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

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

Choose Your Trustees, Agents and Health Care Proxies Wisely

This week, a colleague asked me to review a trust for her. We were concentrating on the tax provisions. But what struck me most of all were the provisions concerning the Trustee.

There were instructions to the Trustee about what to do if the beneficiaries engaged in drug abuse. There was a provision about how to handle the house, because the client had feared that one sibling might use the house as a tool to bully the other. Then, to my surprise, the siblings were named as the successor co-trustees. Wow. That was odd.

As the name suggests, appointing a trustee requires trust. You have to trust that the person you appoint is going to fulfill your wishes and going to be fair with your beneficiaries. The same concept applies to appointing an agent through a power of attorney and a health care proxy or health care agent through an advance directive. If you can't trust the person, then you are giving that person way too much power.

This is where family dynamics come in. In way too many cases, people choose trustees, agents or health care proxies because they don't want there to be hurt feelings. One sibling was chosen over the other as trustee, so that must mean you favor that one. Quite frankly, I think those types of considerations should be given minimal weight in the grand scheme of things. The primary consideration should be do you trust this person to do the things you want done, while being fair to the beneficiaries. If you fear that the person you want to appoint will bully others, then you've made the wrong choice. If you appoint co-trustees because you fear one will bully the other, then you are forcing two people to work together who probably shouldn't. Again, you've made the wrong choice.

In most families, choosing an adult child as a decision-maker or fiduciary is a good choice. But, if your family dynamics is such that you cannot trust siblings to work together, then you need to make another choice.

Here are some considerations I give to my clients when choosing a trustee. Number one, trust. Can you trust this person? Number two, age and health. Is this going to be a person who will be around and able to act when you get sick or pass away? Number three, proximity. If you want a decision to be made quickly, then it may be advantageous to have someone who lives nearby to be the decision-maker, and not the adult child who lives on the other coast or on another continent.

Sometimes, we come to a point where it is clear that a friend living close by is a better choice for fiduciary than an adult child. If that is the case, don't be afraid to hurt your family's feelings. This is an important choice for you, not for them.

“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.