A durable Power of Attorney can be set up in different ways.
You do not have to give up total control, when granting a Durable Power of Attorney, according to The Daily Sentinel’s article “Tools to help your aging parent.” Granting a power of attorney to a child is often a concern of aging parents but it doesn’t have to be a difficult situation.
The durable power of attorney is different than the “general medical power of attorney.” As implied by its name, this is limited to making decisions about the parent’s health care and is usually used only when the parent is not able to make these decisions on their own.
There are more serious situations, where neither of these types of power of attorney is enough, such as when the parent lacks capacity because of dementia or a medical decision. It is necessary to protect the parent from themselves or anyone who might try to take advantage of their lack of clear mental capacity. This may require that an adult child needs to be appointed as a guardian for their parent.
Being appointed a guardian can be a very emotional event, since the parent and child are not just switching emotional roles, but legal roles. The parent no longer has the capacity to make significant decisions, because a court has found that they no longer have that ability.
You may have heard the term “conservatorship” used. It is similar to guardianship, except that the conservatorship only allows for control over the parent’s financial affairs.
Guardianship is taken very seriously, as it should be. This removes an adult’s right to make any kind of decision on their own. In some states, including Colorado, the court must first be convinced that the parent is unable to effectively receive or evaluate information or to make or communicate decisions. They must be deemed incapacitated, before guardianship can be established. Once that standard has been met, then guardianship is established. If there is a doubt about incapacity, then no guardianship will be established, and the family is faced with finding other ways to help the aging parent.
Aging parents and their children face many issues that are best addressed before incapacity becomes an issue. If the family does not have a plan for the aging parent’s care, it is recommended that the family make an appointment with an estate planning attorney to discuss the various options.
If you receive the property as a gift from parents while they are alive, then you retain their income tax basis in the property. If they inherited it also, they likely have a low tax basis. Farms with a basis of $50,000 that are now worth $2 million are not unusual. If the farm is sold, there will be a capital gains tax on the difference between the basis and the present value, which could be more than $600,000.
If you inherit the farm from a parent and then sell it for $2 million, its value at the time of their death, you would not have to pay a capital gains tax. That saves $600,000.
The estate tax may not be so bad, depending upon your state’s estate tax, which is probably lower than the highest capital gains rate. If you live in Oregon, you may be eligible for the Oregon National Resource Credit, which was created to reduce Oregon estate taxes on family farms. Your estate planning attorney will be able to help you plan for and manage these taxes.
If you bought the farm from a parent’s trust or estate for $2 million, then you have a $2 million basis in the property and will probably not owe any property gains tax, if you eventually sell it for $2 million.
Just be sure that you comply with all reporting requirements. If you are in Oregon and took the Oregon National Resource Credit, then for five out of eight years after the death, the recipient of the inherited property is required to file an annual certification to keep the credit that was used to lower the estate tax. Failure to comply, means that a portion of the estate tax will have to be repaid.
If you own the farm without other family members, you should start planning your next steps. To whom do you want to pass the farm? If you want to keep the farm in the family, work with an attorney who is familiar with farm families, so that you can keep working the land and reduce any disputes.
Farmers often separate business operations from the land, with the operations held by one business and the land held by another entity. This allows the estate planning attorney to plan for succession in how operations and land are transferred to the next generation. It also provides asset protection, while you are alive.
Make sure that your farm succession plan and your estate plan are aligned. A common issue is finding that buy-sell documents don’t align with the will or trust.
Most of the assets in the plan created by her husband, in this case, did pass to the wife outside of probate. However, there are a number of details that remain. She needs to obtain date-of-death values for any non-IRA securities the couple owned, and she should also have their home’s value determined, so that a new cost basis for the house will be established. She also needs an appointment with an estate planning attorney to create a will and an estate plan.
If she dies without a will, her children will inherit the estate in equal shares by intestate succession. However, if any of her children pass before she does, the estate could be distributed to her grandchildren. If they are of legal age, there is no control over how the assets will be managed. Making matters worse, if a child or grandchild is disabled and receiving government benefits, an inheritance could make them ineligible for Social Security and Medicaid benefits, unless the inheritance is held within a Special Needs Trust.
Another reason for an estate plan: a will details exactly how assets are distributed, from the set of pearls that great aunt Sarah has kept in the family for decades to the family home. A durable power of attorney is also part of an estate plan, which lets a named family member or trusted friend make financial decisions on your behalf, if you become incapacitated. An estate plan also includes an advance health care directive, so a loved one can make medical decisions on your behalf if you are not able.
