t respond, it decides something has happened to you, and it sends a message (which you have written in advance) to the recipient(s) of your choice.

You can see how that might make sense. You write a message telling your daughter the login information for your password management program, and a list of major accounts for her to look into. All you have to do is remember to update that message each time you change your password, and respond to the messages you get every month. The rest takes care of itself.

You can look into “dead man’s switches” at Stochastic Technologies, or the eponymous Deadman. Google even has one built into its accounts, called the “inactive account manager.” It’s not easy to find or activate (at least it seemed unnecessarily difficult to us), but it’s free and does just what we’re looking for, at least for one account.

Think about what documents and arrangements you need to prepare in advance. Should there be a provision in your power of attorney, your trust and/or your will about digital assets? Probably, but recognize that the law is still unsettled. One theory is that the person acting on your behalf may violate federal law if they log in as you — no one seems to know of any prosecutions for actions authorized by the account owner, but lawyers still hesitate to recommend that people skip across the law’s boundaries.

A good start: prepare an inventory of your digital assets. Do you have photos online? Documents? What is your password recording scheme? One of the best starter kits for dealing with digital assets is, surprisingly, a four-year-old article (as this is being written) laying out some of these issues. You can read Missouri lawyer Dennis Kennedy‘s practical suggestions from an American Bar Association magazine called Law Practice Today to get you started.

There are some new developments on the horizon. A national group, the Uniform Laws Commission, is proposing model legislation that would make it clear that you have the ability to give authority to someone else to manage your digital assets. For that matter, it would be a welcome addition to have a definition of “digital assets.” The proposed Uniform Fiduciary Access to Digital Assets Act is in the drafting stages now, and will need to be adopted in a number of states before it has any significant effect on practices. We’ll update you as that process develops.

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.

Agent On Power of Attorney is Personally Liable for Legal Fees

MARCH 3, 2014 VOLUME 21 NUMBER 9

Let’s say that Billy signs a power of attorney, naming his friend Joyce as his agent. Later Billy becomes incapacitated, and his agent needs legal advice about her rights and responsibilities. Who will pay for their legal advice?

Generally speaking, you are not supposed to have to spend your own money for things you need to do while acting under a power of attorney, and that includes getting legal advice. But the real world can sometimes get in the way — Billy’s assets may be insufficient to pay legal fees, there may be a dispute about whether his agents are acting in his best interests, or there may be personal interests that they are simultaneously promoting.

This concern is not academic, at least for the people involved in a recent Arizona Court of Appeals decision. “Billy” in that case was Billy Preston, who was sometimes tagged as “the fifth Beatle.” He became seriously ill in 2005, and was admitted to a hospital in Phoenix; he died in June, 2006, after months in a coma.

Billy had signed a medical power of attorney in 2004, naming his friend Joyce Moore as health care agent. Joyce was already his agent — she had represented him as a musician for some years before he signed the health care power of attorney. In March, 2006, while Billy was comatose, his half-sister petitioned the Arizona probate court to be named Billy’s conservator. Although Joyce’s power of attorney put her in charge of medical, not financial, decisions, she felt that she needed legal advice. Joyce hired a Phoenix law firm to represent her; she signed a retainer agreement on March 30, 2006.

Apparently, Joyce and her lawyers did not have the same understanding of their relationship. While Joyce later testified that she thought her lawyers represented her only as health care agent for Billy, her lawyers insisted that they represented her as an individual because of her financial dealings with Billy.

Joyce insisted that her lawyers should submit their bill to Billy’s estate; whether or not that made sense, it was an impractical way to secure payment since the Billy Preston estate had declared bankruptcy. In fact, the estate sought (and recovered) some of the retainer fee Joyce had given to her lawyers, since it had come from Billy’s estate and had not been approved by the bankruptcy court.

Three years after Billy Preston’s death, Joyce’s attorneys sued her personally for about $30,000 in legal fees. Joyce argued that she was not personally liable for the bill; a fee arbitration process found otherwise, and awarded $13,550.86 in legal fees and costs to the law firm. Joyce appealed and set the dispute for trial.

After a three-day trial, an Arizona jury ruled that Joyce personally owed her lawyers $20,000. Joyce appealed the judgment. Last week the Arizona Court of Appeals upheld the award of fees and costs to Joyce’s lawyers, finding that she had not produced sufficient arguments to overcome the jury’s award. Burch & Cracchiolo, P.A. v. Moore, February 27, 2014.

The ruling itself is not actually all that revealing. Joyce represented herself for the appeal, and did not submit transcripts of the trial proceeding; in the absence of those transcripts, the appellate court ruled that she could not show that there had been mistakes in the trial court. The real value of the case, for our purposes, is a chance to explore the authority of agents under powers of attorney to hire lawyers (and other professionals).

