There are two basic types of powers of attorney in Ohio. The first is a power of attorney for finances (often called a general durable power of attorney), and the second is a power of attorney for healthcare. The person who signs the power of attorney is the principal, and the person who is given authority to act on behalf of the principal is called the attorney-in-fact.
Power of Attorney for Finances
A power of attorney for finances authorizes someone (or more than one person) identified by the principal in the power of attorney to manage the principal's financial affairs. The power of attorney can be written so that it will go into effect immediately, or only in the event that the principal is incapacitated and cannot personally manage his or her own affairs. Powers of attorney are not just for the elderly. We unfortunately see all around us reminders that anyone can become incapacitated at any time. If you don't have a power of attorney, it will be extremely difficult for your loved ones to pay your bills and manage your assets during any period of time when you are unable to do so.
Having both types of powers of attorney makes it less likely that a guardian will ever have to be appointed for you in a probate court proceeding. If you become unable to manage your own financial affairs or lack the mental capacity to make your own health care decisions and you don't have either type of power of attorney, your relatives may be forced to go to court and have a guardian appointed for you. Before a guardian can be appointed, the court must make a determination of legal incapacity, which can be embarrassing to the person for whom the guardianship is sought. A guardianship court proceeding also involves time, inconvenience, legal fees, and court costs. (On the other hand, a potential benefit of a guardianship is that the court oversees the activities of the guardian, which is not the case with an attorney-in-fact acting under a power of attorney.)
The power of attorney itself sets forth how incapacity is determined. For example, it could state that your personal physician will make the decision, or it could require two physicians from different medical practices to sign affidavits attesting to your lack of capacity.
You can limit the extent of the attorney-in-fact's authority in the power of attorney, or you can give the attorney-in-fact complete authority to take virtually any action you could take with regard to the management of your finances and assets. You will need to decide whether you want to give your attorney-in-fact the authority to make gifts. Why might you give your attorney-in-fact the power to make gifts? It may be advantageous for you from an estate tax standpoint to make gifts. Also, you may qualify for Medicaid sooner if your attorney-in-fact makes gifts of your assets. An attorney-in-fact should not make gifts either for estate tax or Medicaid planning purposes without seeking the advice of an experienced estate planning attorney, since mistakes in these areas can have serious and costly consequences.
Power of Attorney for Health Care
A power of attorney for health care gives the person (or people) you appoint the authority to make health care decisions on your behalf if you are incapacitated and cannot make those decisions for yourself. Having a power of attorney for health care gives healthcare providers the ability to proceed with your care promptly, having clear, legally authorized instructions from your attorney-in-fact. If your family members disagree about your medical treatment and you don't have a health care power of attorney, your treatment could be delayed and your wishes might not be carried out.
You may limit the types of decisions your health care attorney-in-fact can make for you, or you may give your attorney-in-fact the power to make all healthcare decisions you could make yourself, including decisions about whether to continue life sustaining treatments if you are near death with no chance of recovery or if you are in a permanently unconscious state.
Living Will
The name "living will" is a bit confusing, because a living will does not go into effect at death and has nothing to do with transfers of property to beneficiaries. A living will goes into effect during life, hence the name "living" will. It is basically an instruction to hospitals, hospices, and nursing homes regarding how you would like to be cared for if terminally ill and near death, or in a permanently unconscious state, and unable to make your own health care decisions. Living wills typically instruct doctors not to administer life extending and sustaining treatments and to take measures only to increase comfort and minimize pain. I recommend that my clients have a living will in order to avoid the type of situation that arose in the Terri Schiavo case, where family members became embroiled in a lengthy legal battle over whether Ms. Schiavo, who was diagnosed to be in a persistent vegetative state, should be kept alive by artificial means. In the absence of a living will, a Florida court had to decide based on the testimony of numerous witnesses, what Ms. Schiavo's wishes would have been.
