“Convenience Accounts”: What Are the Risks?

Some people realize that as they get older they may need some help with their finances. Perhaps they want someone they trust to have the ability to pay their bills if something comes up like an extended hospital stay. So, they add the trusted person’s name to their bank account, creating what some people call “convenience accounts.”

But is this really a wise move? In many case, by adding a person’s name to your bank account, you are making that person a joint owner of your account. That means that the person now has all of the rights and privileges you have with that account. The person could withdraw money, and even add another name to the account.

You may think, “Well, I trust this person. She won’t try to steal from me.” But, that is not really the problem. The problem is with the creditors of your new joint-owner.

For example, let’s say your trusted person gets into a car accident. A lawsuit ensues, and your trusted person is found liable. If she does not have enough insurance or assets of her own, the plaintiff from that lawsuit now has every right to attach your bank account to satisfy the judgment.

Adding a person as a joint owner of your bank account simply opens your money up to additional risk. The same goal can be achieved with a very inexpensive document that also avoids the additional risk. That is the power of attorney.

Through a properly drafted power of attorney you appoint a trusted person to be your agent. Your agent can do everything you have the legal right to do, such as draw checks on your checking account. However, all of your assets remain yours, and do not become the joint assets of your agent. This means that your assets can not be used to satisfy the debts of your agent.

Your lawyer can help you create a power of attorney that is right for you, creating powers for your agent that are as broad or as narrow as you want. You should also consult with your bank, as many banks either have their own power of attorney form or their own rules for appointing a power of attorney. A power of attorney can be an important part of your estate planning package.

Avoiding Guardianship Proceedings

Proceedings to appoint a guardian or conservator can very difficult ones. Such proceedings can be costly. The petitioner (the person bringing the lawsuit) may be required to advance to the attorney his or her fees, and, in Virginia, may also be required to advance court costs and the fee for the Guardian ad Litem. While some of these costs may be recoverable from the estate of the ward (the person who needs the guardian) if a guardian is appointed, they remain at risk during the pendency of the proceeding. The petitioner may also need to pay the doctor a fee for preparing a report.

Guardian proceedings are intrusive. The petitioner may be required to air out in public papers and a public hearing those facts that require the appointment of a guardian. This can include evidence of behavior showing that a person has lost the ability to make decisions or engage in activities of daily life without assistance. This can be embarrassing for the family.

For these reasons, if a proceeding to appoint a guardian or conservative can be avoided it should.

Guardianship proceedings can be avoidable with a little planning. If you believe that you may need help in the future with finances and healthcare decisions, and you know somebody you can trust, you can make legal arrangements to appoint another person to make those decisions for you.

Through an advance health care directive (also known as an advance medical directive), for example, you can name a trusted person as your “health care proxy,” and give that person instructions on how you want medical decisions to be made. If you become unable to make the medical decisions for yourself, your health care proxy steps in to make the decisions, based on your guidance.

Another important tool is a power of attorney. With this document, you can appoint an agent who will have the same legal power you have to make decisions regarding your property. The power of attorney can be as broad as you like, or as narrow.

Finally, if you have a complicated financial situation, and foresee the need professional help in managing your assets, you can create a living trust. Through the trust agreement, you can appoint a person to help you manage your property, but still maintain control over that property. You can even use this legal tool as a substitute for a will to avoid probate.

These legal arrangements are far less expensive than a guardianship proceeding. They also have the advantage of keeping your personal matters private.

If you have, or a person you know has, been diagnosed with the condition such as Alzheimer's disease, dementia or certain mental illnesses, it would be beneficial for you to consult with a lawyer now to consider the options and avoid later guardianship proceedings.

The Utility of a Living Trust

If you've even only thought about planning your estate, many people assume that any plan must include a living trust. While I agree that the living trust can be a useful document, I also believe that it is not for everyone. Before you make any decision whether to create a living trust, take into account your individual situation and the advantages and disadvantages of including a living trust in your estate.

What is a living trust? A trust is merely a legal arrangement where one person, called a trustee, holds property for the benefit of someone else, called the beneficiary. A trust can be created by a person through a will, which is called a "testamentary" trust. A trust can also be created while a person is alive, which is called an "inter vivos," or living, trust.

In most instances, when a person creates a living trust, that person becomes both the trustee and the beneficiary. That way, to the outside world, how the property is held appears no different than if no trust were created. But, if a property is included as part of a living trust, the creator can establish rules about how the property is to be distributed after his or her death. That way, the property can pass to someone else without the need to go through probate. Probate is a court proceeding that can tie up an estate for several months before property can be distributed. In Virginia, when a probate estate is opened, a tax is applied based on the value of the property passing through probate.

