Powers of Attorney and Advance Directives

Advance Directives – A medical crisis only gets worse, when you learn you don’t have legal authority to make medical decisions for a loved one, or find out after a loved one is incapacitated that you can’t gain access to assets in their trust. You need to have certain estate planning legal documents already in place, according to the article “Tips you should know for Powers of Attorney and Advance Directives” from seacoastonline.com.

Power of Attorney. The power of attorney (POA) allows one person, the “principal” to appoint another person as their “agent” (also known as an “attorney in fact”). The agent has the authority to act on behalf of the principal, depending on the powers described in the document. Each state has its own laws about who can be an agent, if more than one person can be appointed as agent and if there are any limits to what power can be given to an agent. Your estate planning attorney will be able to create a POA to suit your situation.

A POA can be created to give extremely broad powers to an agent. This is sometimes called a “general” POA, where agents can do everything that you would do, from accessing and managing bank accounts, applying for Social Security, to filing tax returns. A POA can also be limited in scope, known as “limited” POA. You could permit an agent to only sign a tax return or conduct a specific transaction.

In most estate planning scenarios, the POA is “durable,” meaning the named agent can continue to have authority to act, even if the principal is incapacitated after the documents have been executed. This makes sense: a durable POA generally avoids having to go to court and have a guardian appointed. The person you have selected will be the POA, not a court-appointed person.

Advance Directive. The advance directive allows a person to appoint another person to make medical decisions on their behalf if incapacitated. In some states, this is called a durable power of attorney for health care, and in others it is referred to as a health care proxy.

In most cases, the advance directive becomes effective when one or more treating physicians determine the person no longer has capacity to make or communicate health care decisions. Having this document in place avoids having to go to court to have a guardian appointed. If time is of the essence, any delay in decision-making could lead to a poor outcome. If there is no advance directive and physicians have decided you are unable to make these decisions, they go by a hierarchy of relatives to make the decisions for you. If you have an estranged adult child, for instance, but they are your next-of-kin, they could be the one making decisions for you.

If you have children who recently became legal adults (usually age 18), these documents will protect them as well, since just being their parent does not provide you with the right to make these decisions.

Reference: Seacoastonline.com (June 27, 2021) “Tips you should know for Powers of Attorney and Advance Directives”

 

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Aging Parents and Blended Families Create Estate Planning Challenges

Blended Families – Law school teaches about estate planning and inheritance, but experience teaches about family dynamics, especially when it comes to blended families with aging parents and step siblings. Not recognizing the realities of stepsibling relationships can put an estate plan at risk, advises the article “Could Your Aging Parents’ Estate Plan Create A Nightmare For Step-Siblings?” from Forbes. The estate plan has to be designed with realistic family dynamics in mind.

Trouble often begins when one parent loses the ability to make decisions. That’s when trusts are reviewed for language addressing what should happen, if one of the trustees becomes incapacitated. This also occurs in powers of attorney, health care directives and wills. If the elderly person has been married more than once and there are step siblings, it’s important to have candid discussions. Putting all of the adult children into the mix because the parents want them to have equal involvement could be a recipe for disaster.

Here’s an example: a father develops dementia at age 86 and can no longer care for himself. His younger wife has become abusive and neglectful, so much so that she has to be removed from the home. The father has two children from a prior marriage and the wife has one from a first marriage. The step siblings have only met a few times, and do not know each other. The father’s trust listed all three children as successors, and the same for the healthcare directive. When the wife is removed from the home, the battle begins.

The same thing can occur with a nuclear family but is more likely to occur with blended families. Here are some steps adult children can take to protect the whole family:

While parents are still competent, ask who they would want to take over, if they became disabled and cannot manage their finances. If it’s multiple children and they don’t get along, address the issue and create the necessary documents with an estate planning attorney.

Plan for the possibility that one or both parents may lose the ability to make decisions about money and health in the future.

If possible, review all the legal documents, so you have a complete understanding of what is going to happen in the case of incapacity or death. What are the directions in the trust, and who are the successor trustees? Who will have to take on these tasks, and how will they be accomplished?

If there are any questions, a family meeting with the estate planning attorney is in order. Most experienced estate planning attorneys have seen just about every situation you can imagine and many that you can’t. They should be able to give your family guidance, even connecting you with a social worker who has experience in blended families, if the problems seem unresolvable.

Reference: Forbes (June 28, 2021) “Could Your Aging Parents’ Estate Plan Create A Nightmare For Step-Siblings?”

 

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Do Most Cases Of Dementia Go Undiagnosed?