Under Ohio law, instructions in a living will "trump" the decisions of an attorney-in-fact named in a health care power of attorney. Therefore, it is important that your health care attorney-in-fact be given a copy of your living will. You may also want to supply a copy to your physician and local hospital.
Sunday, April 3, 2011
Monday, February 28, 2011
Top 10 Estate Planning Mistakes: 3. Treating Your Estate Plan Like a Ronco Product
There has never been a more important time to review your "A-B trust." These trusts are designed to allow married people to take full advantage of both of their exemptions from federal estate tax. Many A-B trusts in existence now were drafted when the federal estate tax exemption amount was much lower than it is today . (This is the amount that an individual can pass to beneficiaries other than his or her spouse free of estate tax.)
With an A-B trust arrangement, when the first spouse dies, his or her assets are divided between the A trust, which benefits the surviving spouse, and the B trust, which is for other beneficiaries, typically children. Some A-B trusts allocate the full estate tax exemption amount to the B trust. Given that the estate tax exemption is now $5 million, trusts that allocate the estate tax exemption amount to the B trust may place more assets than desired beyond the reach of the surviving spouse. These trusts are usually drafted so that the surviving spouse is entitled to income and sometimes even principal from the B trust. Nevertheless, these distributions may not be sufficient to allow for the lifestyle envisioned for the surviving spouse when the A-B trust was created.
Monday, February 21, 2011
Top 10 Estate Planning Mistakes: 2. Failing to Consider the Benefits of a Revocable Living Trust
A living trust is a will substitute. It is a trust that is set up during the life of the trust "grantor," the person creating the trust. A will (unless it contains a testamentary trust) generally provides for an immediate distribution of assets. On the other hand, a trust can control how and when your assets will be distributed. A trust can also protect assets from creditors of trust beneficiaries. Another major benefit of a living trust is that assets are distributed to beneficiaries without probate court oversight and its assocuiated costs and delays.
A living trust, by avoiding probate, also protects your privacy. Wills and other probate documents can usually be accessed by members of the public, so anyone can learn details about your assets and how you have chosen to distribute them. A living trust is a private document, the terms of which need only be known by the grantor, the trustee, and trust beneficiaries.
A living trust also allows you to plan for incapacity, In the trust document you can appoint someone who will manage your financial affairs when you are no longer able to do so. A financial power of attorney can serve the same purpose, but banks and brokerage firms often prefer to deal with the trustee of a trust as opposed to an attorney-in-fact appointed in a power of attorney. Additionally, with a trust you can name a professional trustee to carry out the terms of the trust, including the management of your finances during periods of incapacity. This may be a better option for you if you have significant assets or if you do not feel confident in the ability of a family member or friend to handle the task.
For more information, see the blog article entitled "Who Needs a Trust?"
A living trust, by avoiding probate, also protects your privacy. Wills and other probate documents can usually be accessed by members of the public, so anyone can learn details about your assets and how you have chosen to distribute them. A living trust is a private document, the terms of which need only be known by the grantor, the trustee, and trust beneficiaries.
A living trust also allows you to plan for incapacity, In the trust document you can appoint someone who will manage your financial affairs when you are no longer able to do so. A financial power of attorney can serve the same purpose, but banks and brokerage firms often prefer to deal with the trustee of a trust as opposed to an attorney-in-fact appointed in a power of attorney. Additionally, with a trust you can name a professional trustee to carry out the terms of the trust, including the management of your finances during periods of incapacity. This may be a better option for you if you have significant assets or if you do not feel confident in the ability of a family member or friend to handle the task.
For more information, see the blog article entitled "Who Needs a Trust?"
Top 10 Estate Planning Mistakes: 1. Having No Plan
If you don't have a will or a trust, your assets will be distributed in accordance the terms of an Ohio statute known as the statute of descent and distribution. Obviously, the distribution mandated by statute may not be the distribution you would have chosen. It is also important to have a will in order to name an executor for your estate and to indicate your preference regarding who will become the guardian of your minor children.
