A durable power of attorney gives the person you name a legal right to act for you, even if you become incapacitated, until you either die or revoke the right.
Get an answer to the question "what is probate?", see how a will affects the probate process, and find out what role the executor plays in it.
Setting up the right power of attorney documents can give you peace of mind in case you are unable to make your own financial or medical decisions.
This article is offered for informational purposes only. It is not to be construed as legal advice or to take the place of consultation with a lawyer of your choosing. Understand estate planning and help build a "road map" to your assets. My now-deceased father-in-law is an example of the need for a road map. Tom always told the family he had the "mortgage taken care of" in the event of his death. We, his family, assumed he had mortgage insurance. Upon his death we did not find any evidence of a mortgage insurance policy. Needless to say, my mother-in-law was disappointed and had to continue making mortgage payments. We were never sure what he meant by "taken care of." I keep the Data Sheet with my notes and copies of your Estate Planning documents. It can assist the heirs in finding the buried family treasures. The form has notations for the location of safe deposit boxes, which banks you are using, what credit cards you may have, your life insurance policies, etc. It assists your heirs in doing an efficient round up of your assets. Will Do I Need a Will? When we talk of your passing and your subsequent estate, we refer to either testate (with a Will) or intestate (without a Will). Without a Will, as the commercials on television so loudly proclaim, your estate distribution will be decided by the state. This isn't quite as bad as it seems. The governor doesn't come down and decide that Aunt Bessie gets your house and Uncle Merle gets your gun collection. It is done by statute. I have found for the most part that the intestate succession (the manner of which the statutes decide the division of assets) makes sense. Intestate Succession In the event a young husband were to die leaving no children, but a surviving wife, his individual property* would be divided one-half to the surviving spouse and the one-half to the decedent's surviving parent(s). The legislature's intent is that the parent of the decedent probably had something to do with the decedent's acquiring individual assets and the parents should take half. *Individual property is the property owned by the decedent in his or her name alone. Most married couples have very little personal individual property. Homes and cars typically are titled in both spouses names. Another example would be a young couple with children. Upon the husband's death one- half would go to the wife and the remaining one-half would be divided among the children. Testate Succession Most of us have done a certain amount of Estate Planning not realizing we have. For example, we have titled the house in both names, titled the cars in both names, titled the household furniture in both names. The 401(k) already has a named beneficiary designee such as our spouse. Life insurance has a named a beneficiary designee by contract. All of these items pass outside your estate. In a Will we are dealing only with your individual assets. Using myself as an example, the only assets I own in my name are probably my hunting dogs, my shotguns, my fishing rods, and my interest in my law firm. The bulk of mine and my wife's assets are jointly held. Our house is jointly held, our cars are jointly held, my 401(k) pays to my wife, my life insurance pays to my wife, our household furniture is jointly held, and our bank accounts are jointly held. Aside from issues with children/grandchildren (discussed below), the reason you would want a Will would be to provide that your individual assets pass down in the fashion you want vs. the intestate succession statute. A will provides for specific bequests such as: I hereby give my eldest son this shotgun, that shotgun and this fishing rod and I give my other son this fishing rod and this shotgun. Finally, you may wish to divide your assets in an unequal manner among your heirs. This can only be accomplished through the use of a will. Testate Trust/Family Trust When my children were underage, my wife and I provided that upon my death everything would have transferred to her. (Albeit almost everything would have transferred to her by the operation of law since it was jointly owned.) Upon my wife's death, anything that was left, assuming the children were still under age, this property was to go into a trust for the benefit of the children. This is commonly called a Testate Trust or Family Trust. I provided that a family member would be appointed the Guardian of the children. Another family member would be named the Trustee to manage the funds. The terms of the trust then dictates how the money is to be spent on the children and their education. It is important to remember that most of us, via our life insurance, are worth considerable sums of money. In choosing a trustee this person/institution does not necessarily have to be a stock broker or CPA but rather someone you trust, who is smart enough to listen to a financial advisor and invest the Trust in a prudent manner. Another example for the use of a trust would be an older couple that wants to provide for their grandchildren. A couple in their 50s or 60s typically wants to give each other all that they have and upon the surviving spouse's death, the property gets divided between the children. It gets complicated when the children have children (grandchildren of the couple). If that child is divorced from the grandchild's other parent the grandparents might want to protect the grandchild's inheritance in the event their parent was deceased. Many times a grandparent becomes concerned that if their divorced child were to die that the deceased-divorced child's share would pass to the grandchild and would ultimately be controlled by the former daughter/son-in-law. In this instance, we can set up a Trust to avoid the problem. For example - Mom gives to dad, dad gives to mom, upon the last to die, the assets go to the children, divided in such and so manner. In the event one of the children becomes deceased, than that deceased child's share would pass to their child (the grandchild) in a Trust typically controlled by one of the surviving children (aunt or uncle of the grandchild). This keeps the former in-law from getting their hands on the money. Versatility of a Trust Testate/Family Trusts allow you to control your bequests in the manner which most would not have the courage to do if they were alive. When we are alive and little Johnny goes off to IU and comes back the first semester with a 1.5 grade point average he cries, you cry, and before long Johnny is back up at IU for that