New research from a nationwide survey of about 6 million Americans aged 65 and older shows that 91% of people with cognitive impairment consistent with dementia didn’t have a formal medical diagnosis of dementia or Alzheimer’s disease.

HealthDay News’ recent article entitled “Most cases of dementia in U.S. seniors go undiagnosed, study says” reports that when other people — generally, family members — responded to the survey, the rate fell to around 75%, which is still significant. That’s according to the study’s co-author Sheria Robinson-Lane, a gerontologist at the University of Michigan School of Nursing, in Ann Arbor.

Rates of non-diagnosis varied by race, gender and education. As an example, Black seniors had a higher rate (93%) than other racial groups, according to the report published in the Journal of Alzheimer’s Disease.

“There is a large disparity in dementia-related treatment and diagnosis among Black older adults, who are often diagnosed much later in the disease trajectory compared to other racial and ethnic groups,” Robinson-Lane said in a university news release.

Men, at 99.7%, were more likely to report no diagnosis than women (90.2%). In addition, those who didn’t graduate from high school had a higher estimated rate (93.5%) than those with at least a high school education (91%), the findings showed.

Higher education is often linked to greater wealth and more access to resources that affect both dementia risk and disease progression, Robinson-Lane said. There’s also evidence that education level may affect results on thinking and memory — “cognitive” — tests.

Robinson-Lane commented that the findings are particularly relevant now because people with dementia have higher risk for COVID-19 hospitalization and death.

COVID-19 also causes long-lasting neurological impacts in some individuals—perhaps increasing their dementia risk. Dementia screening also isn’t a routine part of annual well visits for older adults.

“Now more than ever, these routine screenings and assessments are really critical,” Robinson-Lane said. “I think it’s particularly important to have some baseline information available to providers of patients over 65.”

Co-author Ryan McGrath, an assistant professor of health, nutrition and exercise sciences at North Dakota State University in Fargo, said evaluating seniors’ thinking skills is critical.

“We recommend that health care providers screen for low cognitive functioning during routine health assessments, when possible,” McGrath said. “A telemedicine option may reduce clinic time and expand reach.”

Reference: HealthDay News (June 29, 2021) “Most cases of dementia in U.S. seniors go undiagnosed, study says”

 

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A Living Trust as the Beneficiary of IRA?

Forbes’ recent article entitled “Should A Living Trust Be Beneficiary Of Your IRA?” explains that the general rule is when an IRA beneficiary isn’t an individual, the IRA must be distributed fully within five years. When a trust, an estate, or a business entity is named beneficiary, the IRA must be distributed and taxed quickly.

There’s an exception when you name a trust that qualifies as a “look-through” or “see-through” trust under IRS regulations. You need an experienced estate planning attorney to draft this trust to make certain that it avoids the five-year rule. Nonetheless, the IRA must be distributed to the trust within 10 years in most situations.

Another exception from a recent IRS ruling shows there might not be a penalty when your spouse’s revocable living trust is named as the IRA beneficiary. The ruling involved a married couple. One spouse (the husband) owned an it and had begun required minimum distributions (RMDs). He died and had named a trust as sole beneficiary. His wife had previously established the trust. She was the sole beneficiary and sole trustee of the trust. She had the right to amend or revoke the trust and could distribute all income and principal of the trust for her own benefit. Therefore, it was a standard revocable living trust primarily used to avoid probate. The widow wanted to exercise the spousal option for an inherited IRA and roll it over to an one in her name. This would give her a fresh start, allowing her to manage it without reference to her late husband’s IRA. She could start RMDs based on her own required beginning date and life expectancy. The widow also could name her own beneficiaries.

The widow asked the IRS to rule that the IRA could be rolled over tax free into an IRA in her name. She planned to have the balance distributed to her directly, so she could roll it over to an IRA in her own name within 60 days. The IRS said yes and noted that the widow was the trustee and sole beneficiary of the trust, so she was entitled to all income and principal of the trust. She was also the surviving spouse of the deceased owner.

In this case, the widow was the sole person for whose benefit the IRA is maintained. That let her take a distribution from the inherited plan  and roll it over to one in her own name without having to include any of the distribution in gross income, provided the rollover was accomplished within 60 days of the distribution. In the past, the IRS permitted a similar result when a retirement plan was payable to an estate and the surviving spouse was the sole primary beneficiary of the estate. In each case, the surviving spouse effectively was the sole individual for whose benefit the IRA was maintained and intended.

While things worked out for the widow above, you still might not want to name a living trust or your estate as the beneficiary of your IRA because she had to apply to the IRS for a private ruling to be sure of the tax results, which is an expensive and time-consuming process.

