Although this document starts with a bold faced warning, few read it, and those who do fail to understand its inherent legalese. In fact, it has been reported that many older principals sign their documents based only upon the limited information given to them by their "abuser agent". It's just too easy and perhaps too tempting for those who mean harm!
At present, the execution of a durable power of attorney is accomplished by the principals's notarized signature. Would strengthening the execution requirements make more principals aware of what they are signing and dissuade would be abusers? Certainly the notary process is not taken as seriously as it perhaps should, many times, however, with the best of intentions. Would the process be improved if the notary faced a felony charge for not making the necessary inquiries as to the capacity of the principal to sign? What if the notary were personally liable for any financial loss incurred as a consequence of the misuse of a durable power of attorney, at least under circumstances where the documetn was notarized without the presence of the principal or signed by a clearly incompetent principal.
Would it be better if we required a durable power of attorney signing using the same formalities of a Will signing? Perhaps, but forging signatures and finding co-conspirators to witness the documents seems like an easy way to circumvent the good intention of increased formalities. If this latter point is true, increased execution requirements will likely not have an appreciable effect on such elder abuse.
What if all durable powers of attorney had to be prepared by attorneys? Certainly we would think that if a lawyer is involved in the process, such elder abuse would be caught in its tracks. But this is probably not the case in practice because of our zeal to help and our naive under-appreciation for the potential for abuse.
Next time we will illustrate this by looking at a common example in an Elder Law attorneys's office.
Tuesday, September 21, 2004
Sunday, September 5, 2004
Durable Powers of Attorney - Part 3
A common example in an Elder Law attorney's office might go something like this...A son may come into the office and say that his Mom is bedridden and has been diagnosed with the beginnings of Alzheimer's disease. Immediately we are concerned with the capacity of the client, at least down the road. As lawyers we know that an expensive guardianship adventure awaits the client unless a durable power of attorney is quickly executed. Moreover, if we prepare a Durable Power of Attorney, it would usually contain very liberal powers, such as the power to make gifts and self-deal to enable effective Medicaid and tax planning. This in turn makes it easier for a would-be abuser to abuse.
So, should we do the easy thing? Should we prepare the durable power of attorney and hand it to the son. this would be the easiest and in many cases the best solution. The son is usually looking for a quick and inexpensive solution to his problem and we are usually trying to provide such a solution. This may in fact be what the elderly person wants as well.
But shouldn't we insist on going to Mom's house and talking to her? Clearly this strategy would provide the best protection for Mom. But is it overkill to go this far in every case? Who is the client in this situation anyway? The Mom or the son? Does it matter if we get the feeling that the son is on the up and up? Wouldn't this be a waste of time and money in most cases, as most children are not out to financially abuse their parents? This is an ethical siutation that Elder Law attorneys face everyday. Do we need a hard and fast rule for these situations or as true advocates for the elderly, can we satisfy our ethics and our natural inclination to serve the elderly by using our judgment on a case by case basis? Besides, are clients willing to pay for the conservative service? At least for the clients who seek our advice, I believe the case by case approach is the most practical approach, in spite of the fact that some will fall through the cracks.
The bottom line is that durable powers of attorney are being abused. Legislation should be enacted to balance the need for a simple and convenient solution with enough safeguards to prevent abuse. Involving attorneys in the process may help. Perhaps requiring the formalities of a Will signing will force more seniors to seek legal counsel before signing such a powerful document. Lawyers are involved often in this process anyway and they can at least exercise their independent judgment as to whether a particular elderly person needs further protection. Many may still fall through the cracks, but a balanced solution is what is called for under these circumstances. A power of attorney should be easy to obtain in most cases, but the individuals need to appreciate that the person they choose as their agent may have a different agenda. We and our clients need to proceed with caution. In the end, perhaps our greatest goal is to continue to educate the public on the durable power of attorney's scope, limitations and potential for abuse.
So, should we do the easy thing? Should we prepare the durable power of attorney and hand it to the son. this would be the easiest and in many cases the best solution. The son is usually looking for a quick and inexpensive solution to his problem and we are usually trying to provide such a solution. This may in fact be what the elderly person wants as well.