These are the basics of an estate plan. They protect loved ones from having to go to court to obtain the power to make decisions on your behalf, as well as protect your family from outsiders making claims on your estate.
A revocable trust is one way to avoid probate. An estate planning attorney will be able to evaluate your own unique situation and determine what the best type of trust might be for your situation.
You may be thinking of putting your home, most families’ biggest asset, into joint tenancy with your children. What if one or more of your children have a divorce, lawsuit or bankruptcy? This will jeopardize your control of your home. A revocable trust will allow your assets to remain in your control.
The last piece in this estate is the IRA. If you are the surviving spouse, you’ll want to roll over your spouse’s IRA into your own. Make sure to update the beneficiary designation. If you neglect this step and the IRA pays into your estate when you pass, then the IRA has to be cashed in within five years of your death. Your children will lose the opportunity to stretch IRA distributions over their lifetimes.
An estate planning attorney can advise you in creating an estate plan fits your unique circumstances.
There is a lot of news coverage and discussion about the federal estate taxes. However, unless you are in the upper level of the wealthy, they will not have an impact on you but there are some others that can be very extensive, according to the Pittsburgh Post-Gazette in “Death and taxes—and taxes and taxes.”
The federal estate tax is a non-event, unless you belong to the upper one percent of wealthy Americans. The federal tax is paid, based on the value of the assets owned by the decedent at the time of death. It also includes any assets that are controlled by the decedent at the time of death. The first $11.4 million is now excluded from any taxes due for an individual, and $22.8 million for a couple.
Before the Tax Cuts and Jobs Act of 2017, this exemption was roughly $5 million, so many more people had to pay it. The levels are expected to go back to the pre-2018 amount at the end of 2025, unless the law changes before that time.
This is an important point to remember: the tax laws change, and anytime tax laws change, your estate plan should be reviewed to ensure that it is still going to work the way you intend.
In some states, like Pennsylvania, there are still inheritance taxes. Only six states have inheritance taxes, and only 12 states still have an estate tax. Your estate planning attorney will know what your state’s inheritance and estate taxes are and can help you plan, so that your family is not overly burdened when it comes time to pay these taxes.
Inheritance taxes are generally based on the value of the assets owned or controlled by the decedent. It is independent of the obligation to file an income tax return for the estate.
The decedent’s representative, usually the executor, is responsible for filling all state, local and federal income tax returns for the portion of the year, in which the decedent was still living.
When a person passes and their last will and testament is admitted to probate, the executor receives an employer identification number (EIN) from the IRS. If the decedent died owning a trust, the trustee must obtain an EIN. Once the EIN is obtained, the IRS sends a letter notifying you of the due date for the income tax return for the estate or the trust. These are known as “fiduciary income tax returns.” They must be filed every year for the year that the estate or trust exists.
Note that the tax returns involve federal capital gains tax and how assets purchased before death will be treated for tax purposes, when they are sold after death. Usually these are real estate and investments. There are a LOT of taxes to consider, each has a unique due date and there may be ways to pay some taxes that will have an impact on other taxes, depending upon the situation.
The key, and an estate planning attorney can help with this, is to create a plan that takes all the taxes into consideration and plans out a strategy to minimize taxes, ensure that everything is paid on time and prepare for the taxes to be paid.
Here’s an example: Carol’s partner Roger, with whom she had lived for more than two decades, passes away. They had never married. Roger had been estranged from his daughter from a previous marriage and hadn’t spoken to her in more than two decades. Roger had made a will that specifically left everything to Susan and specifically disinherited his daughter.
When Carol contacted Roger’s employer to find out about his retirement plan, she was stunned to learn that he had never changed his named beneficiary. His daughter was the beneficiary and she would receive his entire IRA. The company representative could not even discuss the matter with Carol, because she was not the beneficiary. The couple had planned on Carol having that money to help after he passed, but the beneficiary designation was not changed.
Later, while cleaning out Roger’s files, Carol found the forms to change the beneficiary designation — but they had never been mailed.
Roger owned some property, so the will had to be brought to the Register of Wills office to register it for probate. This is the process where the executor obtains court approval to act on behalf of the deceased person. Problem number two: Roger had downloaded a will from the Internet, and it had not been properly signed or executed. Since it was not properly signed, the estate planning attorney who was helping Carol had to locate the notary and the witnesses. This was starting to get expensive, and it was taking much longer than it would have, if a proper will had been drafted.
