What is a durable power of attorney?

A durable power of attorney (POA) is a power of attorney given in the event of disability (whether mental or physical) by one spouse and directs the other spouse how to handle certain business or monetary activities detailed in the agreement.  Some instances of disability could include mental illness, physical illness, advanced age, drug use, alcoholism, confinement or disappearance.  

While state law may grant spouses certain rights to act for the other spouse, some activities may or may not be covered.  A power of attorney also helps spouses who may have separate ownership of property by giving the spouse the right to act on behalf of the incapacitated spouse. 

Some examples of business decisions in real estate matters where the well spouse is not a co-owner (perhaps because the real estate was a premarital asset or for other tax reasons) and can act for the incapacitated spouse are:

• If the incapacitated spouse owns rental property, the other spouse can collect rent
• To pay real estate taxes for properties that may not in both spouses ownership
• To handle issues related to any mortgages
• To take out property insurance

Some other general business related functions a durable power of attorney can include: 

• To sue on the collect of a debt
• To file for bankruptcy
• To write checks and do banking transactions
• To sell stock or other securities
• To file tax returns
• To manage retirement accounts
• To borrow money
• To make loans
• To make charitable donations
• To hire attorneys, accountants or other professionals

In the event state law did not allow a spouse to do any of the functions described above for its incapacitated spouse, a durable power of attorney signed by the incapacitated spouse before the disability (and notarized for validity) can come in handy in a family emergency. 

1. Protecting You and Your Family

Most people associate an estate plan with death, but an estate plan also comes into play if you become incapacitated. Through a proper estate plan, you can designate who will be responsible for making your financial and medical decisions, the authority they will have, and restrictions you would like placed on their power.

2. Distributing Your Assets as You See Fit

Without an estate plan, your estate will go to the probate courts, and your assets will be distributed according to the state’s intestacy laws, which generally prioritize spouses, children and parents. In addition, not having a will or trust in place lends itself to the potential of disputes between surviving family members. The best way to ensure that your beneficiaries receive the inheritance you intend for them is by having a well-conceived estate plan.

3. Reducing Taxes

Whether married or single, having an estate plan can significantly reduce taxes owed upon the transfer of your assets to your heirs.. Without proper planning, any transfers from you to a beneficiary may be subjected to federal and state taxation. Trusts, one of the most well-known, but least understood, estate planning tools, present  excellent opportunities for reducing taxes associated with inheritance.

Through a system of trusts and transfers, you can reduce the overall tax burden associated with the inheritance. For those with substantial assets, more advanced tax planning strategies will be necessary. Regardless of your current wealth, you will likely be able to reduce the taxation of your estate’s assets with the help of an experienced estate planning attorney.

4. Providing for Your Family as You Believe Best

By combining the ability to distribute assets with other estate planning tools such as trusts, you can include conditions for each recipient. This ensures that the money you want to give your nephew for college will actually be used for college, even if that is still 10 or 15 years away.

As noted, estate planning is for everyone – not just the super-wealthy. Whether it’s avoiding a future family dispute, helping a loved one later in life, or reaching any other goals or objectives, having an estate plan is the best way to protect your interests.

If you have a family business or personal business that you’ve built up, you are likely one of these economic drivers. For many families and individuals, the business becomes an identity. Family businesses in particular are susceptible to acting as an identity for that family. Thus, for many small business owners planning for retirement, the question of what to do with the small business is a major stressor. For a family business, the transfer of control and ownership from one generation to the next can be incredibly complicated and strenuous. If it’s not a family business, then the question is primarily how to effectuate the sale and estate planning repercussions. The following sections will give an overview of general considerations for family-owned businesses and then general concerns relating to the sale of a business.

Family Owned Business Concerns

Selling a family-owned business generally takes one of two forms: selling to someone within the family or to someone outside the family. If you’re selling the business to  family membersyou may wish to carefully consider limitations you would like in place to ensure disputes  are resolved objectively and amicably. When selling within the family, you may recognize that three family members will purchase a stake but that only one of them is capable of running the company. To ensure a smooth transition, you should first be clear with everyone involved on your views and expectations. Second, you should consider amending the organizational documents for the business to reflect your wishes. Similarly, if you are selling your interest to an outside party and wish for family members to remain within the company, you may wish to structure the organizational documents to properly reflect your intentions.

General Concerns

When considering selling your business, you should first speak with an attorney experienced in estate planning and small business. When speaking with this attorney, be clear about your expectations and future plans including how much you plan to spend annually in retirement, whether you want to make gifts to friends and family or make donations to charities. The manner that the money from the sale is handled will be heavily dependent upon your future plans.

