Estate Planning, Probate
and Trust Administration
Articles about Estate Planning
PROTECT YOUR FINANCIAL WELL BEING WITH A
DURABLE POWER OF ATTORNEY FOR FINANCIAL MANAGEMENT
What is a Durable Power of Attorney for Financial Management?
A Durable Power of Attorney for Finances (DPAF) is a simple document that allows you to grant authority to another person, who is called your Agent or Attorney-in-Fact, to manage your money and property and to make financial decisions for you if you become unable to do so because of illness or old age.
You can grant to your Agent or Attorney-in-Fact a limited power over specific bank accounts or pieces of property, or you can grant broad authority. The document remains in effect even if you become incapacitated – that’s why it’s called “durable.” You can revoke or amend your document if you decide you would like to change who your Agent is.
Financial management involves a range of activities that you may someday need help with: paying bills, cashing checks, making investments, making repairs on your home, applying for government benefits.
Your Agent does not have to be an attorney but, rather, acts as what is called an “attorney-in-fact” to best represent your interests. It is important to choose someone whom you trust implicitly. It is also important to select an alternate Agent, or two, in case your first choice becomes unavailable or unwilling to act.
Why Do I Need a Durable Power of Attorney for Financial Management?
There are several very important reasons why everyone needs a Durable Power of Attorney for Financial Management.
The major reason is to protect your financial well being if you become “incapacitated” due to illness or old age. “Incapacity” is a legal term meaning that someone is “substantially unable” to manage his or her own financial affairs, or is incapable of resisting fraud or undue influence.
These days, people are living longer than ever before. Thus, it is increasingly likely that there will come a time in our lives when we cannot manage our own money and property—or when we would just prefer not to. To prepare for that possibility, we want to have already put into place a reliable and efficient means by which someone we thoroughly trust can step in to act on our behalf.
Sometimes when an elder becomes incapacitated, various family members – even well-meaning ones—begin to fight over what is in the elderly person’s best interest. By executing a DPAF while you are fully well, you can name an Agent of your choice and thereby minimize conflicts between family members.
Another major reason why a DPAF is essential is to avoid the potential need for a conservatorship. A conservatorship is a court-supervised arrangement by which someone is appointed by the local probate court to assume responsibility for your affairs if you are unable to manage. It is very time consuming and expensive to even set up a conservatorship through the probate court. Someone on your behalf has to hire an attorney to prepare a petition for appointment and go to court, where there may be a challenge brought by other members of your family. Beyond the initial phases, a conservatorship requires ongoing court supervision and legal fees. Every two years, the conservator has to submit to the court an elaborate and detailed accounting of all actions taken on behalf of the conservatee—every check received and every bill paid. This goes on as long as the conservatorship is in effect, usually until the conservatee dies.
Do I Need to Pay an Attorney in Order to Execute a Durable Power of Attorney?
It is not always necessary to have a lawyer draft the document, but it is very easy to make mistakes and end up with a document that won’t be treated as valid by financial institutions. Therefore, it is advisable to seek the advice and assistance of an attorney.
What is Required for a Valid Durable Power of Attorney?
California’s Probate Code spells out the minimal requirements for a valid document. It has to include specific language citing the relevant sections of California’s Probate Code. It has to state that you are revoking any previously executed power of attorney documents. It needs to state when the document goes into effect and that it remains in effect even if you subsequently become incapacitated. It needs to be dated. It needs to be signed by you in the presence of two witnesses or a Notary Public. This last point is critical. Often people find power of attorney forms on the internet, fill them out and sign them on their own, but do not get their signatures witnessed or notarized. Such documents are then invalid. This is why it is important to talk to an attorney to make sure you have correctly completed a power of attorney document.
Do I Need a Durable Power of Attorney if I Have a Will?
Absolutely. A Will “speaks only upon death.” It becomes effective only after a person dies, and its sole purpose is to enable an appointed Executor to know how a person wished to have his or her property distributed.
It is important to have a Will so that after you die, there will be a smooth process of distributing your property to your chosen beneficiaries. But that is no substitute for executing a DPAF to protect your interests if you become incapacitated while you are still alive.
How is a Durable Power of Attorney Similar to an Advance Health Care Directive?
An Advance Health Care Directive (AHCD) is another document that everyone needs. It is like a power of attorney, but it covers medical decision making. You name an Agent who will act on your behalf if you become so ill that you are unable to speak to yourself about the degree of life support you would like to have.
The Power of Attorney for Finances is not a substitute for an Advance Health Care Directive. You need both documents in order to protect yourself.
