Johnson County Estate Planning

Common Estate Planning Mistakes and How to Avoid Them

“Even those with the best of intentions can fall into the trap of estate planning misinformation. Estate planning attorneys frequently hear rumors and ill advice disguised as facts.”

Every family has one: the brother-in-law or aunt who knows everything about, well, everything. When the information is wrong, expensive problems are created, especially when it comes to estate planning. Estate planning attorneys devote a good deal of time to education to help prevent unnecessary and costly mistakes, as described in the article “Misinformation, poor assumptions result in major planning mistakes” from The News-Enterprise.

The most common is the idea of a “simple” estate plan. What does “simple” mean? For most people, the idea of “simple” is appealing—they don’t want to deal with long and complicated documents with legal phrases they don’t understand. However, those complex phrases are necessary, if the estate plan is to protect your interests and loved ones.

Another mistake is thinking an estate plan is a one-and-done affair. Just as people’s lives and fortunes change over time, so should their estate plan. An estate plan created for a young family with small children won’t work for a mature couple with grown children and significant savings.

Change also comes to family dynamics. The same cousin who was like a sister during your teen years may not be as close in values or geography, when you both have elementary school children. Do you still want her to be your child’s guardian? An updated estate plan takes into account the changing relationships within the family, as well as the changing members of the family. A beloved brother-in-law isn’t so beloved, if he divorces your favorite sister. When families change, estate plans need to be updated.

Here is a huge mistake rarely articulated: somehow not thinking about death or incapacity might prevent either event from happening. We know that death is inevitable, and incapacity is statistically probable. Planning for both events in no way increases or decreases their likelihood of occurring. What planning does, is provide peace of mind in knowing you have prepared for both events.

No one wants to be in a nursing home but telling loved ones you want to remain at home “no matter what happens” is not a plan for the future. It is devastating to move a loved one into a nursing home. However, people with medical needs need to be there to receive proper care and treatment. Planning for the possibility is better than a family making arrangements, financial and otherwise, on an emergency basis.

Do you remember that all-knowing family member described in the start of this article? Their advice, however well-intentioned, can be disastrous. Alternatives to estate planning take many shapes: putting the house in the adult child’s name or adding the adult child’s name to the parent’s investment accounts. If the beneficiary has a future tax liability, debt or divorce, the parent’s assets are there for the taking.

Properly done, with the guidance of an experienced estate planning attorney, your estate plan protects you and those you love, as well as the assets you’ve gained over a lifetime. Don’t fall for the idea of “simple” or back-door alternatives. Formalize your goals, so your plans and wishes will be followed.

Reference: The News-Enterprise (Aug. 24, 2021) “Misinformation, poor assumptions result in major planning mistakes”

How Does Guardianship Work?

“As a result of illness, old age or incapacity, what may happen when you can no longer handle your own decision-making, handle your own money or make your own health care choices? Who can step in to help and how are they empowered?”

For the most part, we are free to make our own decisions regarding how we live, where we live, how we spend our money and even with whom we socialize. However, when we are no longer capable of caring for ourselves, most commonly due to advancing age or dementia, or if an accident or illness occurs and we can’t manage our affairs, it may be necessary to seek a guardianship, as explained in the recent article “Legal Corner: A guardian can be a helpful tool in cases of incapacity” from The Westerly Sun. A guardianship is also necessary for the care of a child or adult with special needs.

If no proper estate planning has been done and no one has been given power of attorney or health care power of attorney, a guardianship may be necessary. This is a legal relationship where one person, ideally a responsible, capable and caring person known as a guardian, is given the legal power to manage the needs of a ward, the person who cannot manage their own affairs. This is usually supported through a court process, requires a medical assessment and comes before the probate court for a hearing.

Once the guardian is qualified and appointed by the court, they have the authority to oversee everything about the ward’s life. They have power over the ward’s money and how it is spent, health care decisions, residential issues and even with whom the ward spends time. At its essence, a guardianship is akin to a parent-child relationship.

Guardianships can be tailored by the court to meet the specific needs of the ward in each case, with the guardian’s powers either limited or expanded, as needed and as appropriate.

The guardian must report to the court on a yearly basis about the ward’s health and health care and file an annual accounting of what has been done with the ward’s money and how much money remains. The court supervision is intended to protect the ward from mismanagement of their finances and ensure that the guardianship is still needed and maintained on an annual basis.