second semester of beer and pizza. With the Trust, you have named a Trustee and told the Trustee that there is a certain grade point requirement that Johnny must make. In the event Johnny does not get the grade point you set forth (typically somewhere between 2.0 and 3.5) then Johnny does not get money for that next semester. Johnny can cry, the Trustee can cry, but the Trust controls. You can control your children/grandchildren from the grave. Power of Attorney When I prepare Wills, I also suggest the preparation of a Power of Attorney. This document typically names the surviving spouse as the attorney-in-fact in the event you become mentally or physically incompetent, as so certified by a doctor familiar with their medical condition. This is called a Durable Power of Attorney. The Power of Attorney, for the most part, lays dormant. It is used only in the event you or your spouse was to be afflicted by Alzheimer's, some other type of debilitating disease, etc. The Power of Attorney is then exercised by the spouse. For example, assuming a Durable Power of Attorney is executed at the time the couple is 45 and the husband is diagnosed with Alzheimer's at 65. Even though the couple has been married for 40-50 years, the nursing home and the state will require the spouse start a Guardianship for the spouse. Without a Power of Attorney giving authority to this spouse to make medical and financial decisions for the incapacitated person, a Guardianship is needed. A guardianship is rather expensive, time consuming, and plodding in nature, Your spouse would need to be appointed in order to make both medical and financial decisions for you. Living Will Another document I suggest be executed at the time of the Will is a Living Will. In Indiana, our statutes provide that in the event you are being kept alive artificially that you may request that the machines be turned off (unplugged) and you have a choice as to whether you want the IVs supplying hydration to be discontinued as well. An item of note is Powers of Attorney for 18, 19, and 20 years old. In my instance, I have had my children execute Powers of Attorney in the unlikely event that they were to become disabled and need my wife or myself to make medical decisions for them. Most of us simply do not think that a 18, 19 or 20 year old can find themselves in a medical situation needing a power of attorney. Unfortunately many people are scared of dying and hold off estate planning until it is too late. Planning is important and should not be viewed as scary but rather simply something that we as responsible people need to do.
General (Financial) Power of Attorney The Louisiana Civil Code allows a competent person to select another individual who will act on his or her behalf through power of attorney in the event of incapacity. If you become incapacitated, a general power of attorney for financial decisions will be needed to help avoid the possibility of an interdiction. With a general power of attorney, you have control over who makes decisions on your behalf as well as the scope of powers to be granted. A general power of attorney also helps keep all of your planning options viable. The Agent A power of attorney enables a competent individual (the principal) to name a representative or attorney-in-fact to manage his or her affairs. The representative is sometimes referred to as the agent. The attorney-in-fact does not have to be an attorney. A key question is who will be selected as the attorney-in-fact. Consideration should be given to the degree of maturity and financial sophistication when selecting an attorney-in-fact to manage financial decisions. The proximity of the agent to the principal and the availability of the agent are additional considerations. Express Powers Certain powers must be expressly granted in the power of attorney. For this reason if a power of attorney has already been executed, it may have to be updated to provide the family with maximum planning flexibility. For example, it is critical that the power of attorney include the power to donate when planning to protect assets from Medicaid spend-down. Additional express powers include the power to accept a succession, contract a loan, draw a promissory note and make healthcare decisions. Scope of Agent Powers Powers of attorney may be very limited in scope for example, to sell a tract of land. Alternatively, powers of attorney may be very broad in scope empowering the agent to act in practically any manner the principal may act. When planning for long-term care, powers of attorney are typically drafted with very broad powers to allow the agent to act under a variety of future unknown circumstances. If a power of attorney is already in place, it should be reviewed by an elder law attorney to ensure the agent has sufficient powers. Agent Duties and Termination A power of attorney does not give the attorney-in-fact unbridled freedom when acting on behalf of the principal. The attorney-in-fact is bound to fulfill their duties with prudence and diligence. The attorney-in-fact is responsible to the principal for the loss that the principal sustained as a result of the attorney-in-fact's failure to perform as well as for exceeding his or her authority. The principal may terminate or amend the power of attorney at any time. In addition, the power of attorney terminates due to the death of the agent or principal, interdiction of the attorney in fact or the principal. Healthcare Power of Attorney A special type of power of attorney known as a medical power of attorney authorizes the attorney-in-fact to give consent for medical procedures or to obtain medical records when the principal is unable to make such decisions. This is a type of limited power of attorney that only empowers the attorney-in-fact to make medical decisions on the principal's behalf. Medical powers of attorney, sometimes called advanced directives, may be incorporated into a financial/general power of attorney; however, the principal may wish to name a different person to make health care decisions. A HIPPA authorization should be included to allow the agent to obtain medical information. Avoiding Interdiction If a power of attorney is not in place and the principal does not have capacity to execute one, a curator may have to be appointed through an interdiction. In an interdiction, the incapacitated individual is sued in court (typically by a family member) to ask the court to declare him or her legally incompetent. An interdiction is a public and often expensive court proceeding. In addition, many options for protecting assets from long-term care expenses are no longer available after the interdiction. A power of attorney is a cheaper, faster, more flexible, and less traumatic alternative. Everyone should have an up-to-date power of attorney; and those faced with diminishing capacity should have powers of attorney drafted as soon as possible.