Additionally, you should consider the tax consequences of selling your business and when your tax obligations come due. The strategy for allocating tax money differs if you sell in December compared to January due to the tax not coming due until the year following the sale. Thus, selling in January rather than December gives you an extra year before having to make the tax payment.

Ultimately, selling your business as you come into retirement is complicated and a misstep in the process could have lasting implications. As a result, you should consult with an experienced business law or estate planning attorney who understands your unique circumstances.

Reasons a Trustee Can Be Removed

The reasons for removal of a trustee depend upon the trust documents and applicable state law. Generally, a trustee can be removed for:

• Incapacity – Trustees may be removed if they become incapacitated, whether due to medical issues or self-inflicted incapacity due to drug and alcohol abuse.
• Violating the terms of the trust – Trustees may be removed if they violate the terms of the trust, such as not consulting with a co-trustee in a decision.
• Failure to account or report as required – Trustees have an obligation to account for trust activity and report as required by the beneficiaries. Failure to accurately report the requested information is grounds for removal.
• Self-dealing – Trustees owe beneficiaries fiduciary duties which require them to always act in the best interest of the trust and the beneficiary. Selling trust property to one’s self at a discount constitutes self-dealing and is grounds for removal.
• Theft of trust property – Due to the fiduciary duties described above, theft of trust property is a violation of those fiduciary duties and is grounds for removal.

How do You Remove a Trustee?

In most trusts, the trust documents set out the process for removing a trustee. However, even when the trust document does not set out a process for removal, the trustee may still be removed by petitioning the state probate court. For example, the trust documents may set out that a trustee can be removed and replaced by the unanimous vote of the beneficiaries. In another example, the trust documents may require the beneficiaries to petition the court to determine the matter.

In situations where the trust mandates  court intervention, , or  the trust documents are silent regarding the removal of a trustee, then a party with an interest in the trust may petition the probate court to remove the trustee. If the court finds that the trustee has breached the trust agreement or  his or her duties to the trust or beneficiaries, or is unfit  to serve as the trustee, then the judge may order the removal of the trustee.

401(k) Plans

401(k) plans are employer-sponsored retirement plans that offer tax advantages to investing. When investing through a 401(k) plan, you will declare how much of your paycheck you would like to contribute to the 401(k). The employer will then contribute the designated amount before taxes to your 401(k) account. The contributions made to your 401(k) account are non-taxable meaning that your taxable income is decreased by the amount contributed. As of 2018, the maximum amount that a taxpayer can contribute to a 401(k) account is $18,500. The tax advantages of the 401(k) plan mean that if the taxpayer earns $80,000 annually in salary and contributes $10,000 to his or her 401(k) plan, then the taxpayer’s taxable income for that year would be decreased to $70,000. When the taxpayer begins to withdraw from the 401(k) account, those withdrawals will be treated as taxable income.

However, money contributed to a 401(k) plan may not be withdrawn before the age of 59.5 without incurring a penalty unless certain exceptions apply. Unfortunately, not all employers offer 401(k) plans. If your employer doesn’t offer a 401(k) program, make sure to take advantage of other retirement plan options such as a Traditional IRA or a Roth IRA.

Traditional and Roth IRA

The Traditional IRA functions very similar to a 401(k) plan except that it does not have to be employer-sponsored. This means that if your employer doesn’t offer a 401(k), or you’d like to contribute more than the 401(k) contribution limit, you can set up a Traditional IRA. From a tax perspective, a Traditional IRA functions the same as a 401(k): the amounts contributed are not taxed and distributions are taxed.  However, unlike a 401(k), the contributions to your Traditional IRA are made by you. As a result, whatever you contribute to your Traditional IRA will then be deducted from your taxes when you file.

Conversely, contributions to a Roth IRA are made after tax (they aren’t tax deductible) but the withdrawal is not treated as income. Whereas a 401(k) or Traditional IRA defer taxes until you withdraw, a Roth IRA allows you to pay the tax on the contribution and then withdraw from the account tax free. For the Traditional IRA and Roth IRA, you cannot withdraw without a penalty before 59.5 years of age. As of 2018, the normal contribution limit for IRA accounts (Traditional + Roth) is $5,500, meaning that you cannot contribute more than $5,500 between the two.

Due to the complexity of retirement plan options and tax consequences, retirement planning can be difficult and time consuming. To better plan for your future, speak with an experienced estate planning near you.

The majority of the time, the money held in an IRA account will be distributed to the person you list on the beneficiary designation form. This is one of the forms you will fill out when you open or amend an IRA account. Not many people are actually aware that you do not necessarily have to name an individual as the account beneficiary. You may list a trust as the beneficiary. This trust is what is referred to as an IRA inheritance trust.