The relationship between the ward and the guardian is often a close one and can continue for many years. The guardianship ends upon the death of the ward, the resignation or removal of the guardian, or in cases of temporary illness or incapacity, when the ward recovers and is once again able to handle their own affairs and make health care decisions on their own.

If and when an elderly family member can no longer manage their own lives, guardianship is a way to step in and care for them, if no prior estate planning has been done. It is preferable for an estate plan to be created and for powers of attorney be created, but in its absence, this is an option.

Reference: The Westerly Sun (Sep. 19, 2020) “Legal Corner: A guardian can be a helpful tool in cases of incapacity”

How to Plan for Incapacity

“One in four American adults live with a disability, according to the Center for Disease Control. One in 10 adults over the age of 65 has Alzheimer’s or dementia, according to the Alzheimer’s Association.”

Planning for incapacity is just as important as planning for death. One is certain, the other is extremely likely. Therefore, it makes sense to prepare in advance, advises the article “Planning ahead for incapacity helps you and family” from The Press-Enterprise.

Let’s start by defining capacity. Each state has its own language but for the most part, incapacity means that a person is incapable of making decisions or performing certain acts. A concerned adult child is usually the one trying to have a senior parent declared incapacitated.

A person who has a mental or physical disorder may still be capable of entering into a contract, getting married, making medical decisions, executing wills or trusts, or performing other actions. However, before a person is declared incapacitated by medical professionals or a court, having a plan in place makes a world of difference for the family or trusted person who will be caring for them. Certain legal documents are needed.

Power of Attorney. This is the primary document needed in case of incapacity. There are several kinds, and an estate planning attorney will know which one will be best for your situation. A “springing” power of attorney becomes effective, only when a person is deemed incapacitated and continues throughout their incapacity. A POA can be general, broadly authorizing a named person to act on different matters, like finances, determining where you will live, entering into contracts, caring for pets, etc. A POA can also be drafted with limited and specific powers, like to sell a car within a certain timeframe.

The POA can be activated before you become incapacitated. Let’s say that you are diagnosed with early-stage dementia. You may still have legal capacity but might wish a trusted family member to help handle matters. For elderly people who feel more comfortable having someone else handle their finances or the sale of their home, a POA can be created to allow a trusted individual to act on their behalf for these specific tasks.

A POA is a powerful document. A POA gives another person control of your life. Yes, your named agent has a fiduciary duty to put your interests first and could be sued for mismanagement or abuse. However, the goal of a POA is to protect your interests, not put them at risk. Choosing a person to be your POA must be done with care. You should also be sure to name an alternate POA. A POA expires on your death, so the person will not be involved in any decisions regarding your estate, burial or funeral arrangements. That is the role of the executor, named in your will.

Advance health care directive, or living will, provides your instructions about medical care. This document is one that most people would rather not think about. However, it is very important if your wishes are to be followed. It explains what kind of medical care you do or do not want, in the event of dementia, a stroke, coma or brain injury. It gets into the details: do you want resuscitation, mechanical ventilation or feeding tubes to keep you alive? It can also be used for post-death wishes concerning autopsies, organ donation, cremation or burial.

The dramatic events of 2020 have taught us all that we don’t know what is coming in the near future. Planning in advance is a kindness to yourself and your family.

Reference: The Press-Enterprise (July 19, 2020) “Planning ahead for incapacity helps you and family”

Alzheimer’s, Dementia and other Brain Diseases Require Special Estate Planning Steps

“Covid-19 or Coronavirus has created health worries and fear for everyone. For those with underlying health issues, which include multiple sclerosis, Parkinson’s disease, Alzheimer’s disease, or other brain diseases, those concerns are even more pronounced.”

There are certain steps that can be taken by individuals, loved ones and family members to make this challenging time safer and smarter, advises an article “Financial And Estate Planning Steps To Take Now: Special Considerations For Those With Brain Disease” from Forbes.

Anyone living with a neurologic condition needs to be sure their planning reflects not only their condition but their personal experience of the condition. The variability of each person’s experience of a brain disease, from symptoms and severity to the progression rate and future prognosis to the possibility of any recovery, affects how they need to plan.

