Using Trusts and Powers of Attorney in Your Estate Plan

There are various tools that you can use in your estate plan to make sure that your property is handled the way you want.  Two such tools are the trust and the power of attorney.

A trust is a legal arrangement where one person, a trustee, holds and manages property for the benefit of another person, the beneficiary.  Through a trust agreement, the trustee is given instructions on what to do with the property held in trust.  This includes instructions on what to do with the property once the beneficiary has died.

The most common type of trust used in estate plans is the inter vivos, or living, revocable trust.  The owner of the property appoints himself or herself as both the trustee and the beneficiary.  He or she then appoints a successor trustee to take over when the original trustee dies or becomes incapacitated.  The trust includes instructions on what to do with the property upon the owner's death.

Revocable living trusts are commonly used to avoid probate.  That is, by owning your property through a trust, you do not have to file it with the probate division of the court, and go through the expensive and tedious process of probate.  In Virginia, where every estate with more than $50,000 (exclusive of real estate) must go through probate, using a living trust can save your heirs money and hassle after your death.

But, revocable living trusts can have other purposes.  They include assisting an older person who needs hep managing money by appointing a co-trustee to help make financial decisions. 

A power of attorney is a document that appoints a person to make decisions for you.  You appoint an agent, also known as an attorney-in-fact.  Your agent has the power to act as if her or she were you.  That can make it easier for you to have someone do your banking or sign documents in a real estate transaction.  Of course, since the agent can do things on your behalf, you better make sure your agent is a person you trust to act in your best interests.  Powers of attorney can be limited.  An example is a power of attorney to complete a real estate transaction while you are out of town.  Powers of attorney can also be general.  This is where you appoint an agent to do anything you can do.  They should also be durable, meaning that the powers of attorney is effective even when you are incapacitated.

The most common reason to have a power of attorney is to protect your estate from the need to engage in guardianship proceedings.  That is, if you become incapacitated, and you do not have a power of attorney, then in order for someone to take care of your estate for you, that person would have to go through a guardianship proceeding.  Guardianship proceedings are expensive and can be embarrassing.  By contrast, a power of attorney is usually a fairly simple and inexpensive document to create.

I go into more detail on trusts and powers of attorney in this article.

When you are ready to discuss you estate plan, you should contact a knowledgeable attorney to discuss the options available and the advantages and disadvantages of each option.

By:  William J. Kovatch, Jr.
(703) 837-8832
info@kovatchelderlaw.com

A Family with Young Children Should Have a Comprehensive Protection Plan

If you have young children, you should put together your Comprehensive Family Protection Plan.  A will is simply not enough.  You need to ensure that you have appointed a guardian for your children, should you meet your untimely demise, and given instructions to all of your loved ones on how to proceed.

I go into more detail on exactly what you Comprehensive Family Protection Plan should look like in this article.

Make an appointment now so we can discuss how best to protect your family.

By:  William J. Kovatch, Jr.
(703) 837-8832
info@kovatchelderlaw.com

Social Security and Retiring Overseas

Some people look forward to retirement as an opportunity to live overseas.  It may be a chance to spend some time relaxing on a tropical island in the Caribbean.  Perhaps it is time to open a boutique or restaurant in an exotic location.  Or maybe, retirement is a chance to give back to the community, by performing a service, such as medical care, at low-cost or no charge to people of an impoverished nation.

Whatever the reason, retiring to live overseas may raise a number of legal and financial questions.  Will living overseas affect Social Security benefits? What about working overseas?  Are there tax issues to consider?

For U.S. citizens, the good news is that for the most part, living overseas will not affect your ability to collect Social Security retirement benefits.  Such benefits are contingent on your working for 40 qualifying quarters.  So long as you have those 40 quarters of earnings, and reach the right age, you can collect Social Security retirement benefits.  The payment of benefits to U.S. citizens does not depend on U.S. residency.  You can choose to have those benefits deposited in the United States or to another country, with the exception of Cuba, North Korea, Cambodia, Vietnam or areas that were in the former Soviet Union (other than Armenia, Estonia, Latvia, Lithuania and Russia).

For non-U.S. citizens, otherwise eligible for Social Security benefits, the issue is a little more complicated.  Currently, citizens of List 1 will continue to receive Social Security payments no matter how long they live outside of the United States.  In some other countries, List 2, a citizen may not receive U.S. Social Security benefits if those benefits are based on being a dependent or survivor of the wage earner.  Finally, some countries only permit Social Security payments for the first six months of living outside the United States.  However, if you return to live in the United States for an entire calendar month, payments will resume for another six months when you return to the foreign country. A complete explanation of these rules can be found on the Social Security website, http://www.socialsecurity.gov/pubs/10137.html (“Your Payments While You Are Outside The United States”).