Do I Need a Durable Power of Attorney if I am Married?
Often people think that if they are married, then they do not need to execute a DPAF and other key estate planning documents. This is not so.
A spouse has authority to pay bills from a joint checking account. However, both a husband and wife have to agree to sell jointly held real property such as the family home. That means that if one spouse becomes incapacitated, the other spouse may be unable to act—even if doing so would be in the best interest of the incapacitated spouse.
Moreover, if one spouse has separate property, such as property held before the marriage began, then the well spouse would not be able to take action to help the incapacitated spouse in dealing with that property.
Therefore, even if one owns a home with one’s spouse and has all one’s money in jointly held accounts, it is still very important to execute a DPAF. One can certainly name one’s spouse as one’s first choice of an Agent, followed by an alternate Agent or two who can act in the event that both spouse become incapacitated within a short time frame.
Do I Need a DPAF if I already have a Revocable Living Trust?
A well-drafted Revocable Living Trust (RLT) duplicates some of the powers of a DPAF. For example, a well-drafted trust allows a successor trustee to manage property if the initial trustor is still alive but becomes incapacitated.
However, a Trust covers only property that has been transferred into the trust, such as a home, which is typically placed into the trust in order to avoid probate fees when the owners die. It is wise to execute a DPAF to allow an agent to manage property that is held outside of the trust – such as checking accounts, insurance policies, retirement accounts and the like.
Additionally, the terms of a Trust typically do not empower anyone to do things such as apply for government benefits on behalf of an incapacitated person or to move someone into a skilled nursing facility if that becomes necessary.
When does the DPAF Become Effective?
A DPAF becomes effective at one of two points in time:
One is called “effective immediately,” which means that as soon as the principal signs the DPAF, she or he has automatically empowered the Agent to begin acting on her or his behalf – but only if necessary or if the principal requests. An effective immediately DPAF does not mean that the principal has ceded all authority over her or his own finances right at the moment of signing. It simply means that nothing more is required in order for an Agent to begin acting, should that be necessary.
The other way to draft a DPAF is called “springing.” It becomes effective, or “springs” into effect, only if the principal does actually become incapacitated, and there is a standard included in the document. It will say, for example, that one or two licensed physicians has to write a letter under penalty of perjury stating that the principal meets the statutory standard of being “substantially unable to manage her or his financial affairs.”
There are pros and cons to either the “effective immediately” or “springing” DPAF. If the document is made effective immediately, then if the principal becomes incapacitated, or starts to slip into a sort of gray area of sometimes having good mental faculties and other times not, the Agent does not need to seek a certified letter from a doctor in order to act. The flip side of this argument is that “effective immediately” means that an Agent can act on behalf of the principal, even if the principal still thinks she or he ought to be able to make all decisions independently. It is important to discuss with your lawyer whether the document should be “effective immediately” or springing.” In either case, the most important thing is to choose Agents in whom you have absolute trust and confidence.
Whom Should I Choose to Serve as an Agent under my Power of Attorney?
One must be very careful in selecting as Agent someone who is thoroughly trustworthy. That is more important than choosing someone with accounting or bookkeeping skills. The Agent may seek help if necessary.
It is important to name not only a primary Agent, but also a Successor Agent and possibly even a second Successor Agent, in case the first person you choose becomes unable or unwilling to act when the time comes.
If you decide later that you do not trust the person you have named as Agent, you can change that designation to someone else—as long as you still have full mental capacity to do so.
Often spouses prefer naming each other as their first choice of Agent. That is fine and it makes sense since a spouse is presumably trustworthy and has knowledge about your finances. It is, however, advisable, that you choose as back-up a Successor Agent who is likely to live longer and be well longer than you and your spouse. Often, elders choose their adult children. Be careful to choose relatives who are honest and trustworthy.
What If I Have Written a Note Naming a Person Who I’d Like to Handle My Finances?
Sometimes people think that if they have a written letter to one of their relatives, e.g. an adult child, or a close friend, that that will suffice in the event of incapacity. It won’t.
In order for a third party institution, such as a bank, a mortgage company, or any other financial institution, to recognize your appointed Agent as truly having authority to act on your behalf, they have to see a legally valid, properly executed document. There are some very precise rules as to what makes a Durable Power of Attorney legally valid, which is why it is best to have an attorney create the document. The document has to invoke certain specific legal language. It has to be dated. And most importantly, you have to sign it in the presence of two witnesses or a Notary Public in order to verify that it is really you who has made the document and appointed the Agent to act on your behalf.