Moreover, the widow couldn’t have the IRA custodian transfer the inherited IRA directly to an IRA in her name because the custodian was unwilling to transfer the inherited IRA to any IRA other than one with the exact same legal title. Therefore, she had to take a distribution, which raises the chance, if for some reason she’s unable to roll over that amount to an IRA in her name within 60 days, the whole amount would be taxable.

Reference: Forbes (Dec. 23, 2020) “Should A Living Trust Be Beneficiary Of Your IRA?”

 

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Will Democrats Pass Medicare Expansion ?

Medicare Expansion – Senate Majority Leader Chuck Schumer and Senate Budget Committee Chairman Bernie Sanders are working on legislation that would build on the dual economic proposals unveiled earlier this year by President Biden: the $2.3 trillion American Jobs Plan and the $1.8 trillion American Families Plan.

Fox Business’ recent article entitled “Democrats eye major Medicare expansion as part of $6T reconciliation bill” reports that the package—which Democrats could pass on a party-line vote using their slimmest-possible Senate majority— includes other Democratic goals. These include lowering Medicare’s eligibility age from 65 to 55 or 60 and expanding the program to cover dental work, eye glasses and eye surgeries, as well as hearing aids.

“There’s a gaping hole in Medicare that leaves out coverage for dental, vision, and hearing — this is a serious problem,” Schumer, D-N.Y., tweeted on Monday. “I’m working with @SenSanders to push to include dental, vision, and hearing Medicare coverage in the American Jobs and Families Plans.”

Dropping the Medicare eligibility age to 60 could provide coverage for up to 11.7 million people with employer-based insurance, 2.4 million people with private coverage and another 1.6 million people who are uninsured. Medicare is the federal health care program for people over the age of 65.

“If you talk to family medicine or primary care doctors, they will tell you with certainty that ignoring medical issues related to dental, vision and hearing often devolves into far more serious medical problems for people — especially seniors — that cost more to treat and are harder to remedy,” Schumer said during a news conference Sunday.

Biden campaigned on expanding the Affordable Care Act and vowed to drop the qualifying Medicare age to 60, with an option for individuals between the ages of 60-64 to keep their coverage. Under an early draft of the $6 trillion plan, roughly half of the proposed spending would be paid for. Democratic efforts to begin moving forward with a party-line bill will start soon.

“We expect to have a whole lot done in July,” Sanders said last week.

Still, it’s unclear whether the measure would receive the necessary support from all 50 Senate Democrats. Moderate members, like Sen. Joe Manchin of West Virginia, have said they want to look at a bipartisan infrastructure-only deal and have not committed to using reconciliation to pass more progressive priorities.

Reference: Fox Business (June 21, 2021) “Democrats eye major Medicare expansion as part of $6T reconciliation bill”

 

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Joint Account – Should You Add Someone to Your Bank Account?

Joint Account – Adding another person to your bank account provides both of you with complete access to the account. A person can be a power of attorney and a joint account holder, but the two are very different roles, explains the article “What are my rights when someone adds me to a bank account?” from Lehigh Valley Live.

A joint account is a bank or investment account shared by two individuals, although more than two people may be on an account. They have equal access to funds, as well as equal responsibilities for any fees or expenses associated with the account. If there are transactions, depending upon the rules of the institution, all owners may be required to sign documents. The key is how the account is titled. That’s the controlling factor in determining how the assets in the account are divided, if one of the owners dies. There are several different types of joint ownership.

One is “Joint Tenants with Rights of Survivorship,” or JTWROS. If one of the account owners should die, the assets in the account go directly to the surviving account holder. These assets do not go through probate.

Then there’s “Tenants in Common,” or TIC. With TIC, each individual account owner has the right to designate a beneficiary for their portion of the assets upon their death. The assets might not be split 50/50. How the account is titled lets the account owners divide ownership however they want.

Another one: “Joint Tenants by the Entirety.” This describes a married couple who own real estate or a financial account as a legal entity with equal ownership. Neither person may transfer their half of the property during their lifetime or through a will or a trust. When one spouse dies, the entire account goes to the surviving spouse and it transfers without passing through probate.

In the example given at the start of the article, the establishment of a joint account gives both the father and son equal access to the account. If the father is unable to handle the account at any time in the future, for whatever reason, the son will be able to step in.

Power of Attorney or POA is a completely different thing. A POA is a legal document giving a person the authority to act on behalf of another person for a specific transaction or general legal and financial matters. Just as there are numerous types of joint ownership, there are numerous types of POA.