What is probate? Probate is the legal process overseen by a court to ensure your debts are paid and your assets are distributed to beneficiaries as specified in your will. If you do not have a will, the court still oversees the distribution of your assets in accordance with a state law called the intestacy statute. What is the problem with probate? It is expensive and time consuming. And if you own property in more than one state, your family might be forced to file a separate probate in each state. A probate can take from nine months to two years. During at least part of this time the assets are not available to beneficiaries who might need them to live on. They are at the mercy of the court and will have to file a request for living costs during the process. All expenditures are listed in probate "accounts." if the estate is complex, drafting the accounts will be costly. Your family has no privacy and no control over the probate process. Probate is public. All "interested parties" must be notified of the probate process, and can see what assets and debts you had. There are attorneys out there who search the probate records, find long lost heirs, and represent them for a percentage of their share in an estate. I once worked on a case where thirteen heirs from a foreign country made claims against the estate, because an attorney who represented them spent time reviewing everything filed in the probate courts. That was how he earned his living. The decedent didn't know any of these people personally, and each one received a $100,000 windfall from the estate. Doesn't joint ownership help with avoiding probate? Many people come to me having placed the names of loved ones on all of their accounts as joint owners. Although banks sometimes like to tell you a different story, this type of "planning" is really no plan at all. It won’t work with single people who have no one to share their account; it sometimes disqualifies people from MassHealth (Medicaid) benefits when they apply for the benefits, if a co-owner has taken funds from the account for his or her benefit; it won’t work with people whose children suffer from a disability and are on SSI; and it does not save taxes for people with taxable estates. Furthermore, if both owners die at the same time, the jointly-held asset must be probated anyway. Or if one owner dies and the surviving owner neglects to place a new a co-owner on the account, there will have to be a probate. Adding a co-owner means loss of control. If that person is subject to creditors and predators, you may find your asset depleted through a lawsuit against them. Sometimes assets like real estate are co-owned, and each owner must sign off on a refinance or sale. If your co-owner is incapacitated, then you have to go to the probate court to gain the right to sign for that person. What happens if you are incapacitated and cannot manage your own affairs? You may still be subject to the probate courts even if you have a will. First, a will only goes into effect after you die. Incapacity can take many forms: a stroke, dementia, or a heart attack. In these instances, the court will get involved, and when it does, it will "be with you" for the remainder of your life. In a public process, the court, and not your family, determines and oversees how your assets are spent and your care managed. Again, the process is time consuming and upsetting to families in vulnerable situations. Also, if you recover, it will be difficult, expensive and time consuming to terminate court oversight of your life. What is the best method of avoiding probate court? The answer to avoiding the probate process is appropriate planning and proper documents. Each case is different, but every client should start with a durable power of attorney and a health care proxy to avoid the need for guardianship and conservatorship. And everyone should consider a living trust. What is a living trust? It is a legal document that contains your directions to deal with your assets when you die. It is similar to a will, but the living trust does not require a probate to control all of your assets and avoids court control over the assets if you become incapacitated. How does a living trust work, how do I avoid probate with this trust, and do I lose control over the assets that go into it? First, you transfer your assets from your name to the trust over which you maintain control during your lifetime. For example: From Joe and Henrietta, husband and wife, to the "Joe and Henrietta Trust," Joe and Henrietta, trustees. The trust is then dated. Technically, the trust owns everything you transfer into it, but YOU maintain control and can do anything you want to do with those assets during your lifetime. Although the trust owns the assets from a legal point of view, from the practical point of view, you maintain control and can do whatever you want with what is in the trust during your lifetime. The probate court has no business with the trust. If you become incapacitated, the trust, and not the court, will control your assets. You appoint a successor trustee of your choice if you can no longer be trustee. Why won’t a durable power of attorney prevent court involvement in my affairs? A durable power of attorney works to allow you to name someone to manage your financial affairs should you become unable to do so. It is only useful to you when you are alive. A durable power of attorney becomes ineffective upon your death. Sometimes financial institutions will not honor your durable power of attorney; and sometimes the person appointed to manage your affairs may abuse the privilege. Thus, alone, a durable power of attorney carries some risk. It can be very effective when used as part of a plan that includes a living trust. Do I still need a will if I have a living trust? Yes. If you forget to transfer an asset to your trust during your lifetime and you die, a properly drafted will called a "pour-over will" can do this for you. The asset may still have to go through probate first, but it will go into the trust, which is your instruction on how distribution is to be made. Who needs a living trust? You might be surprised to learn that wealth, age and marital status don’t matter. If you're planning on avoiding probate, consider a living trust. A final word: I have had clients refuse to create a living trust because they didn't want to spend the money. But, at the end of the day, the costs, expense, and time spent on probate was far in excess (by five times in some instances) of what it would have cost if they had created a trust through which their assets could have been passed to their loved ones. So a word to the wise: don’t be "penny wise and pound foolish". Consider the benefits of a living trust.