Avoiding probate is the primary advantage of a living trust, and the reason this type of instrument was created. One thing to consider is that in Virginia, probate can be expensive.  Filings, such as inventories and accountings, can come with filing fees of hundreds of dollars.  That does not include the lawyer's and accountant's fees in drafting up the filings.  However, there are some disadvantages that need to be considered before you decide to make a living trust.

The problem is that owning property through a living trust can be inconvenient. Property needs to be titled through the trust. Checks drafted on accounts held by the trust need to be signed by noting the signatory is the trustee. Thus, the benefit of avoiding probate should be weighed against the inconveniences and costs associated with setting up a living trust.

For example, in Virginia, real estate passes to the next owner upon the filing of the will. Thus, if the bulk of a person's estate is real estate, probate in Virginia can be a simple process. Moreover, for most pieces of property, the probate tax can be less than the price of establishing a living trust.

What, then, are some of the main reasons aside from avoiding probate to have a living trust?

One is to control the distribution of an inheritance to a minor or person who has not reached an age of maturity. Parents of young children, or even young adults, can establish a trust in order to place a responsible person in charge of an inheritance until the child reaches a certain age. For a plan like this, it may even make sense to designate the trust as the beneficiary of any life insurance or other pay-on-death accounts, such as retirement benefits.

Another reason is to have a living trust is to provide for your care if you become unable to manage your affairs because of disability. By naming a person to step in as trustee if you become disabled, you can ensure that someone can have access to your finances and pay your bills. In many instances, banks and other financial institutions are more willing to work with a trustee than a power of attorney.

Finally, creating a living trust can provide assistance to people who need help managing their money. If there is no one in the family or close friends that would be appropriate trustees, by creating a living trust and naming a professional as the co-trustee, you can provide some assurance that the trust will be managed properly.

A living trust is a very flexible document, and can be a useful tool for your estate plan. Whether to create one, and how to structure it are issues you should discuss with an attorney as you consider your own estate.

Do I Need a Special Needs Trust for My Child’s Litigation Award?

Parents of a disabled child may spend long hours fighting insurance companies in a lawsuit. Finally, they may come to a point where an acceptable settlement is offered, or a verdict rendered. This is it, right? This is the end of it?

Perhaps not. Many times, trial attorneys and well-meaning parents caught up in the heat of a lawsuit focus on winning the case, and do not consider how the child will receive health insurance as the child gets older.

A child cannot stay on a parent’s health insurance forever. At some point, a child who has become and adult is no longer eligible for coverage in most employer-provided health insurance policies. If the child is unable to work, then that child will most likely need to rely on public benefits, such as Supplemental Security Income or Medicaid.

These public benefits programs, however, are means tested. That means, a person must only have a minimum amount of income and assets available to them in order to qualify. A large litigation award, if not structured properly, can prevent a child from qualifying for Medicaid.

The answer to this dilemma could be a special needs trust. A special needs trust is a legal arrangement where one person, a trustee, holds and manages some assets for the benefit of another, called the beneficiary. The beneficiary of the special needs trust does not own the assets, and can never direct how the assets are to be used. However, the trust agreement provides that the assets are to be used for the benefit of the disabled child, at the discretion of the trustee. By arranging the assets in this way, they are not “available resources,” and will not disqualify the beneficiary for the public benefits program. But, they do remain available to be used to supplement the beneficiary’s benefits.

Talk to your lawyer to see if a special needs trust is the right solution for you and our disabled child.

Preparing for Probate

It is traumatic enough when a loved one dies. Eventually, however, someone faces the task of wrapping up the affairs of the dearly departed. It can be daunting. There are bills to be paid, property to find, and, if anything is left, heirs to be paid.

How should someone begin? First, forget everything you've ever seen on TV. There is never a time when all of the heirs and people mentioned in the will are brought into a room for a formal reading of the will. Quite frankly, administering an estate will take time. It could be months before anyone really knows where the money is going.

First, you need to see if there is a will. Often, close relatives will know if there is a will and where it is kept. If you know who the decedent's attorney was, the attorney may know. Some people will file their will with the probate court while they are still alive. In some jurisdictions, if you are in possession of someone's will, you are legally obligated to come forward and file it. Failure to do so in the right period of time could result in fines.

You certainly should not wait for the will to be found to make funeral or memorial arrangements. With the time it takes to probate an estate, the will is not the place to put funeral or memorial instructions.