There is little doubt that an agent can hire an attorney, accountant, physician or other professional as may be needed in order to discharge their obligations as agent. So, for instance, it would be easy to imagine a circumstance in which there were legitimate legal questions about the agent’s authority, or powers, or duties, and hiring a lawyer might well be necessary and appropriate to help figure out the answers to those questions. That lawyer’s fees would ordinarily be charged against the estate of the principal (the person who signed the power of attorney).

Similarly, it would be easy to imagine that a financial agent might need to hire an accountant to prepare tax returns or accountings, or to investigate past transactions. Those charges should be paid by the estate in most cases, too. Same thing for hiring a doctor, or a social worker, or a case manager, to help oversee care of a person who has signed a health care power of attorney.

Problems can and do arise when the agent also has business dealings with the principal before the power of attorney is signed or used — and such circumstances do happen. After all, it often makes sense to name your business associate to manage your own finances — typically they might know more about your finances than others, even family members. But that can complicate the responsibility to figure out what the attorney (or accountant, or medical professional) is doing for the agent as agent, and what is being done for the agent as an individual.

It’s hard to tease out how much of that might have been going on in Billy’s case, since the appellate record is sparse. But confusion between the lawyers’ view of their role and the client/agent’s view is not that uncommon; it’s why a fee agreement should spell out the precise relationship and who will be responsible for payment.

Typically, a lawyer’s fee agreement might provide that bills will be submitted to the principal’s estate. If they are not paid for any reason (even though that failure or refusal of payment might be challenged), the fee agreement often will provide that the agent is responsible for payment and for seeking reimbursement from the estate. Such a provision might have been in Joyce’s attorney’s fee agreement, but the appellate court did not mention it.

Does all that mean that you should refuse to act as agent because  you might incur personal expenses if things go awry? If you are very skittish about the possibility, you should consider whether it is important enough for you to decline. In the real world, however, disputes like this are rare — and your loved ones need someone to step up and take responsibility for their care if and when they are unable to do it themselves.

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).

Upon Death of a Loved One, Some Things to Address

APRIL 8, 2013 VOLUME 20 NUMBER 14
More than three years ago we wrote about what you need to do when a family member dies. Our focus was on the immediate things that need to be dealt with: securing the house, taking care of pets, forwarding the mail. We thought we would get back to things that needed to be dealt with in the week or two after death, but we never managed to get back to the topic. Let’s look at some of the follow-up items now.

To make it a little easier for you, we have prepared a checklist. It is not intended to be exhaustive (though we think it is pretty thorough), and not every item will be applicable in every case. Sometimes you may need to make adjustments — such as when your family member had a living trust, and no probate proceeding will be necessary, or if you have been responsible for managing their bill-paying for several years before the death. Still, we think it will help you organize the papers, questions and information you need to properly take care of the legal and financial issues that will arise.

A couple more caveats:

  • Please remember that we live and practice in Arizona. This checklist may not be accurate, or as useful, if you live somewhere else, or your family member died somewhere else.
  • Several items on our checklist encourage you to collect information of various kinds. In most cases, that’s so that your visit to our offices will be more productive. Sometimes it is to help you answer questions from heirs, creditors or others as you get more deeply into administering your loved one’s estate. If you do collect forms, mailings, etc., keep them in a central place for several years after you have concluded the estate administration.
  • Where we indicate that you should keep track of your time and expenditures, we really mean that you should — and from the very beginning of your work. Even if you have no intention of charging a fee, we strongly recommend that you keep track.
  • If you are not the person who will be in charge of the decedent’s estate, that does not prevent you from printing out the checklist, monitoring progress by the person who is in charge, and figuring out how you can be helpful.

How quickly do you need to get to the lawyer’s office to review what needs to be done? Usually it is not the most pressing issue, but you should expect to make an appointment within about two to four weeks. If you are the surviving spouse, it probably can wait longer. If you are in town for a short time you might well want to meet right away, at least briefly. But here’s another reality: when you call, you may be looking at a two-week wait before an appointment. That gives us time to schedule you, and to get a questionnaire out to you to help with the collection of information. Usually nothing can be done for a week or two anyway. So don’t wait two weeks to call for an appointment, and then expect it to be immediate.

Do you need to see the lawyer who prepared the will or trust? No. It may be more comfortable and efficient, and the lawyer might have even kept the original documents (we do not usually do that at Fleming & Curti, PLC, but many law firms do). But there is no need to return to the decedent’s lawyer. It probably does make sense (in most cases) to meet with a lawyer in the community where your family member lived and died.