1. DON'T prepare your own advance directives. Although clients may believe preparing their advance directives is both cheaper and quicker, there is no assurance the documents are prepared correctly. In addition, by preparing the documents yourself, the template you choose to buy online may not be the correct one for where you reside. Lastly, a client probably does not know the law in the jurisdiction in which they reside, but a licensed attorney does. In Florida, for example, the Power of Attorney law changed extensively in 2011, and now the appointed Agent signs an acceptance of their position as Agent under the Durable Power of Attorney. If a client prepares their advance directives themselves, they may not be aware of how dramatically the law has changed. 2. DO retain an attorney to prepare your advance directives for you. A Durable Power of Attorney contains powers and rights conferred to the Agent the client designates. If clients prepare a Durable Power of Attorney by themselves, they may give their Agent more rights or less rights than they should. In addition, by using an attorney, a client is assured their documents are signed correctly and notarized, if applicable. If the documents are not signed properly, they could be unenforceable. 3. DON'T leave the alternate spaces in a Durable Power of Attorney and a Healthcare Power of Attorney blank. If a client does not appoint an alternate for both Durable Power of Attorney and Healthcare Power of Attorney, the documents may be useless. If a client's first named Agent dies or becomes mentally incapacitated and the client does not name an alternate, it could be expensive and time-consuming to correct the documents. If the client becomes mentally incapacitated, it then becomes impossible to name a successor Agent. 4. DO name at least two alternates for both a Durable Power of Attorney and a Healthcare Power of Attorney. One problem that estate planning attorneys often run into is when clients need emergency advance directives due to hospitalization or disability. If the client has sufficient alternates for both their Durable Power of Attorney and Healthcare Power of Attorney, the client will be prepared when a crisis arises. Also, if a client's first agent and even their second agent dies or becomes incapacitated, the client would still be able to use the documents, if more than one alternate passes away or cannot serve for any reason. 5. DON'T use outdated contact information for the Healthcare Power of Attorney. A Healthcare Power of Attorney is constructed to easily identify the designated Agent when medical decisions need to be made on a client's behalf. If the information in the document is outdated, such as an outdated phone number, the client may not have someone to make their medical decisions for them or for the client to even be informed that a medical emergency exists. Many clients find that scenario unsettling because they want their spouse, children and/or siblings involved if a medical emergency arises. 6. DO use correct contact information for the Healthcare Power of Attorney and update it when necessary. Before you meet with an attorney to have your advance directives drafted, gather all pertinent contact information that will be needed for your Healthcare Power of Attorney and your two alternates. Most attorneys will ask you this information during the consultation, so you will want to have it on hand. By using correct contact information, this will ensure the hospital will call the Agents the client specified and will wait for their authorization before performing any medical procedures. A client should speak with their attorney on how best to update the contact information on a Healthcare Power of Attorney. Some attorneys may suggest to strike through the outdated information in blue ink, write in the new information and initial next to it. Other attorneys may suggest an office visit to allow the attorney to redraft the document perhaps at a lower charge if multiple changes are to be made. 7. DON'T disregard noting your religious or medical beliefs when your Living Will Declaration is drafted. A Living Will Declaration addresses issues such as life support and a feeding tube. If your personal or religious persuasion does not recognize the use of heroic measures to artificially prolong life, express those beliefs to your attorney. Many attorneys have documents already drafted that address sacraments or other rituals that may address a client's religious beliefs. 8. DO speak with your attorney about religious and medical beliefs and how best to incorporate them in your Living Will Declaration. The client makes the decisions in what they want included in their advance directives. The Living Will Declaration addresses what measures to take for prolonging life. A client should express what they want for themselves when they are at the end of life and are not able to make their own decisions. This document guides a client's loved ones to honor the client's wishes if they are unable to express them, and gives those loved ones great comfort in carrying out a client's wishes as opposed to making difficult choices on their own.