A general POA gives a person the power to act on behalf of the principal for all legal, property and financial matters, as long as the principal’s mental capacity is sound. The Durable POA gives authority to a person to act on behalf of the principal, even after the principal becomes mentally incapacitated. Special or limited power of attorney gives authority to act only for specific matters or transactions. A Springing Durable POA provides authority to act only under certain events or levels of incapacitation, which is defined in detail in the document.

You can be both a joint owner of an account and a power of attorney. These are two different ways to help a parent with financial and legal activities. An estate planning attorney can help create the POA that best fits the situation.

Reference: Lehigh Valley Live (June 10, 2021) “What are my rights when someone adds me to a bank account?”

 

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What Happens to My Mortgage When I Die?

State and federal laws determine what happens to a home and the mortgage when the owner dies, explains Forbes’ recent article entitled “What Happens To Your Mortgage Debt When You Die?” The owner also has a say, provided they do some basic estate planning—like creating a will or trust, designating beneficiaries and perhaps purchasing life insurance.

When you pass away, all of your liabilities and assets—including your house—become part of your estate, which then must be settled. If you have a will, you’ve named an executor to handle this. Part of this responsibility is to take inventory of everything you own and determine who gets what among heirs and creditors. However, if you die without a will or trust, state probate court will direct the court to appoint someone to settle your estate. It’s typically a spouse, an adult child, or closest relative. Whoever this person is, he or she must determine who is named on the deed, who holds the title to your home and whether you have created a living trust or transfer-on-death deed to keep your home out of probate. This can save your heirs money and can expedite the property’s transfer.

If you’re the sole owner and don’t have a living trust or transfer-on-death deed, but you made a will and want to transfer your home to an heir, here’s what would happen next.

If your will names an heir to your home, that person will not have to take over your mortgage, provided they aren’t co-borrowers or co-signers on your loan. However, federal law does allow your heirs to take over the mortgage. If you leave your mortgaged home to your son, for example, the mortgage servicer must honor his request to become the new mortgagee (the borrower). He doesn’t have to qualify and demonstrate an ability to repay the loan. This rule covering the assumption of a mortgage also applies after the death of a spouse, although many spouses are often co-borrowers on a mortgage and co-owners of a home already. Despite the fact that most mortgages have a due-on-sale clause that normally requires the mortgage to be repaid in full when the property’s ownership changes, it doesn’t apply when an heir takes over.

However, the lender still can foreclose, if the assumed heir stops making payments. You can provide funds, by leaving your heir other assets or by naming them as a beneficiary on a life insurance policy.

If you die with other debts that can’t be repaid from your estate, state law may require the executor to sell your house to help repay those debts. If the proceeds from selling the home are more than the debts owed, the individual(s) who inherits your house will get the excess. Life insurance can help repay your debts at death, so your heir can inherit your home.

Note that your estate doesn’t have to pay off your mortgage. Since your mortgage is secured by your home, the mortgage servicer can foreclose and sell the home to get back the money owed.

If you’re an heir or an executor of an estate (or both), you’ll need to deal with the house and the mortgage when the homeowner dies. You can do any of the following:

  • Keep making mortgage payments
  • Pay off the mortgage
  • Refinance the mortgage
  • Sell the home; or
  • Let the lender foreclose.

Reference: Forbes (April 20, 2021) “What Happens To Your Mortgage Debt When You Die?”

 

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Should I Consider a Reverse Mortgage ?

In the current real estate market around the country, property values continue to go up. Appraisals are also coming in higher. This means that seniors may be able to get more funds from a reverse mortgage.

If you already have a reverse mortgage, you may want to look into refinancing the loan.

Patch’s recent article entitled “Is A Reverse Mortgage Right for You?” explains that such mortgages permit homeowners who are at least 62 to borrow money on their house. The homeowner gets money from the lender based largely on the value of the house, the age of the borrower and current interest rates. The loan doesn’t need to be paid back until the last surviving homeowner dies, sells the house, or moves out permanently. Homeowners can use money from a reverse mortgage to pay for improvements to their home, to let them wait to claim Social Security, or to pay for home health care.

The most widely available reversable mortgage product is the Home Equity Conversion Mortgage (HECM). This is the only reverse mortgage program that’s insured by the Federal Housing Administration (FHA). The national limit on the amount a homeowner can borrow is $822,375.

Seniors with more expensive homes have an increased chance to get a jumbo reverse mortgage to raise cash for retirement. When the previous housing market improved, these jumbos were in high demand.

High end borrowers must look at a jumbo. This type of loan has no loan limits. Jumbos let a senior borrow millions of dollars. In fact, qualified borrowers can borrow up to $4 million in loan proceeds.