How long will the process take, and how much will the lawyer charge? It’s really impossible to generalize in any useful way. You might well be surprised at how little it costs. On the other hand, we regularly see family members who think there will be no need for a probate or any costly legal proceedings, only to find out that something was wrong in the estate setup, or something got changed or overlooked.

What are some of the more important points in our checklist? Here are a few we’d like to highlight:

  • Assembling a list of bank accounts, annuities, stocks, bonds, mutual funds, brokerage accounts and real estate will speed the process up immeasurably. It will likely also make it much easier for the lawyer to realistically estimate the cost and time to get the probate (or trust) administration completed. Same for creditors.
  • The funeral home will help you determine how many death certificates you will need, and how to get them ordered. You might not have visited with us yet, but here’s a practical reality: if you order them through the funeral home, you will get them faster and more cheaply. If we have to get them later it will be time consuming and more expensive. So when you’re figuring out how many you need, estimate high.
  • At some point we’re going to need names and addresses for all the heirs and beneficiaries. For some we will also need dates of birth and even Social Security numbers. You can speed the process up if you start collecting that information.
  • Forwarding the mail is critical. It needs to get done, and it is often the easiest way to get information about assets and bills.

One last point we want to make: if you had a power of attorney for the decedent, it is no longer valid. While a “durable” power of attorney survives even if the signer becomes incapacitated, no power of attorney survives the signer’s death. Do not sign checks, make credit card charges, or do anything else using the power of attorney.

Call us to discuss what needs to be done next. We will be very sorry to hear of your loss. We are here to help.

 

Can a Person with Dementia Sign Legal Documents? (Part 2)

MARCH 4, 2013 VOLUME 20 NUMBER 9
Last week we posed the question, and then mostly wrote about competence (or capacity) to sign a will. We promised to explain more about the level of competence required to sign other documents. So let us now tackle that concept.

A person with a diagnosis of dementia may well be able to sign legal documents, at least in Arizona. We suspect that the answer should be pretty much the same in other states, but if you are curious about your own state you should check with a local attorney about how competence is determined.

Generally speaking, competence or capacity is usually analyzed situationally. That is, the question will be answered differently depending on the nature of the document and the circumstances of the signing. The general rule: the signer has to have sufficient understanding to know what the document is, and the effect of the signing.

What kinds of documents might be involved? There are a variety of contexts in which capacity can be difficult to assess, including (but not limited to):

  • Ability to sign a contract — say to buy a car, or build a home.
  • Understanding of a power of attorney, which might give the authority to another person to sign future documents.
  • Competence to sign a trust, which might have elements of agency (like a power of attorney) and testamentary effect (like a will).
  • Capacity to get married (which is, after all, a specialized kind of contract).
  • Ability to make medical decisions — including refusing medication, or either seeking or declining mental health treatment.

Each of those situations, and the dozens of others that might arise, will be judged differently, because the nature and effect of the act will be different. But we can generalize about several of the important rules that cut across types of documents:

  • Minority is presumptive incapacity. That is, a person under age 18 does not have the legal ability to enter into a contract, get married, sign a trust (or will), or make medical decisions for themselves. There are, however, exceptions — a contract for “necessaries” (food, shelter, etc.) may be enforceable if signed by a minor. An “emancipated” minor may be able to do some things that an unemancipated minor can not.
  • It may not be necessary to have capacity to do the underlying thing before giving the authority to someone else. What? Let us explain: a person who might not have the capacity to enter into a complicated contract might still have sufficient capacity to sign a power of attorney giving someone else the power to sign the contract.
  • Arizona’s legislature has decided that the capacity level required to sign a trust should be the same as testamentary capacity, as we described last week. That may mean that someone who does not have sufficient capacity to sign a power of attorney could nonetheless sign a trust, which gives even broader authority to the trustee. Odd result, but mostly theoretical, as it’s hard to find someone in just that circumstance.
  • Generally speaking, most observers think that the capacity to sign a will is a lower level of competence than contractual or other forms of capacity. But it might not be that hard to describe someone who adequately understands the nature of a power of attorney but does not have an understanding at the level of testamentary capacity.
  • There are few legal ways to determine capacity in advance. Challenges to capacity are almost always initiated after the signing is completed — and often after the signer has died, or become completely and undeniably incompetent. That means that evidence of capacity (or lack of capacity) is often being reconstructed well after the fact.