For an Alzheimer’s patient, in early stages there may be no problems in signing legal documents and putting legal safeguards in place to protect finances. Most people are not aware that the degree of competency to sign legal documents varies, depending upon the complexity of the documents to be signed and the circumstances. A relatively low level of competency is required to sign a will. This is known as “testamentary capacity.” A higher level of competency is required to sign something like a revocable trust, investment policy statement, etc. Therefore, a person who may be legally able to sign a will may not have the legal capacity to sign other documents. Alzheimer’s patients need to get their entire estate plan in order, as soon as a diagnosis is received. Safeguards are extremely important, including having an independent person, like a CPA or trusted family member, receive copies of all monthly bank and brokerage statements, in case abilities decline faster than anticipated.

Patients living with peripheral neuropathy may experience issues with balance, burning sensations, dizziness, hypersensitive skin and pain that make wearing socks or shoes impossible. If the condition becomes so severe that the person becomes homebound, they need to make changes: set up accounts, so bills can be paid online, have income streams set to automatic deposit and simplify and consolidate accounts. It is important to have a Power of Attorney (POA) that is effective immediately or a revocable living trust with a co-trustee. In this way, you do not have to leave home to conduct your business.

Parkinson’s disease may not be well understood by professional advisors. You’ll need to explain that your facial expression—Parkinsonian masked face—does not mean that you are not responding to a conversation. They need to know that your handwriting may change, becoming small and cramped. This can result in a bank or other financial institution refusing to accept your signature on documents. Your attorney can prepare a document that confirms you are living with Parkinson’s disease and that micrographia is one of your symptoms. The document should include three or four different signatures to reflect the variations. Have each signature witnessed and notarized.

People living with MS (multiple sclerosis) face the possibility of an exacerbation that could leave them incapacitated at any time. A revocable trust to coordinate financial management, with trusted individuals as co-trustees should be in place.

For people with these and other brain illnesses, an emergency financial and legal road map needs to be prepared. It should include monthly recurring bills, non-recurring bills like life insurance, property taxes, etc. Contact information for key advisors, your estate planning attorney, CPA, financial advisor, banker, insurance agent, etc., needs to be shared. Your estate plan should be updated, if you haven’t reviewed it in three or four years. If you don’t have an estate plan in place, now is the time to have one created.

Reference: Forbes (May 17, 2020) “Financial And Estate Planning Steps To Take Now: Special Considerations For Those With Brain Disease”

Digital Assets Need to Be Protected In Estate Plans

“The proliferation of digital footprints in our online communities raise demand for consumer tools and options for dealing with digital assets upon incapacity and death.”

Most people have an extensive network of digital relationships with retailers, financial institutions and even government agencies. Companies and institutions, from household utilities to grocery delivery services have invested millions in making it easier for consumers to do everything online—and the coronavirus has made our online lives take a giant leap. As a result, explains the article “Supporting Your Clients’ Digital Legacy” from Bloomberg Tax, practically all estates now include digital assets, a new class of assets that hold both financial and sentimental value.

In the last year, there has been a growing number of reports of the number of profiles of people who have died but whose pages are still alive on Facebook, Linked In and similar platforms. Taking down profiles, preserving photos and gaining access to URLs are all part of managing a digital footprint that needs to be planned for as part of an estate plan.

There are a number of laws that could impact a user’s digital estate during life and death. Depending upon the asset and how it is used, determines what happens to it after the owner dies. Fiduciary access laws outline what the executor or attorney is allowed to do with digital assets, and the law varies from one country to another. In the US, almost all states have adopted a version of RUFADAA, the law created by the U.S. Uniform Law Commission. However, all digital assets are also subject to the Terms of Service Agreement (TOSAs) that we click on when signing up for a new app or software. The TOSA may not permit anyone but the account owner to gain access to the account or the assets in the account.

Digital assets are virtual and may be difficult to find without a paper trail. Leaving passwords for the fiduciary seems like the simple solution, but passwords don’t convey user wishes. What if the executor tries to get into an account and is blocked? Unauthorized access, even with a password, is still violating the terms of the TOSAs.

People need to plan for digital assets, just as they do any other asset. Here are some of the questions to consider:

• What will happen to digital assets with financial value, like loyalty points, travel rewards, cryptocurrency, gaming tokens or the digital assets of a business?
• Who will be able to get digital assets with sentimental value, like photos, videos and social media accounts?
• What about privacy and cybersecurity concerns, and identity theft?