Failing to name an executor or to choose a guardian can result in disharmony among your loved ones if there is disagreement about who should serve in those roles. Ultimately a judge will decide who will serve as the administrator of your estate and who will be the guardian of your minor children if you do not designate anyone.
Estate planning can protect your assets from creditors, help you avoid probate, protect your privacy, and provide many other benefits. Failing to have an estate plan can result in serious estate tax losses. Lack of insurance planning can mean financial disaster for you in your old age or for your family after you have passed away. Failing to make plans for the management of your healthcare and finances during periods of disability could result in costly and time-consuming public guardianship proceedings.
By taking certain steps on your own and by spending a few hours with an experienced estate planning attorney, you can design a fitting estate plan that will serve you and your family well by removing uncertainty as to your wishes, providing for your care during periods incapacity, and avoiding devastating and unnecessary financial losses.
Failing to name an executor or to choose a guardian can result in disharmony among your loved ones if there is disagreement about who should serve in those roles. Ultimately a judge will decide who will serve as the administrator of your estate and who will be the guardian of your minor children if you do not designate anyone.
Estate planning can protect your assets from creditors, help you avoid probate, protect your privacy, and provide many other benefits. Failing to have an estate plan can result in serious estate tax losses. Lack of insurance planning can mean financial disaster for you in your old age or for your family after you have passed away. Failing to make plans for the management of your healthcare and finances during periods of disability could result in costly and time-consuming public guardianship proceedings.
By taking certain steps on your own and by spending a few hours with an experienced estate planning attorney, you can design a fitting estate plan that will serve you and your family well by removing uncertainty as to your wishes, providing for your care during periods incapacity, and avoiding devastating and unnecessary financial losses.
Sunday, January 30, 2011
Who Needs a Trust?
A trust is similar to a will in that it controls how property is disposed of after death. However, a trust offers several advantages, and you need not be wealthy in order to benefit.
A will is a testamentary document, meaning that it goes into effect at death. A revocable living trust goes into effect during life, and it can be revoked by the person who establishes it at any time. Hence the name "revocable living" trust. The person who establishes the trust is referred to as the trust “settlor.” The person responsible for carrying out the terms of the trust is known as the trustee. The settlor usually serves as trustee until the settlor’s disability or death. When the settlor dies, the trust can no longer be revoked by anyone and the trust assets are disposed of as provided in the trust document.
Typically, all of the settlor’s assets are transferred to the trust after the trust document is signed. Assets are transferred to the trust simply by changing their ownership so that they become the property of the trust. The settlor has an unlimited right to receive income and principal distributions from the trust. Managing one's assets and finances is not appreciably more difficult after setting up a trust.
There are several reasons to consider establishing a revocable living trust:
1) Probate Avoidance. Assets transferred to a trust during the settlor’s lifetime will not be part of the settlor’s probate estate. The avoidance of probate and its related costs and delays is one of the primary benefits of establishing a revocable living trust. A “pour- over” will should always be prepared in conjunction with a living trust. Often there are assets that are not transferred to the trust during the settlor’s lifetime. A pour-over will essentially specifies that all assets owned by the settlor at the time of death will pass directly to the revocable trust.
2) Privacy. Wills and other probate documents can usually be accessed by the public, while living trusts provide privacy because they are not a matter of public record.
3) Planning for Incapacity. The trust instrument will designate a trustee who is responsible for carrying out the terms of the trust. The trust will also name a successor trustee who will assume management responsibilities if the settlor is no longer able to do so because of physical or mental infirmities. A durable power of attorney may also be used to plan for incapacity. The attorney-in-fact under the durable power of attorney is given the authority to manage the principal’s financial affairs if the principal is no longer able to do so. Banks and brokerage firms generally prefer to deal with trustees rather than attorneys-in-fact.
4) Estate Tax Reduction. Married individuals use A/B trusts to take full advantage of the estate tax exemptions available to both of them. There are many other types of trusts that can minimize or eliminate estate taxes. The type of trust recommended by your attorney will depend on your goals and circumstances.