It’s also important to remember that we are writing here about competence/capacity, and not necessarily about the validity of documents signed by someone with dementia. In response to our article last week, one reader wrote to us:

“You covered dementia issues very clearly. Thank you! But what about the issue of undue influence in the presence of known dementia where, in principle, the demented person otherwise possesses testamentary capacity? How does the mix of those two aspects play out?”

It’s a very good point. There is a difference between capacity (or competence) on the one hand, and undue influence on the other. Dementia might make a given signer incapable of signing a document, or their competence may be sufficient to sign. But that same person might be made more susceptible to undue influence because of their dementia.

What do we mean? Let’s give an example — drawn from our considerable experience with the distinction. An elderly widower, living alone, has a diagnosis of dementia. He is nonetheless charming, witty and perfectly able to discuss his wishes. He can recall the names of his three children, and of his seven grandchildren. He can report their ages, the cities they live in and their careers (or status as students) — and he is mostly correct, though sometimes his information is two or three years out of date.

This gentleman’s daughter lives in the same city, and is the one who oversees his living arrangements and care. She does his shopping, hires people to check on him daily, takes him to doctors’ appointments, writes out his checks (he still signs them) and otherwise helps out. She also talks to him endlessly about how his other two children don’t deserve to end up with his house and bank accounts, how she really ought to be the one who benefits from his estate, and how his late wife (her mother) always wanted her to inherit everything. Eventually he agrees to sign a new will and trust, mostly to stop her constant harangues.

Was he competent to sign the new estate planning documents? On the facts as we’ve given them here, probably yes. Was he unduly influenced? Very likely. Was that influence facilitated (and the proof made easier) because of his dementia? Absolutely.

When did the daughter’s behavior cross the line? The legal system isn’t actually very helpful, since the answer is defined in a circular fashion. Her influence was “undue” when it resulted in her wishes being substituted for his. It was not necessarily objectionable (at least not legally) when she told him what she wished he would do, what her mother had wanted, or what was fair. But at some point she may well have turned ordinary familial influence into “undue” influence.

We hope that helps explain this complicated and nuanced area of the law. But we want to leave you with a completely unrelated, but important, note: Kieran Hartley York joined the Fleming & Curti family (literally) on Sunday, March 3. We are delighted to have met the little guy, and look forward to great things from him in the future.

Some Thoughts About Guardianship and Conservatorship in Arizona

NOVEMBER 14, 2011 VOLUME 18 NUMBER 39
Let’s talk about guardianship and conservatorship proceedings. Before we do, though, let’s remember a couple of important principles:

  1. We only know about Arizona guardianship or conservatorship. Well, OK — we might know a thing or two about other states’ rules and procedures — but we only practice in Arizona. Our observations are not universally applicable. They may not even be universally applicable inside Arizona’s borders.
  2. As always, we simply can’t give specific case-based legal advice here, and you should not rely on this newsletter (or anything you read online or in books) to resolve your case. This is big-picture stuff. We can and do write about how the system works, what the rules look like, and what you might expect if you are involved in a guardianship and/or conservatorship matter in Arizona. Don’t expect to print out our articles, take them to court and argue with the judge, though. She won’t appreciate it, and neither will we. Plus it won’t work. Get good legal advice.
  3. One thing we’ve learned from years of law practice: people think they understand their own cases, but they get blinded to the nuances (or maybe they aren’t told everything about the contrary evidence or opinions) and tend to overgeneralize. We don’t think that means they are stupid, or liars — they are just trying to put the best face on their case, and that’s human nature. But it also means that if you say “aha — he hit the nail on the head and that’s exactly what my worthless brother is trying to do” we’d be likely to tell you (if we were your lawyer): “slow down. It’s not that clear.”
  4. We have written a lot about guardianship and conservatorship. Here’s one of our better (and most comprehensive) articles, a White Paper on guardianship and conservatorship. But it’s a difficult and confusing topic, with lots of information — and misinformation — out there.

Disclaimers aside, let’s talk about guardianship and conservatorship. Let’s start with some definitions of terms.

In Arizona, the word “guardianship” is applied to the court proceedings instituted to acquire legal control over another human beings’ person. In general terms, a guardian is authorized by the court to make placement and health care decisions for that other human being. Not every state uses the same word. Not every state has the same process to get a guardian (or whatever they call the office) appointed. But every state does have some kind of court proceeding in which a person can be appointed to manage the health care and living arrangements of another person.

In Arizona, the word “conservatorship” is applied to the court proceedings instituted to acquire legal control over another human beings’ finances. A conservator usually is authorized by the court to handle checking accounts, real estate, brokerage accounts, businesses, vehicles, horses, airplanes, family photographs, oil and gas leases — you name it. Just to keep the confusion level high, not every state calls this type of court-appointed person a conservator — some, in fact, call them guardians. But in Arizona, the person managing property and finances is a conservator.