Banks and other financial institutions are reluctant to turn over money to an appointed Agent unless they are certain that you, the Principal of the document, have truly made the decision to grant authority to your Agent.
If your Power of Attorney is intended to allow your Agent to conduct transactions regarding your house, the document needs to have been recorded with your County Recorder’s Office.
What If I have already titled my bank accounts in the name of a trusted relative?
Often people attempt to achieve the purpose of a Durable Power of Attorney for Financial Management by naming one of their adult children as a co-owner of their account. This is called “joint tenancy.” Because that second person is a co-owner of the account, he or she has full authority to make withdrawals and deposits.
Is this an effective approach? It may be in some cases, especially if the joint tenant is thoroughly trustworthy. However, joint tenancy often runs counter to an elder’s estate planning wishes. That is because joint tenancy ownership means that whichever joint tenant survives the death of the other automatically gets the asset outright. Let’s say, for example, that you have three children and want to leave all your money to all three in equal shares. If you make only one of these children a joint tenant co-owner of your bank account, then when you die, that one child will be entitled to 100% of the account. That child may respect your wishes and share the money with siblings, but he or she would not be obligated to do so. In order to make sure that while using joint tenancy for convenience sake you don’t jeopardize your intended estate plan, you should talk this over with an attorney and consider replacing joint tenancy ownership with a Durable Power of Attorney that allows your Agent to act for you without automatically inheriting all your property.
What do I do with my Power of Attorney after I’ve signed it?
It is important to give copies of your Durable Power of Attorney to your Agent and Successor Agents. You should keep the original in a safe place. It’s okay to keep the original in a safe deposit box, as long as that’s not your own copy. You may forget where the safe deposit box is located, or you may lose the key. Keep a copy of your important documents in a safe place in your home where trusted relatives and friends would know to look in a crisis; for example, a file cabinet or a kitchen drawer where you keep other important papers.
If your Durable Power of Attorney is intended to empower an Agent to make transactions in regard to your home, then it is important to send the original document to the County Recorder’s Office.
Should I Execute a Separate Power of Attorney document with my Bank?
Yes. Because the incidence of elder financial abuse is on the rise, many banks are reluctant to recognize an attorney-drafted Durable Power of Attorney form unless they also have something from you in their own files.
Each bank has its own policies on how to create a power of attorney over the bank accounts you have with that institution. Some banks want you to fill out a card they keep on file. Some banks want you to bring your intended Agent into the bank and have that person sign a form. Other banks will recognize an attorney-drafted document but only after sending the document for review by their legal departments. In the event of a crisis, you do not want your Agents to have the added problem of seeking bank recognition of a power of attorney. Therefore, it is wise to take the time now to check with your local bank branch offices as to what kinds of forms they prefer in order to establish a power of attorney over the accounts you have with them. That may mean trips to several different banks, but it is worth the trouble. You should also check with your brokerage houses, as many of them require their own forms in order to establish a power of attorney over your stock and mutual fund accounts.
** This article is for educational purposes only. It is not legal advice.
Estate Planning Using Payable on Death Accounts
By Sara Diamond
Estate planning is a huge and complex subject. Yet there are some simple things that people with modest resources can do to make sure their wishes will be carried out after they die.
One is to make sure that one or more of your bank accounts is titled “payable on death to” followed by the name of a chosen beneficiary or beneficiaries. Even if you have not yet taken the time to write a will, you can go to the bank (or a brokerage house where you have an account) and ask for a card or form to “designate a beneficiary.” Thereafter, your account statement will state your name, followed by the words “payable on death to” or “transfer on death to” and then the name of your beneficiary. A P.O.D. account is a simple form of do-it-yourself estate planning that does no harm while you are living and can smooth the process after death.
Often people improvise their estate planning by placing the name of a loved one as a joint owner of an account. This is called joint tenancy. It is fine if you absolutely trust the person who then also owns the account. It is not advisable if this person might one day make unauthorized withdrawals from the account or if the person has creditors who might come after your bank account for payment. Joint tenancy is also not advisable if you plan to leave your money to more than one person and yet you only put one name other than your own on a joint account. Whoever is named will automatically get the money in that account after you die, and he or she may or may not decide to share with your other beneficiaries. A joint tenant would have no obligation to follow your wishes, even if you had set them in writing in a Will.