What will happen to your digital assets? Facebook and Google offer Legacy Contact and Inactive Manager, online tools they provide to designate third-party account access. Some, but not many, other online platforms have similar tools in place. The best way, for now, may be to make a list of all of your digital accounts and look through them for death or incapacity instructions. It may not be a complete solution, but it’s at least a start.

Reference: Bloomberg Tax (April 10, 2020) “Supporting Your Clients’ Digital Legacy”

The Second Most Powerful Estate Planning Document: Power of Attorney

“A power of attorney, similar to a last will and testament, is a powerful document that must be created before it becomes necessary.”

All too often, people wait until it’s too late to execute a power of attorney. It’s uncomfortable to think about giving someone full access to our finances, while we are still competent. However, a power of attorney can be created that is fully exercisable only when needed, according to a useful article “Power of attorney can be tailored to circumstances” from The News-Enterprise. Some estate planning attorneys believe that the power of attorney, or POA, is actually the second most important estate planning document after a will. Here’s what a POA can do for you.

The term POA is a reference to the document, but it also is used to refer to the person named as the agent in the document.

Generally speaking, any POA creates a fiduciary relationship, for either legal or financial purposes. A Medical or Healthcare POA creates a relationship for healthcare decisions. Sometimes these are for a specific purpose or for a specific period of time. However, a Durable POA is created to last until death or until it is revoked. It can be created to cover a wide array of needs.

Here’s the critical fact: a POA of any kind needs to be executed, that is, agreed to and signed by a person who is competent to make legal decisions. The problem occurs when family members or spouse do not realize they need a POA, until their loved one is not legally competent and does not understand what they are signing.

Incompetent or incapacitated individuals may not sign legal documents. Further, the law protects people from improperly signing, by requiring two witnesses to observe the individual signing.

The law does allow those with limited competency to sign estate planning documents, so long as they are in a moment of lucidity at the time of the signing. However, this is tricky and can be dangerous, as legal issues may be raised for all involved, if capacity is challenged later on.

If someone has become incompetent and has not executed a valid power of attorney, a loved one will need to apply for guardianship. This is a court process that is expensive, takes several months and leads to the court being involved in many aspects of the person’s life. The basics of this process: three professionals are needed to personally assess the “respondent,” the person who is said to be incompetent. The respondent loses all rights to make decisions of any kind for themselves. They also lose the right to vote.

A power of attorney can be executed quickly and does not require the person to lose any rights.

The biggest concern to executing a power of attorney, is that the person is giving an agent the control of their money and property. This is true, but the POA can be created so that it does not hand over this control immediately.

This is where the “springing” power of attorney comes in. Springing POA means that the document, while executed immediately, does not become effective for use by the agent, until a certain condition is met. The document can be written that the POA becomes in effect, if the person is deemed mentally incompetent by a doctor. The springing clause gives the agent the power to act if and when it is necessary for someone else to take over the individual’s affairs.

Having an estate planning attorney create the power of attorney that is best suited for each individual’s situation is the most sensible way to provide the protection of a POA, without worrying about giving up control while one is competent.

Reference: The News-Enterprise (Feb. 24, 2020) “Power of attorney can be tailored to circumstances”

What is the Difference between Guardianship and Power of Attorney?

“With all the media buzz about guardians stealing money from those whom they are meant to protect and overall financial abuse issues involving seniors, it’s a good moment to revisit how surrogate decision-making works.”

Protecting yourself or a loved one can take many different forms, since aging takes a toll on the ability to handle financial and medical decisions. In most situations, guardianship or a power of attorney does the trick, says the article “Guardianships vs. Powers of Attorney” from the Pittsburgh Post-Gazette.  How to know which is the best one to use?

A guardianship is a court-authorized assignment of surrogate decision-making power for the benefit of a person who has lost the ability to make informed decisions on their own, often described as a person who has become incapacitated. The decisions that another person can make on their behalf can be very broad, or they can be very specific.

If a person becomes incapacitated, either through a slowly progressing illness like dementia or quickly, as the result of an accident, a judge will appoint a person or sometimes an organization to handle health care and financial decisions. The court-appointed guardian or organization could be a person or agency you have never heard of and would not know your family or anything about you.