The tag dealer, whose employee had notarized the will, said that the person was no longer employed at the company and no one knew where he was. The witnesses were unavailable. The probate process became even more troublesome.
Things only got worse from there. The will that Roger had downloaded from the Internet also included “default inheritance clause,” which meant that the estate was obligated to pay taxes on the money that was left to Roger’s daughter. This meant even less money for Carol. Not only does Roger’s estranged daughter get the money, but Susan has to pay the taxes out of her share.
A will is too important to be left to chance and hope that an online document is correct. Wills need to be created and executed with the utmost care. Roger thought he was saving himself some money, but the expense and stress he caused for Carol was a financial and emotional disaster.
It sometimes comes down to what was the person’s intent.
The preparation of a will and estate plan is serious legal work. However, it can get very complex, when a man executes three wills and doesn’t get one of them witnessed, according to nwi.com in “Estate Planning: Will formalities are important.” The courts will have a challenge figuring out which will to accept. That is the reason that wills and estate plans need the advice of an estate planning attorney.
First, is the third will valid? If there were no witnesses, it seems very clear that it is not. Except for very unusual circumstances, a will is only valid if it is in writing, signed by the person who is its “creator,” which is the “testator,” and witnessed by not one but two witnesses.
The next question is, how about that second will? Is it valid? Was the second will revoked, when the third was created, even though it was not properly executed?
There are two basic ways to revoke a will: physical destruction or written instrument. If the will was not destroyed, then the revocation of the second is considered to have occurred by the creation of the third will. Most wills contain a recital revoking all previous wills and codicils, which serves as a written revocation.
However, there’s a problem. Because the third will is most likely void, then it could not have revoked the second will. Will revocations also need to be witnessed, and since the third will was not witnessed, the recital contained in the third will revoking the prior wills is also void.
It, therefore, seems that the second will is valid in this situation. We say it seems because there may be other factors that might also make the second will invalid: we don’t have all the facts.
The lesson from this article is that when it comes to wills, trusts and estate plans, the formalities really do matter. Procedures and formalities are considered more important than intent.
Another story that illustrates that point comes from an attorney who was involved in an estate matter where the person who made the will tried to take out several beneficiaries, by taking a razor blade to the document and physically removing their names from the will. The estate battle began after he died. The intention was clear—to remove the beneficiaries from the will. However, because the proper formalities were not followed, the beneficiaries were not properly removed from the will and they received their bequests after all.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and makes your wishes known.
The advance directive helps family members and your doctors understand your wishes about medical care. The wishes you express through these two documents described below, require reflection on values, beliefs, views on medical treatments, quality of life during intense medical care and may even touch on spiritual beliefs.
The goal is to prepare so your wishes are followed, when you are no longer able to express them. This can include situations like end-of-life care, the use of a respirator to breathe for you, or who you want to be in the room with you, when you are near death.
It should be noted that an advance directive also includes a mental health component, that extends to making decisions on your behalf when there are mental health issues, not just physical issues.
There are two types of documents: a durable power of attorney for health care and a living will.
The durable power of attorney for health care lets you name a person you trust to make health care decisions when you cannot make them for yourself. This person is called your health care agent and will have the legal right to make these decisions. If you don’t have this in place, your doctor will decide who should speak for you. They may rely on order of relationships: a legal guardian, spouse, adult child, parent, sibling, grandparent, grandchild or a close friend.
A living will is the document that communicates what kind of health care you want, if you become ill and cannot make decisions for yourself. This helps your named person and your doctor make decisions about your care that align with your own wishes.
The article concerns a woman who is worried about what will happen with their Social Security checks, who she needs to notify at their bank, how to obtain death certificates and how complicated it will be for her to obtain widow’s benefits.
First, what happens to the Social Security monthly benefits? Social Security benefits are always one month behind. The check you receive in March, for example, is the benefit payment for February. Second, Social Security benefits are not prorated. If you took benefits at age 66, and then turned 66 on September 28, you would get a check for the whole month of September, even though you were only 66 for three days of the month.
If your spouse dies on January 28, you would not be due the proceeds of that January Social Security check, even though he or she was alive for 28 days of the month.
Therefore, when a spouse dies, the monies for that month might have to be returned. The computer-matching systems linking the government agencies and banks may make this unnecessary, if the benefits are not issued. Or, if the benefits were issued, the Treasury Department may simply interrupt the payment and return it to the government, before it reaches a bank account.