5) Control of Assets After Death. One of the primary differences between a trust and a will is that a trust can be used to distribute assets to beneficiaries over time rather than in a lump sum. Trusts are almost infinitely flexible in this regard.
6) Protection of Trust Principal from Creditors of Trust Beneficiaries
Protection is not absolute, and depends on how the trust is drafted.
A will is a testamentary document, meaning that it goes into effect at death. A revocable living trust goes into effect during life, and it can be revoked by the person who establishes it at any time. Hence the name "revocable living" trust. The person who establishes the trust is referred to as the trust “settlor.” The person responsible for carrying out the terms of the trust is known as the trustee. The settlor usually serves as trustee until the settlor’s disability or death. When the settlor dies, the trust can no longer be revoked by anyone and the trust assets are disposed of as provided in the trust document.
Typically, all of the settlor’s assets are transferred to the trust after the trust document is signed. Assets are transferred to the trust simply by changing their ownership so that they become the property of the trust. The settlor has an unlimited right to receive income and principal distributions from the trust. Managing one's assets and finances is not appreciably more difficult after setting up a trust.
There are several reasons to consider establishing a revocable living trust:
1) Probate Avoidance. Assets transferred to a trust during the settlor’s lifetime will not be part of the settlor’s probate estate. The avoidance of probate and its related costs and delays is one of the primary benefits of establishing a revocable living trust. A “pour- over” will should always be prepared in conjunction with a living trust. Often there are assets that are not transferred to the trust during the settlor’s lifetime. A pour-over will essentially specifies that all assets owned by the settlor at the time of death will pass directly to the revocable trust.
2) Privacy. Wills and other probate documents can usually be accessed by the public, while living trusts provide privacy because they are not a matter of public record.
3) Planning for Incapacity. The trust instrument will designate a trustee who is responsible for carrying out the terms of the trust. The trust will also name a successor trustee who will assume management responsibilities if the settlor is no longer able to do so because of physical or mental infirmities. A durable power of attorney may also be used to plan for incapacity. The attorney-in-fact under the durable power of attorney is given the authority to manage the principal’s financial affairs if the principal is no longer able to do so. Banks and brokerage firms generally prefer to deal with trustees rather than attorneys-in-fact.
4) Estate Tax Reduction. Married individuals use A/B trusts to take full advantage of the estate tax exemptions available to both of them. There are many other types of trusts that can minimize or eliminate estate taxes. The type of trust recommended by your attorney will depend on your goals and circumstances.
5) Control of Assets After Death. One of the primary differences between a trust and a will is that a trust can be used to distribute assets to beneficiaries over time rather than in a lump sum. Trusts are almost infinitely flexible in this regard.
6) Protection of Trust Principal from Creditors of Trust Beneficiaries
Protection is not absolute, and depends on how the trust is drafted.
Thursday, January 20, 2011
The Three Essential Estate Planning Documents
Everyone who owns property or has minor children should have the following documents, which are the components of a basic estate plan.
1. Last Will
A will names the executor of your estate, identifies your preferred guardian if you have minor children, and provides instructions regarding the distribution of your assets to your chosen beneficiaries. If you do not name a guardian for your young children, a probate court will appoint someone who may not be the person you would have chosen yourself to serve in that role. Likewise, without a will, your assets will be distributed in accordance with an Ohio law known as the Statute of Descent and Distribution. The statute may not distribute your assets in accordance with your wishes.
2. Durable Power of Attorney for Finances
Otherwise known as a General Durable Power of Attorney, this document gives a person you select the authority to pay your bills and manage your financial affairs. You can choose for the power of attorney to go into effect immediately, or you can choose for it to go into effect only in the event that you become incapacitated and are unable to manage your finances. Powers of attorney are not just for the elderly. People can become seriously ill or injured at any stage of life. Having powers of attorney for finances and health care in place will save your family many headaches and will ensure that there are no delays in the management of your finances and healthcare, should you become incapacitated.