When considering whether or not to utilize an IRA inheritance trust, you really need to think about who would benefit from establishing such a trust. This means considering who would be the designated beneficiary of the IRA proceeds. An IRA inheritance trust can be very beneficial if you are considering designating an IRA beneficiary who may:

• File for bankruptcy;
• File for divorce (where their former spouse would become a creditor); or
• Have creditors.

Basically, if you are considering leaving the money in your IRA to a loved one who has or may have financial or creditor issues, an IRA inheritance trust is a very good option to consider. The trust will protect the IRA proceeds from creditors so that your beneficiary can continue to enjoy the benefits of the savings you have left them.

An IRA inheritance trust is also a good idea if the intended beneficiary may have problems managing money. You may create a trust with terms controlling the cash flow to the designated beneficiary. You may also want to limit access to the money held in the IRA until the intended beneficiary is 18 years old. A trust will allow you to place such limits on access to the funds.

When considering who may benefit from establishing an IRA inheritance trust, it is also a good idea to consider who may fall at a disadvantage if you employed such an estate planning tool. This is particularly relevant if you are planning to designate your spouse as your IRA beneficiary. The tax implications for leaving your spouse the proceeds of your IRA in a trust as opposed to outright may dissuade you from employing the IRA inheritance trust.

First, leaving your IRA to your spouse outright provides you with income tax benefits. Additionally, when IRA proceeds are directly given to your spouse, he or she can roll over the IRA into his or her own IRA and choose to defer distributions until reaching age 70.5. If your spouse chooses to roll over your IRA, it can reduce the annual required minimum distributions. This means more money can be left in the IRA to enjoy income tax free compound interest.

Like many estate planning tools, the IRA inheritance trust had the potential to be very beneficial when used in the right circumstances. Consult with a knowledgeable estate planning professional to make sure this type of trust is right for you.

What is a Power of Attorney?

A power of attorney gives another person permission and authority to make decisions regarding various aspects of your life if you can’t make those decisions yourself or if you just want to hand over control to a friend or loved one for any other reason.

A power of attorney gives someone else, who does not have to be an attorney, the ability to make decisions for you. You are essentially authorizing this other person to act on your behalf either generally or if certain conditions are met.

You must complete a document to give this power to someone else. This document may need to be notarized or go through another type of authentication process.

Types of Powers of Attorney

Several kinds of powers of attorney may be useful for your estate plan. These often overlap in many circumstances.

• General Power of Attorney. This power of attorney is the most extensive option available. It gives the agent broad authority to make decisions and take action on your behalf. These are often used in situations where you become incapacitated or you are unavailable for any other reason. It is crucial that you trust the person you are granting this power to because this type of document can be prone to abuse.
• Limited or Special Power of Attorney. This document applies to only very specific aspects of your life. For example, you may want to grant someone control over a property to maintain and manage it while you are out of the country. A document that fulfills this purpose may be limited in both timeframe and scope.
• Durable Power of Attorney. Powers of attorney are generally only valid as long as you have mental capacity. However, a durable power of attorney will still be active if you lose your mental capacity. These can either remain in effect, or they can become active when you can no longer manage your own affairs.
• Springing Power of Attorney. This type document only “kicks in” if certain conditions are met. The most common example is one where you lose mental capacity, and you have arranged for a loved one to take care of your affairs if this happens.
• Healthcare Power of Attorney. A healthcare power of attorney gives someone the authority to make your healthcare decisions if you are disabled due to illness or an accident. This person will provide doctors with permission to operate, for example, and they may even make the decision of whether to “pull the plug” as well. It is critical that you let this person know your expectations regarding how you want your healthcare to move forward in these situations.

Someone who creates a power of attorney must be competent at the time to do so. That means that planning ahead is vital to creating a valid, legal power of attorney document.  

Thankfully, some careful planning and forethought now can help your family and friends deal with these issues much more efficiently in the future, cutting down on confusion and stress.  

Types of Debts You May Leave After You Pass

Generally speaking, there are two types of debt. Which kind you have will affect how you can pay these items after your death.

1. Secured Debt.

Debt that is connected to an object is considered “secured debt.” That is, the debt is attached to some object or real property. The most common examples of these types of debts are a mortgage or a car payment. If you do not pay these debts, you could lose whatever property is associated with the debt.

2.  Unsecured Debt.

Unsecured debt is much more fluid. It is not associated with any particular object, even if you used credit to purchase the object. Credit card obligations and medical bills are two of the most common unsecured debts.

Leaving Loved Ones Property (and Debt!)

If you leave a loved one an object that is connected to debt, then that debt will also move with the property. For example, if you bequest your loved one your house, but you still owe $30,000 on your home, then your loved one has not only gained a house, but he or she now has a $30,000 debt as well.