Retiring overseas, therefore, creates some issues with respect to your Social Security benefits.  Before making the decision to retire, you should consult with your financial advisor and your lawyer to see just what impact living and working overseas will have on you and your income.■  

Steps Same-Sex Couples Should Take When They are Legally Unable to Marry

As the debate rages on, a majority of states do not recognize same-sex marriages.  One argument to permit committed homosexual couples to marry has been that such couples are denied some of the same rights that married heterosexual couples have.  If you live in one of the states that do not recognize same-sex marriages, there are steps you and your partner can take to replicate some of those rights.  Here are the documents you need to create:

A Health Care Directive (also known as an advance medical directive, a health care proxy, a health care agent or a living will)

Through a health care directive you appoint whom you want to make medical decisions for you when you cannot.  In Virginia, if you have not appointed a health care agent, and you are unmarried, then the law will first look to your parents to make such decisions for you, and if they are deceased, then to your siblings.  If you do not want that, then you can appoint your partner to make your health care decisions for you through a health care directive.  You can (and should) also give guidance on how you would want your medical decisions made.

A HIPPA Release and Authorization

If you want to make sure that your partner has access to you medical information, then you should execute a HIPPA release and authorization.  This tells your medical service providers that it is OK to speak with your partner about your health care issues.  Otherwise, under HIPPA rules, your doctor will not share information with your partner.

Durable Power of Attorney

Through a power of attorney, you appoint an agent who can act for you (and thus legally bind you) for a host of different things.  When you execute this document, you can give your agent broad powers to act n your behalf, or very narrow powers.  You also want to make sure that the power of attorney is durable, meaning it will be effective even if you are incapacitated.

A Living Trust

Married couples have the benefit of buying real estate as “tenants in the entirety.”  This means that they each own an undivided share of the whole.  One spouse cannot sell his or her share without the authorization of the other.  Creditors of one spouse cannot place a lien on the real property.  Tenants in the entirety also have the right of survivorship, which means that when one spouse dies, the other automatically inherits the property without the need to go through probate.

Same-sex can replicate these rights through a living trust.  The trust can be set up appointing oh partners as co-trustees, and prohibiting one trustee from selling property without the consent of the other.  A trust can also be set-up to protect the property held from the creditors of just one of the partners.  Finally, a trust can ensure that when one partner dies, the property in the trust is passed to the surviving partner, without the need to go through probate.

A Will

Although much can be accomplished through a living trust, you should still have a will to make sure that your property goes to the people you choose.  Without a will, the law of intestacy applies, which means that your blood relatives will likely inherit your property.  If here is some property you do not own through a trust, then a will is essential to ensure that the property goes in accordance with your desires.

Funeral Designation

I Virginia, you can execute a document to appoint a person to be in charge of making your funeral arrangements.  Without such  document, a funeral director may look to your family to make decisions about your funeral instead of your partner.

One word of warning with all of these documents.  Make sure that your partner is trustworthy.  If there are issues of trust in your relationship, then appointing your partner to be the person to make these decisions for you could wind up being disastrous. 

As always, it is best to consult with a lawyer to make sure your arrangements are set up the way you want them to be.

For more information, see "Same Sex Couples Can Take Steps to Replicate Some Rights of Married Heterosexual Couples".


By:  William J. Kovatch, Jr.
(703) 837-8832
info@kovatchelderlaw.com

Second Circuit Finds that U.S. Government Cannot Discriminate Against Legal Same-Sex Marriages in Applying the Estate Tax

The U.S. Court of Appeals struck down the Defense of Marriage Act in the case of Windsor v. United States.  Specifically, the Court found that section 3 of the Act, which defines marriage as the legal union between one man and one woman, violated the Equal Protection Clause of the Constitution.

The case involved a same-sex couple who had legally married in Canada, and lived in New York.  One spouse died, leaving the other to inherit property.  The surviving spouse claim the spousal deduction for federal estate tax purposes, which was disallowed under the Defense of Marriage Act.  As a result, the estate tax bill amounted to over $300,000.

Under the Court's decision, the Federal Government would be required to recognize legal same-sex marriages when applying the federal estate tax.  In some respects, the Court's decision could be far-reaching, as legal same-sex marriages would have to be treated equally to heterosexual marriages for a variety of federal laws and programs, such as Social Security benefits, family leave and employee benefits.  On the other hand, the Second Circuit has jurisdiction only over Connecticut, New York and Vermont.  The only other federal court to find the Defense of Marriage Act to be unconstitutional is the First Circuit.  For the rest of the country, the Defense of Marriage Act remains the law of the land.  Nonetheless, the Second Circuit's decision makes it more likely that the U.S. Supreme Court will hear a case involving the Defense of Marriage Act.

I go into more detail in this article.

A New York Times article on the decision can be found here.

The text of the decision can be found here.

By:  William J. Kovatch, Jr.
(703) 837-8832
info@kovatchelderlaw.com