Yes, that is scary. However, guardianship takes place when families do not plan in advance to appoint a surrogate decision maker, also known as an “agent.”

Here’s even more scary news: once the court has appointed a guardian, that relationship may continue for the rest of the incapacitated person’s life. That means annual accountings and involvement with the court, legal fees and other professional fees the guardian or court deems necessary.

There are some guardians who have made headlines for stealing money and making care decisions that the individual and their families did not want.

Meeting with an estate planning attorney to prepare for incapacity as part of an overall estate plan is a far better way. Why don’t more people do it?

• They aren’t aware of the importance of power of attorney.
• They don’t want to spend the money.
• They don’t know who to choose as their power of attorney
• They don’t want to think about incapacity or death.

In contrast to a court-supervised lifetime guardianship, a properly drafted power of attorney can provide for an agent to make a variety of financial and medical decisions. The person named as a power of attorney (the agent) can serve for the person’s lifetime, just like a guardian.

This is the most fundamental estate planning document, after the last will and testament. Once it’s prepared, you can always change your mind and you or your agent never need to go to court.

Reference: Pittsburgh Post-Gazette (Feb. 24, 2020) “Guardianships vs. Powers of Attorney”

Estate Planning for Unmarried Couples

“The number of unmarried couples who live together reached 18 million in 2016, a 29% jump from 14 million in 2007. Among adults age 50 and older, the increase was 75%: About four million were cohabiting in 2016, up from 2.3 million in 2007.”

For some couples, getting married just doesn’t feel necessary. However, they don’t enjoy the automatic legal rights and protections that legally wed spouses do, especially when it comes to death. There are many spousal rights that come with a marriage certificate, reports CNBC in the article “Here’s what happens to your partner if you’re not married and you die.” Without the benefit of marriage, extra planning is necessary to protect each other.

Taxes are a non-starter. There’s no federal or state income tax form that will permit a non-married couple to file jointly. If one of the couple’s employers is the source of health insurance for both, the amount that the company contributes is taxable to the employee. A spouse doesn’t have to pay taxes on health insurance.

More important, however, is what happens when one of the partners dies or becomes incapacitated. A number of documents need to be created, so should one become incapacitated, the other is able to act on their behalf. Preparations also need to be made, so the surviving partner is protected and can manage the deceased’s estate.

In order to be prepared, an estate plan is necessary. Creating a plan for what happens to you and your estate is critical for unmarried couples who want their commitment to each other to be protected at death. The general default for a married couple is that everything goes to the surviving spouse. However, for unmarried couples, the default may be a sibling, children, parents or other relatives. It won’t be the unmarried partner.

This is especially true, if a person dies with no will. The courts in the state of residence will decide who gets what, depending upon the law of that state. If there are multiple heirs who have conflicting interests, it could become nasty—and expensive.

However, a will isn’t all that is needed.

Most tax-advantaged accounts—Roth IRAs, traditional IRAs, 401(k) plans, etc.—have beneficiaries named. That person receives the assets upon death of the owner. The same is true for investment accounts, annuities, life insurance and any financial product that has a beneficiary named. The beneficiary receives the asset, regardless of what is in the will. Therefore, checking beneficiaries need to be part of the estate plan.

Checking, savings and investment accounts that are in both partner’s names will become the property of the surviving person, but accounts with only one person’s name on them will not. A Transfer on Death (TOD) or Payable on Death (POD) designation should be added to any single-name accounts.

Unmarried couples who own a home together need to check how the deed is titled, regardless who is on the mortgage. The legal owner is the person whose name is on the deed. If the house is only in one person’s name, it won’t become part of the estate. Change the deed so both names are on the deed with rights of survivorship, so both are entitled to assume full ownership upon the death of the other.

To prepare for incapacity, an estate planning attorney can help create a durable power of attorney for health care, so partners will be able to make medical decisions on each other’s behalf. A living will should also be created for both people, which states wishes for end of life decisions. For financial matters, a durable power of attorney will allow each partner to have control over each other’s financial affairs.

It takes a little extra planning for unmarried couples, but the peace of mind that comes from knowing that you have prepared to care for each other, until death do you part, is priceless.