Many people overlook these debt obligations when they craft their will or trust documents. Failing to account for how that debt will be repaid can put unnecessary strain on your loved ones if you fail to plan properly.

You can explicitly state whether you want your loved one to take on the debt in your will. Otherwise, your loved one may simply sell whatever property you have provided to obtain the equity from it, instead of taking on your debt obligation.

Setting Out How Debts Will be Paid

You can state how you would like debt to be paid in your will. Generally, your debts must be paid before your executor can make a payment to beneficiaries. However, you can state, for example, that you would like a specific bank account to be used first to pay debts. You may also indicate which particular property you would like sold to pay debts, instead of having that property pass on to your heirs. You can get creative with how you want to address your debt obligations.

No matter what you do, it is crucial that you do something. Sticking your loved ones with debt or using your entire estate to pay debts is not practical or beneficial for anyone. Your estate planning attorney can help you craft a plan that will work for your particular situation.

While there can be any number of validity challenges, will contest typically center around just a few common problems.

1. Lack of Testamentary Capacity

To create a will, you must be of sound mind. That means that the testator must have the mental capacity to understand what he or she is doing. The same requirement exists if the will is being modified or revoked as well.

Being of “sound mind” requires that the testator know what property he or she owns and understands the effects of creating and finalizing the will. This standard is relatively low. However, it can be a real challenge for someone who is suffering from the beginning stages of dementia or has another health issue.

2.  Undue Influence

When you create a will, you are supposed to develop it with no outside influences or pressure. When someone tricks you into including a specific provision, establishing or revoking a will, or altering your will, that can be considered undue influence. These situations are especially prevalent when the testator is vulnerable to outside pressure, such as when they have a health condition.

Having an attorney help prepare the will can help address potential issues with undue influence. For example, the testator should meet with his or her attorney alone so that they can discuss what the testator’s wishes are, not what children or spouses may be interested in.

3.  Improper Execution

Creating a will requires that you follow precise protocols. For example, you must have a certain number of witnesses, and the document may need to be notarized as well. The witnesses often cannot have an interest in the will, too. Failing to follow these particular requirements can invalid the will entirely.

Challenges based on improper execution will often completely invalidate the will in most circumstances. That could mean that the deceased will be forced to use state laws regarding distributing property as if he or she did not have a will at all.

4. Duress or Coercion

Duress or coercion is similar to undue influence, but it is much more direct. Undue influence is more focused on improper persuasion. Duress or coercion, however, is the result of a threat or performance of actual violence.

Bringing a Will Contest

Any “interested party” can bring a will contest challenge. Generally, anyone who is damaged by alleged action can assert a will contest. This may include beneficiaries that will not get as much as they anticipated from the will, people left out the will entirely, or those who would have gotten something under state law but did not get anything under the will.

Will contest cases can be challenging because the principal witness has passed on. Instead, you may need to present other testimony and circumstantial evidence to prove your case. Having an experienced litigation attorney can be a valuable asset in these situations.

Why Would I Want a Trust Instead of a Will?

The main reason that people prefer trusts instead of wills is that trusts  do not have to be probated, which can be an expensive and time-consuming process. It can also be difficult for your loved ones in some situations. A probated will is also a matter of public record, which may not be desirable for some people. For these and  and other reasons, some individuals choose to use an estate planning tool that will avoid the probate process -- a living trust.

In some situations, using a trust can also reduce or eliminate estate taxes, and a trust is especially  helpful if you own real property in several states. Placing all of that property into the trust allows your loved ones to avoid opening probate in each of those states..

To set up a living trust, you simply draft the trust documents and then fund the trust. Preparing the materials alone will not ensure that your property avoids the probate process. You must then transfer property into the trust, or  “fund the trust” to obtain this benefit.

The Connection Between Trusts and Wills

While trusts can be extremely useful, there are  limitations. As a general rule, your living trust cannot  and should not replace a will. If nothing else, your will provides a “catch-all” for any property that is not in your trust. That way, you can still dictate who gets what instead of relying on state intestacy laws to divide your property.

It may not be practical to put some assets into a trust. For example, moving items that are not titled, , such as jewelry or furniture, is difficult or sometimes impossible. Additionally, you cannot name a guardian  for your minor children in a trust document; this can only be done in a will. Finally, some retirement plans do not permit trusts to be owners. You may be able to set out the trust as the beneficiary of the plan, but changing ownership often is not possible. Setting the beneficiary as a trust rather than a spouse, however, may have complicated tax consequences that need to be considered.

Can a Trust Replace a Will?

If you are wondering whether you can establish a trust and forego a will, the answer is likely no. Living trusts and wills pair nicely together, however and both beneficial tools you should be included in your estate  planning.