Therefore, the preferred approach is to use P.O.D. accounts so that you maintain full control over your funds while you are alive. To protect yourself in case you ever become incapacitated, rather than adding another title owner to your account, it is wise to name an Agent under a Durable Power of Attorney. That Agent is authorized to act on your behalf if you are ever unable to manage your finances yourself. Banks have their own forms on which you can name an Agent for the particular account(s) you have at that bank. Be careful about using “cookie cutter” form documents off the internet. In addition to an account-specific power of attorney, which you can set up through your bank, it is best to also have a general Durable Power of Attorney drafted by an attorney.
Once you have an Agent who can manage your money if you are ever unable to do so, then the use of P.O.D. accounts makes sense if you know that your designations cover all of your intended beneficiaries. If you have three children, make an account payable to all three, or if you name only one child as the recipient of an account, make sure you have other funds designated to go to your other children. Remember that P.O.D. designations mean that the named beneficiary gets the money automatically upon your death, even if your Will instructs an Executor to divide your money in some other way.
** This article is for educational purposes only. It is not legal advice.
Why a Trust?
By Sara Diamond, from the Spirit Rock Meditation Center Newsletter, Sept. 2006 to Jan. 2007
Estate planning is, among other things, an act of generosity – toward oneself as well as toward one’s loved ones and favorite charities. Wills and trusts are legal devices for ensuring that our assets go to the recipients of our choice. The simplest will describes who will inherit one’s property and can be legally valid even if scrawled in crayon on a paper towel. We’ve all seen movies where someone in the heat of passion tears her will up and throws it into a fire. If you die without a will or trust, the state has a plan. It’s called intestate succession and guides a court in deciding who inherits your assets. The law of intestate succession assumes you would want your property going first to spouse and kids, then to parents, then siblings, etc., but not to charities. That is not necessarily what you would have chosen if you’d made a will.
With or without a will, one’s assets, if totaling over $100,000, will pass through probate (unless your assets are placed in a trust or have designated beneficiaries). Probate is a court-supervised means of ensuring that property goes to the parties a deceased person chose or likely would have chosen had she or he done estate planning. With real property (land and buildings), the only way to avoid probate is to create a trust and transfer title of the property to the name of the trustee(s). Liquid assets can be placed in a trust, but be careful: retirement accounts are usually left out to provide tax and distribution advantages to beneficiaries. Then the trust’s named beneficiaries can inherit property without probate.
A trust is more complex than a will. A trust creates a relationship between the grantor(s) who create it, the trustee(s) who will manage it and the beneficiary(ies) who will eventually inherit the property. I think of a trust as a basket, woven of legal provisions, which holds property for specified beneficiaries and periods of time. The main purpose of a trust is to provide for smooth transfers of property after the grantor dies.
In California, revocable living trusts are the most popular types of trusts. They are used mostly to spare beneficiaries from probate which, in California, is very expensive and may take longer than administering a trust. Probate fees are set by statute, based on the property’s value: 4% of the first $100,000, 3% of up to the next $100,000, 2% of up to the next $800,000, and 1% of up to the next $9 million. Just about anyone who owns a house has an estate of more than $100,000. Allowable probate fees on a “modest” estate of $800,000 are $19,000 to an Executor plus $19,000 to an attorney. Probate means less money goes to one’s beneficiaries and any charities. The probate courts are clogged with cases that could have been avoided through estate planning.
If you’re a do-it-yourself person, there are resources such as Nolo Press’s Make Your Own Living Trust. One has to be careful, though. One of my clients used software to draft a trust and asked me to review it. With just a few wrong mouse-clicks, he had inadvertently created a married couple’s trust that would have prohibited a surviving spouse from using any of her or his partner’s half of the couple’s assets. The trust had to be redrafted.
There are other common problems with do-it-yourself trusts. Sometimes people forget to have their signatures notarized. Or they correctly execute the documents but never transfer title of their house into the trust. Then after they die, their kids have to hire a lawyer to seek a court order to transfer the house into the trust to avoid probate. It is often worth the cost of hiring a lawyer to properly draft and transfer property into a trust, rather than taking the chance that the trust won’t be effective.
Just as important is a trust that empowers a successor trustee to manage the property if the grantor ever becomes unable to do so. Because people are living longer, it is more likely there will be a period toward the end of life when they are unable to pay bills, make home repairs, etc. on their own. A trust can designate a successor trustee to assume such responsibilities before the grantor dies, thus avoiding the need to place the incapacitated person under a conservatorship, which is legally cumbersome and far more expensive than estate planning. Another reason for living trusts is that gifts to children can be delayed until they reach a specified age. Finally, one can use trusts to ensure that the values one holds during this lifetime are reflected in the manner in which one’s money and property are distributed after death.
** This article is for educational purposes only. It is not legal advice.