3. Durable Power of Attorney for Health Care
This document gives the person you select the authority to make health care decisions regarding your care. You can choose for the power of attorney to go into effect immediately, or you can specify that it will go into effect only upon your incapacity.
You may also wish to add a living will to your estate planning package. A living will gives your physician the authority to withhold all life-sustaining treatment and permit you to die naturally, taking no action to postpone your death. It is important to understand that for the living will to go into effect, you must be unable to communicate your wishes to your physician, and two physicians must agree that you are either in an unconscious state with no reasonable possibility of regaining consciousness, or that you are terminally ill and near death with no possibility of recovery. The living will instructs your physician to provide the care necessary to make you comfortable and relieve your pain.
In Ohio the terms of a living will "trump" a health care power of attorney, meaning that your physician can allow you to die in accordance with the living will even if the person holding your health care power of attorney does not agree with that decision. To avoid this result, have your lawyer add language to the healthcare power of attorney indicating that your attorney-in-fact has the last word regarding end-of-life decisions. So why have a living will at all if you are giving your attorney-in-fact the final word? Because by having a living will you make end-of-life decisions much easier for your attorney-in-fact, given that he or she will know your wishes. The living will also reduces the likelihood that there will be conflict between your attorney-in-fact and your other family members.
Finally, you should consult with your lawyer to discuss whether a trust would be a beneficial addition to your estate plan. There are many different types of trusts that meet a wide range of estate planning needs. The most common reasons for establishing an living trust are discussed in "Who Needs a Trust"
1. Last Will
A will names the executor of your estate, identifies your preferred guardian if you have minor children, and provides instructions regarding the distribution of your assets to your chosen beneficiaries. If you do not name a guardian for your young children, a probate court will appoint someone who may not be the person you would have chosen yourself to serve in that role. Likewise, without a will, your assets will be distributed in accordance with an Ohio law known as the Statute of Descent and Distribution. The statute may not distribute your assets in accordance with your wishes.
2. Durable Power of Attorney for Finances
Otherwise known as a General Durable Power of Attorney, this document gives a person you select the authority to pay your bills and manage your financial affairs. You can choose for the power of attorney to go into effect immediately, or you can choose for it to go into effect only in the event that you become incapacitated and are unable to manage your finances. Powers of attorney are not just for the elderly. People can become seriously ill or injured at any stage of life. Having powers of attorney for finances and health care in place will save your family many headaches and will ensure that there are no delays in the management of your finances and healthcare, should you become incapacitated.
3. Durable Power of Attorney for Health Care
This document gives the person you select the authority to make health care decisions regarding your care. You can choose for the power of attorney to go into effect immediately, or you can specify that it will go into effect only upon your incapacity.
You may also wish to add a living will to your estate planning package. A living will gives your physician the authority to withhold all life-sustaining treatment and permit you to die naturally, taking no action to postpone your death. It is important to understand that for the living will to go into effect, you must be unable to communicate your wishes to your physician, and two physicians must agree that you are either in an unconscious state with no reasonable possibility of regaining consciousness, or that you are terminally ill and near death with no possibility of recovery. The living will instructs your physician to provide the care necessary to make you comfortable and relieve your pain.
In Ohio the terms of a living will "trump" a health care power of attorney, meaning that your physician can allow you to die in accordance with the living will even if the person holding your health care power of attorney does not agree with that decision. To avoid this result, have your lawyer add language to the healthcare power of attorney indicating that your attorney-in-fact has the last word regarding end-of-life decisions. So why have a living will at all if you are giving your attorney-in-fact the final word? Because by having a living will you make end-of-life decisions much easier for your attorney-in-fact, given that he or she will know your wishes. The living will also reduces the likelihood that there will be conflict between your attorney-in-fact and your other family members.
Finally, you should consult with your lawyer to discuss whether a trust would be a beneficial addition to your estate plan. There are many different types of trusts that meet a wide range of estate planning needs. The most common reasons for establishing an living trust are discussed in "Who Needs a Trust"
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