Next, you need to start identifying the decedent's assets. Did he own a house? Does he have a bank account? What other possessions did the decedent have? It may be necessary to safeguard the decedent's property until the administration is complete. If the decedent owns real estate, and no one else will live there, the utility companies should be notified.

Next, it is time to consider whether the decedent left a spouse and/or children. Immediate family will likely be entitled to an allowance from the estate until the administration is complete. This is also the time to consider whether the decedent had any pay on death accounts, such as life insurance or pension benefits. It is also the time to consider whether to file for any survivor's Social Security benefits. The final income tax return may need to be filed.

Whoever is responsible for winding up the decedent's affairs should also try to collect some initial information about the decedent's debts. Once initial information about a decedent's assets and debts have been collected, it may be time to file to open a probate estate. Many jurisdictions charge a probate fee based on the value of the property which will pass through probate. This is why you need at least a good estimate of the decedent's assets and liabilities before filing for probate. Notices will need to be given to the decedent's heirs at law, heirs mentioned in the will, and known creditors. A notice may need to be published in a newspaper.

In some states, if the assets are so few, it may not be necessary to probate the estate. Also, if the decedent's assets were mostly held in pay on death accounts, there may not be enough assets passing through a will or the law of intestacy to open an estate with the probate court.

Once an estate has been opened, the person in charge of winding up the affairs (depending on the circumstances this is the executor or the personal representative) will need to obtain a tax identification number for the estate, and open a bank account for the estate. The decedent's other accounts may need to be transferred to the new account.

The administrator will also have to be familiar with the probate court requirements. Usually, an inventory of the decedent's assets will need to be filed with the court and provided to the heirs and creditors. Later, the administrator will likely need to file accountings to show how the decedent's assets have been managed. The administrator should be sure to keep receipts.

There will usually be some kind of proceeding to determine the claims of any creditors. Once all creditors have been identified, their claims should be examined to determine their validity. Each jurisdiction will likely have in its law a listing of which claims have priority. The claims must be paid in that order. If anything is left over, the administrator may then be required to file an estate tax return and pay any estate or inheritance tax due. Then, the heirs can be paid.

Once all of these steps have been taken, then the administrator can file to close the estate. This an important step. In many states, opening the estate places the tax authorities on notice. The tax authorities will be looking for the estate to be closed to make sure any taxes that are due will be paid.

Probate need not be feared. While it involves a lot of steps, with proper advice and organization, it can go smoothly.

When Elderly Parents Move In

It is becoming an increasing trend for elderly parents with health issues to move in with their adult children. Often, the adult children are motivated to keep their parents out of a nursing home as long as possible. While motivated by laudable goals, adult children should keep the legal ramifications in mind to avoid unintended consequences.

First of all, the adult children should be prepared to deal with their parents’ declining health. Very often, one of the main reasons elderly parents move in with their adult children is because of health concerns. The fact is that our time on this planet is limited. When a person’s health declines, it can occur very quickly. It is best to plan for this contingency.

Next, everyone involved should consider how medical bills are going to be paid in the future. Perhaps the elderly parents have Medicare coverage now. But, if their health declines to the stage where nursing home care becomes inevitable, they may need to rely on Medicaid to pay for the bills. Knowing something about Medicaid eligibility rules may help ensure that the elderly parents qualify when the need arises.

Third, the adult children should be aware of the available resources to help them take care of their parents.

Finally, the adult children can take steps now that will help avoid messy legal disputes among family members later.

With these principles in mind, here are eight tips adult children should follow when elderly parents move in.

First, the children should have a serious heart-to-heart conversation with their parents. This is a conversation that should be based on a relationship of equals. The adult children may need to overcome the adult-child roles that have developed over time. The children should also avoid taking on the role of talking down to their parents.

The point of the conversation is to gather information to prepare for future contingencies. The conversation should address the parents’ health issues, their medications, and their doctors. It should also address the parents’ values, and the qualities of life they most cherish. Finally, the conversation should address whom the parents trust to make decisions if they were unable to make decisions for themselves.

This conversation will be the building block for such tools as an advance medical directive, a power of attorney or a living trust. The conversation ensures that there is a clear choice of who will be able to make decisions, and that there is some guidance for those decisions.

Second, the parents and adult children should avoid commingling assets. The main concern here is future qualification for Medicaid. Medicaid is a means-tested program, which means that a person must have less than a certain amount of assets, or countable resources, in order to qualify. However, a person cannot give money away to qualify for Medicaid. Commingling assets can be seen as a gift that could cause a period of ineligibility for Medicaid.