Reverse mortgages are “non-recourse” loans. This means that even if the house eventually sells at a price below the amount of the mortgage, the seller never owes more than the value of the home.

The amount of money seniors can qualify for, is based on their age and the home value. The older they are, the more money for which they can qualify.

A big reason to use a these mortgages are to pay for home care to stay out of a nursing home. By using this mortgage to pay for home care, a senior may not be required to use their own retirement accounts, which can jeopardize their ability to pay for future healthcare needs.

A reverse mortgage may not be best for everyone. Consult with an experienced elder law attorney about whether a reverse mortgage is right for you.

Reference: Patch (June 1, 2021) “Is A Reverse Mortgage Right For You?”

 

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Does a Prenup Make Sense?

PreNup – Take the time to think about your financial plans before you get married to help set you on the right path. chase.com’s recent article entitled “How to prepare your finances for marriage” explains that a prenuptial agreement sets out each prospective spouse’s rights and responsibilities, if one spouse dies or the couple gets divorced.

This is a guide for dividing and distributing assets. A prenuptial agreement can also be a valuable tool for planning since it will take priority over presumptions about what’s deemed community property, separate property, and marital property. A prenup can also prevent one spouse from being responsible for premarital debts of the other in the event of death or divorce.

A prenup is used frequently when one spouse or one spouse’s family is significantly wealthier than the other; or when one family owns a business and wants to make sure only family members can own and manage it.

Negotiate a prenuptial agreement early. If you know that you want to have your fiancé to sign a prenuptial agreement, do it ASAP because some courts have found a prenup invalid because it was entered into under duress and signed and negotiated right before the wedding.

Examine employee benefits. Make certain that you understand know how marriage will impact your employee benefits, especially if you and your spouse are working. See what would be less expensive, and if one offers significantly better coverage. Marriage almost always is a life event that permits you to modify your benefits elections outside of annual open enrollment.

Review beneficiary designations and estate planning documents. It’s common for young people prior to marriage to name their parents or siblings as beneficiary of accounts, like IRAs, 401(k)s, life insurance and transfer on death (TOD) and payable on death (POD) accounts. Review these designations and accounts and, if needed, change your beneficiary to your new spouse after the wedding. You should also be sure you to update your estate planning documents, including wills, health care designations, powers of attorneys and others, to reflect your new situation.

Communication is critical. Start your marriage with strong communication to help you better face future challenges together.

Reference: chase.com (May 25, 2021) “How to prepare your finances for marriage”

 

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Estate Planning Matters for Single People
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Estate Planning Matters for Single People

Single Estate Planning – If you’re not married and you have relatives or friends to whom you would like to pass certain assets, then you need an estate plan, says the article “Estate planning important even if you’re not married” from Rocky Mountain Telegram.

If you die without a last will and testament or other estate planning documents in place, a probate court will make the decisions about how to distribute assets according to the laws of your state. That may not be what you wanted, but it will be too bad—and too late.

If you want to leave assets to family members or close friends, especially if you are single, you’ll need to plan for this with a last will and testament. The same goes for any donations you may wish to leave to one or more charitable organizations. You could just name organizations in your will, but there are many different ways to give to charity and some have tax benefits for you and your heirs.

One way to leave assets to charity is a Charitable Remainder Trust. Your estate planning attorney will help guide you through the steps. Appreciated assets, like stocks, mutual funds, or other investment securities, are transferred into an irrevocable trust. You get to name the trustee—you could be the trustee, if you prefer—and then you can sell the assets at full market value, avoiding any capital gains taxes that you’d pay if you sold them as an individual.

If you itemize your income taxes, you might be able to claim a charitable deduction on taxes. With the proceeds, the trust can purchase income-producing assets and provide an income stream for the rest of your life. When you die, the assets remaining in the trust will go to the charity or charities that you have named.

Family members and charities aren’t the only ones to consider in an estate plan for a single person. You need to prepare to protect yourself. With the absence of an immediate family, being protective of your financial and health care decisions requires a durable power of attorney and a health care proxy, among other documents.

The durable power of attorney authorizes a person of your choice to manage finances, if you were to become incapacitated. This is especially important when there is no spouse to take on this role. Your health care proxy, also known as a medical power of attorney, authorizes someone you name to make health care decisions on your behalf, if you are unable.

Estate planning can be complex. An experienced estate planning attorney will be an invaluable resource as you go through the process. Who will be the best candidate to select as your power of attorney? What other documents do you need to ensure that your assets go to the people or charities you want? Once this is done, you’ll be prepared for the future—and protected.

Reference: Rocky Mountain Telegram (June 6, 2021) “Estate planning important even if you’re not married”

 

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