Reference: CNBC (Dec. 16, 2019) “Here’s what happens to your partner if you’re not married and you die”

Everyone Should Have a Power of Attorney and Healthcare Power of Attorney

“All it takes is one accident or medical emergency while out-of-state in Arizona or Florida this winter, for powers of attorney and living wills to pay for themselves.”

Before snowbirds begin their seasonal journey to warmer climates, it’s time to be sure that they have the important legal documents in place, advises LimaOhio.com in a recent article “Different seasons and documents, same peace of mind.” The two documents are a healthcare power of attorney and a financial power of attorney, and they should be prepared and be ready to be used at any time.

These documents name another person to make healthcare and financial decisions, in case you are not able to make those decisions for yourself. We never think that anything will really happen to us, until it does. Having these documents properly prepared and easily accessible helps our loved ones. They are the ones who will need the powers given by the documents. Without them, they cannot act in a timely manner.

If traveling between a home state and a winter home, it is wise to have a set of documents that align with the laws of both states. It may be necessary to have a separate set of documents for each state, if the laws differ.

Financial powers of attorney typically need updating more often than healthcare powers of attorney. The law has changed in recent years, and there are a number of specific powers that need to be stated precisely, so that the document can grant those powers. This includes the power to gift assets and make a person eligible for nursing home and other healthcare assistance, like Medicaid.

If these documents are not in place and are needed, the only way that someone else can make decisions for the person, is to become a guardian of that person. That includes spouses. Many people think that the fact that two people are married gives them every right, but that is not the case. Guardianship takes considerably more time and costs more than these two documents. It should be noted that once guardianship is established, the person who is the guardian will need to report to the court on a regular basis.

Another document that needs to be in place is a living will or advance directive. This is a document prepared to instruct others as to your wishes for end-of-life care. The document is created when a person is mentally competent and expresses their wishes for what they want to happen, if they are being kept alive by artificial means. For loved ones, this document is a blessing, as it lets them know very clearly what their family members wishes are.

Peace of mind is a wonderful thing to take with you as you prepare for a warm winter in a different climate. Talk with an estate planning attorney to be sure that your estate planning documents will be acceptable in your winter home.

Reference: LimaOhio.com (Oct. 26, 2019) “Different seasons and documents, same peace of mind”

What’s Better, A Living Trust or a Will?

“Last wills and testaments, which were invented centuries ago, are the most famous estate-planning documents.”

Everyone knows what a last will and testament is. However, a will is not always the best way to distribute your assets, explainsthe Times Herald-Record in the article “Living trusts are better choice than wills.” Most people think that by having a will alone, they will make it clear who they want to receive their assets when they die. However, wills are used by the court in a proceeding called “probate,” if the only estate plan you have is a will. The court proceeding is to establish that the will is valid. Depending upon where you live, probate can take a year before assets are distributed to beneficiaries.

Certain family members must receive notifications, when a will is submitted to probate. Some people will receive notices, even if they are not mentioned in the will. This can lead to all kinds of awkward situations, especially from estranged or unknown relatives. The person who is the executor of the will is required to locate these relatives, and until they are found and notified, the probate process comes to a standstill.

There are instances where a judge will allow a legal notice to be published in a local newspaper, after valid attempts to find relatives aren’t successful. If there is a disabled beneficiary, a minor beneficiary, a relative or beneficiary who can’t be located, or a relative who has been incarcerated, the judge often appoints lawyers to represent these parties’ interests and the estate pays for the attorney’s fees.

Depending on the situation, the executor may be required to furnish a family tree, or a friend of the decedent must sign an affidavit attesting that the person never had any children.

Thinking of disinheriting a child? Anyone who is disinherited in a will, receives a notice about that and is legally permitted to contest the will. That can lead to years of expensive litigation, including discovery demands, depositions, motions and possibly a trial. Like most litigation, will contests usually end in a settlement. The disinherited relative often gets a share of the inheritance, even when the decedent didn’t want them to get anything.

For many families, a living trust is a better alternative. They also serve as disability planning, naming people who will manage the assets of the trust, in case of incapacity. They are private documents, so their information does not become public knowledge, like the details of a will.

A qualified estate planning attorney will help you determine what estate planning tools will work best to achieve your goals, while maintaining your privacy and ensuring that assets pass to heirs in a discrete manner.

Reference: Times Herald-Record (Oct. 26, 2019) “Living trusts are better choice than wills”