Neither guardians nor conservators are “powers of attorney.” In point of fact, powers of attorney are pieces of paper, not people at all. But now we quibble. The person named to manage your property and/or your person in a power of attorney is properly called your “agent” or your “attorney-in-fact.” A guardian or conservator is neither an agent nor an attorney-in-fact. They usually have authority over agents and attorneys-in-fact, though it may require separate court action to make that clear, and it may be possible for the court to determine that the agent (or attorney-in-fact, if you prefer hyphenated names) still has authority even after appointment of a guardian and/or conservator.

Who can have a guardian appointed? Someone who is incapacitated. Their incapacity can be based on their age (minors — those under age 18 — are automatically incapacitated under Arizona law unless they are “emancipated”) or their circumstances. Generally speaking, parents are the natural guardians of their minor children, so they do not need to go to court to secure guardianship. The same is not true for any class of adults. So if your 18-year-old child has a lifelong disability that makes him unable to make responsible decisions, you do not automatically shift from being his natural guardian at 17 to being his legal guardian at 18. A court proceeding is necessary. Same thing if your husband or wife becomes incapacitated — you may need court proceedings to become guardian (if there is no power of attorney and there are things that need to be taken care of). “Incapacity” for adults requires a court showing of (a) a mental, medical or other condition that (b) affects the ability of the person to make and communicate responsible personal decisions and (c) makes it difficult or impossible for them to provide their own food and shelter without assistance. It is also necessary to show that (d) the appointment of a guardian will actually help accomplish that goal.

Appointment of a conservator is based on similar, but slightly different, grounds. First, minority is always considered a legally disabling condition, but parents are not the natural conservators of their children in the way that they are natural guardians. That means if a minor child comes into money, even if they live with both parents and all are harmonious and responsible, there is no way to manage that money without going through the conservatorship process. If an adult becomes unable to manage their money in order to prevent its waste or dissipation, they may have a conservator appointed, as well. Frankly, the definition of when a conservator can be appointed is a great deal less precise than that for guardianships, which can sometimes lead to problems.

An important reality for family members and friends to understand: if a guardianship and/or conservatorship proceeding is initiated, the court has been invoked and will not later simply step aside to let concerned — even appropriately concerned — family members take over. Once the courts are involved, they tend to stay involved.

That means that the cost of securing guardianship and conservatorship can be high. In Arizona, a lawyer is automatically appointed to represent the person who is alleged to be in need of a guardian or conservator. A medical report is required. A court-appointed investigator must go to the residence, conduct an investigation and file a report. There are significant court costs involved. Plus the process is complicated enough that the petitioner is almost always going to hire an attorney. That attorney’s bill is likely to approach half the total cost of getting the guardianship or conservatorship set up.

Much has been written, spoken and broadcast in recent years about the high cost of guardianship and conservatorship. The natural tendency of the system has been to make it more difficult to get guardians and conservators appointed, and to require them to provide more information, more frequently. Though that may be a positive development, it has the (presumably unintended) effect of making the process not only more difficult, but also more expensive.

So — guardianship and conservatorship can be difficult, expensive, even ineffective. Not always, of course, but there is a possibility and it proves to be the case too often. What can beleaguered family members do?

Most lawyers practicing in the field spend the first portion of any contact with a new client talking about how to avoid guardianship and conservatorship proceedings. Did your family member sign a health care power of attorney, a financial power of attorney, a living will, a living trust? Are there other ways to get done what needs to be done? What bad things will happen if we (that is, the family and the lawyers acting together) simply do not file a guardianship or conservatorship proceeding, even if one is warranted? Are there ways to get agreement from all the family members in advance, in order to hold down legal costs?

One important concern, at least in the case of adult guardianship and conservatorship: we will ultimately need to be able to prove that your family member has a medical, mental, emotional or other problem that prevents them from making their own personal or financial decisions. We will need medical evidence. Have you spoken with your family member’s physician, or psychologist, or other member of their treatment team? Can you get a letter from that person describing diagnosis, prognosis and any functional limitations? Without that, we may not be able to proceed. With that in hand, though, the process may be significantly streamlined.

Getting guardianship or conservatorship can be expensive, emotionally wrenching, and sometimes even ultimately unsatisfying. Sometimes, however, it is absolutely necessary. We just need to be sure you are prepared for the cost, the procedures, the limitations, and the possibilities in this type of legal proceeding. That’s why you hire a lawyer, after all.

©2017 Fleming & Curti, PLC