There may be a twist, depending upon the date of the decedent’s passing. Let’s say that Henry dies on April 3. Because he lived throughout the entire month of March, that means the benefits for March are due, and that is paid in April. Once again, it depends upon the date and it is likely that even if the check is not issued or sent back, it will eventually be reissued. More on that later.
Obtaining death certificates is usually handled by the funeral director, or the city, county or state bureaus of vital statistics. You will need more than one original death certificate for use with banks, investments, etc. The Social Security office may or may not need one, as they may receive proof of death from other sources, including the funeral home.
A claim for widow’s or widower’s benefits must be made in person. You can call the Social Security Administrator’s 800 number or contact your local Social Security office to make an appointment. What you need to do, will depend upon the kind of benefits you had received before your spouse died.
If you had only received a spousal benefit as a non-working spouse and you are over full retirement age, then you receive whatever your spouse was receiving at the time of his or her death. If you were getting your own retirement benefits, then you must file for widow’s benefits. It’s not too complicated, but you’ll need a copy of your marriage certificate.
A trust for your pets can make them safe, when you are gone.
It most likely will not take a tremendous amount of money to provide financial support for your pets after you are gone, so it might be a good idea to remember them in your estate plan, according to the Times Herald-Record in “Who’ll care for your pets when you’re gone?”
A will is a document used in a court proceeding called probate, if you die with assets that are only in your name. When the will goes through probate, it becomes a public document. A trust, on the other hand, is a document that does not become part of the public record, unless it was created under a will. Some people use trusts for their beloved pets, to pay for their care and maintain their lifestyle. Some pets lead fancier lives than others!
Most people leave the care of pets in the hands of friends or relatives and hope for the best. Visit any animal shelter and you’ll see the animals whose owners could not take care of them, or whose friends or family members intended to take care of them, but for whatever reasons, could not care for them. Putting a pet trust into your estate plan, is a better way to care for pets, if you outlive them.
The pet trust has several steps, and an estate planning attorney will be able to set it up for you. First, you need to appoint a trustee of the trust funds. This person is in charge of the financial aspect of the trust, from paying vet bills, making sure pet health insurance premiums are paid, to providing money for the caretaker to buy supplies. It’s a good idea to have a secondary trustee, just in case.
Next, you name a caretaker of the pet. This person can be the same as the trustee, although it may be better to name a different person, to create some checks and balances on the funds. You can, if you like, give the trustee the right to appoint a caregiver or a back-up caregiver. Make sure you discuss all of these details with the trustee and the caregiver and their back-ups to be sure that everyone understands their roles, and all are willing to take on these responsibilities. Some pets can live a long time, and you want to have everyone understand what they are undertaking.
Third, you’ll need to designate the amount of money to be held in trust for the pets for medical care, daily living costs and support until the pet dies. Don’t forget to include the cost of burial or cremation.
Finally, name the persons or organizations you wish to receive any remaining funds.
An informal letter of instruction to both the trustee and the caregiver would be very helpful. Provide details on the pet’s personality, quirky behavior, preferences for food, treats, play and any information that will help all the parties get along well. You should also provide information on your pet’s vet, any registration numbers for microchips, medical and dental records, medications, etc.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include your pets.
We hate to think about becoming dependent upon others. However, that is often what occurs with aging. This is an asset that needs to be planned for and managed, like any other. Here are some tips for each decade:
Health Care Directives in Your 50s. You need to have a will and you need to have it updated, as the years go by. However, in mid-life, you need to make sure to have a living will and power of attorney. Estate planning is a tool used to protect your independence and your wishes as you grow older. These two documents are a critical part of your estate plan. A health crisis or an accident can happen to anyone, but planning can ensure that your wishes are followed. Put your wishes on paper, with an attorney, so that they are enforceable. Just telling someone what you want, is not going to do it.
Home and Belongings in Your 60s. The kids are out of college and have their own careers and families. Do you still need that big house? Downsizing could bring you tremendous freedom now. Yes, you have to go through all of your belongings, which is a lot of work. However, consider how your life would change if you had less stuff, a smaller home and lower bills? This one move could change how your retirement succeeds—or fails.
Stay Connected in your 70s and 80s. Connecting with your community is critical at this time of life. When you are actively engaged with your community, you’ll be busy with activities that you enjoy. You will hopefully be making contributions that draw on your years of experience and knowledge. Hope and having a purpose in life is not just for the young. The healthiest and most independent lives are lived when people are engaged with other people, with a life that has meaning and purpose.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and includes finances, independence and good health planning.