Third, the parents and children should avoid opening “convenience accounts.” These are accounts that list both the parent and child as the joint owners. While well-intentioned to permit the adult children to be able to pay the parents’ bills, such accounts open the money up to unnecessary risk. If the child were in a car accident and sued, for example, the money in the bank account could be used to satisfy a court judgment.

Fourth, the adult children should have an inventory made of their parents’ assets when they move in. If the parents do apply for Medicaid in the future, they will need to provide detailed financial information to the Government. An inventory now can save some effort later. The inventory can also serve as evidence of what is in the house if there should be a disaster, such as a fire, and an insurance claim made. Finally, the inventory can help avoid future disputes over what happened to the parents’ property.

Fifth, if the adult children have any siblings, the children should make sure they communicate with their siblings about their parents. Too often, wills contests are not so much about greed, so much as hurt feelings. Litigation can be motivated by the siblings who feel unappreciated or left-out. A little communication between siblings now can avoid costly and messy litigation later.

Sixth, the adult children should research what resources are available to help them care for their parents. Often, when adult parents move in, it is stressful and difficult for the caregiver child. Pressure can be eased by hiring companionship care and in-home nursing care. Also, the caregiver child should not feel guilty about the need to take a break. Respite care is available for this very reason.

Seventh, when the adult parents move in, this may be the time to have them update their legal documents. Wills, advance medical directives, trusts, and powers of attorney should be reviewed to make sure they achieve the desired goals.

Finally, the adult children should make a contingency plan. What would happen to the elderly parents if an accident or sudden illness were to befall the adult children? Who would take care of the elderly parents then?

A little thinking and planning now can ease future burdens as new needs arise.

Blended Families Require Special Estate Planning

If you are part of a blended family, then you may need to do some special estate planning to ensure that your personal goals are met.

A blended family is one where either spouse has children from a prior marriage or relationship. Blended families raise estate planning issues because of the need to balance responsibilities to the current spouse, as well as to the children from the prior relationship.

Without special planning, you may find that you goals are not being met.
For example, in Virginia, where a person is married, but has children from a prior relationship, and that person dies without a will, then one-third of the estate passes to the current spouse, and two-thirds are split among all of the decedent’s children. Notice, by the way, that I specifically said “prior relationship,” and not “prior marriage.” That is in recognition that the law protects illegitimate children as much as legitimate children.

This default estate plan, which is called the law of intestacy, may cause some problems for your surviving loved ones. For example, if you have children from a prior marriage, but they are adults, and your current spouse depends on your income and property, the law of intestacy works against your current spouse.

The solution is to carefully think about your family responsibilities and your estate plan goals, talk about them with your spouse, and work with an estate planning attorney to make your goals happen. Here are some tips on how you may be able to achieve your estate planning goals.

Communicate with Your Spouse

The first step is to make sure that you and your spouse are on the same page. Talk openly about your responsibilities to your children from your prior relationship. Talk about your expectations for any children you may have in your current marriage. Talk about what property rights you have, and how you expect to dispose of those rights on your death.

Conclude a Prenuptial or Marital Agreement

Once you and your current spouse (or, ideally your future spouse) have discussed your respective responsibilities, you should come to an understanding concerning your property. Formalize that understanding with a prenuptial agreement (before the wedding) or marital agreement (after the wedding). In Virginia, a marital agreement is just as valid as a prenuptial agreement.

Many people will resist prenuptial agreements with their future spouses. Some view them as merely planning for an eventual divorce. Some of your friends, or even misinformed attorneys may echo that thought.

A prenuptial or marital agreement, however, is not simply planning for an eventual divorce. Rather, it can be a tool to start the conversation about property and expectations. It can be an opportunity to clarify estate planning goals. Formalizing the expectations in a written agreement can avoid confusion and misunderstandings later in the marriage.

For example, if both spouses are coming into a marriage with their own property, it could be that neither spouse would be dependent on the property of the other after one passes away. In such a situation, the spouses may agree to waive any interest in each other’s estate plan, in order to permit the other spouse to address other family responsibilities.

Or, it could be that your spouse is dependent on your income and property. But, to fulfill family obligations, you may want to take care of your spouse for life, and have your property pass to your family upon her death. This can be addressed in a prenuptial or marital agreement.

Put Your Plan into Action

Finally, you need to develop the tools to put your plan into action. The tools could involve a trust to benefit your spouse during her life, but then pass the property to your children on her death. The tools could involve life insurance, and properly structuring the life insurance. These are all issues you should address with your estate planning attorney and other professionals, such as an accountant and financial advisor.

With proper communication and planning, you can balance your family obligations, and manage the expectations of your loved ones.