But shouldn't we insist on going to Mom's house and talking to her? Clearly this strategy would provide the best protection for Mom. But is it overkill to go this far in every case? Who is the client in this situation anyway? The Mom or the son? Does it matter if we get the feeling that the son is on the up and up? Wouldn't this be a waste of time and money in most cases, as most children are not out to financially abuse their parents? This is an ethical siutation that Elder Law attorneys face everyday. Do we need a hard and fast rule for these situations or as true advocates for the elderly, can we satisfy our ethics and our natural inclination to serve the elderly by using our judgment on a case by case basis? Besides, are clients willing to pay for the conservative service? At least for the clients who seek our advice, I believe the case by case approach is the most practical approach, in spite of the fact that some will fall through the cracks.
The bottom line is that durable powers of attorney are being abused. Legislation should be enacted to balance the need for a simple and convenient solution with enough safeguards to prevent abuse. Involving attorneys in the process may help. Perhaps requiring the formalities of a Will signing will force more seniors to seek legal counsel before signing such a powerful document. Lawyers are involved often in this process anyway and they can at least exercise their independent judgment as to whether a particular elderly person needs further protection. Many may still fall through the cracks, but a balanced solution is what is called for under these circumstances. A power of attorney should be easy to obtain in most cases, but the individuals need to appreciate that the person they choose as their agent may have a different agenda. We and our clients need to proceed with caution. In the end, perhaps our greatest goal is to continue to educate the public on the durable power of attorney's scope, limitations and potential for abuse.
Monday, August 30, 2004
Advance Planning in Second Marriages
Second marriages, particularly those later in life, can pose issues and challenges which require careful consideration. Prenuptial Agreement - a written agreement or contract drafted by lawyers and signed by the prospective husband and wife before the marriage - are designed to cover each spouse's rights in the event of divorce and upon death. Typically, the Prenuptial Agreement will cover a couple's individual property brought to the marriage, what is to be done with future-acquired property, and support of a surviving spouse. Prenuptial Agreements have expanded to cover the rights and obligations of the husband and wife during the marriage, as well. Even with these agreements, under New York law each spouse has a duty to support the other during marriage and possibly after divorce.
The importance of property rights notwithstanding illness and incapacity, although not just the province of second marriages, pose difficult issues for second marriage couples and their families. Who will care for the sick spouse? Who will be responsible for arranging for care and making decisions about that care? Who will pay for the care - whether at home or in a nursing home? And, if necessary, will Medicaid be available to pay for care?
Prenuptial Agreements can and should address many of these issues. If either spouse could remain at home with home care services, the agreements should have payment plans for care and other possible extraordinary medical expenses. Medicaid planning with respt to resources should also have been considered. Will one spouse be allowed to "gift" assets to adult children leaving the other spouse's assets exposed to Medicaid recovery or subject to spend down if either should require long term care? Has the prenuptial agreement provided for payment for supplemental Medicare policies and/or long term care insurance?
The issue of who will make actual health care decisions for an ill spouse must be addressed outside the prenuptial agreement in a Health Care Proxy and Living Will. Careful consideration in selecting the agent and alternate agent is essential. should the spouse be the agent or adult children from the prior marriage? If adult children, will the agent be accessible in the event of a medical emergency?
The facts of each case will differ as will the needs of the couple entering into a second marriage. Management of and payment for health care in a second marriage should not be overlooked in Prenuptial Agreements.
The importance of property rights notwithstanding illness and incapacity, although not just the province of second marriages, pose difficult issues for second marriage couples and their families. Who will care for the sick spouse? Who will be responsible for arranging for care and making decisions about that care? Who will pay for the care - whether at home or in a nursing home? And, if necessary, will Medicaid be available to pay for care?
Prenuptial Agreements can and should address many of these issues. If either spouse could remain at home with home care services, the agreements should have payment plans for care and other possible extraordinary medical expenses. Medicaid planning with respt to resources should also have been considered. Will one spouse be allowed to "gift" assets to adult children leaving the other spouse's assets exposed to Medicaid recovery or subject to spend down if either should require long term care? Has the prenuptial agreement provided for payment for supplemental Medicare policies and/or long term care insurance?
The issue of who will make actual health care decisions for an ill spouse must be addressed outside the prenuptial agreement in a Health Care Proxy and Living Will. Careful consideration in selecting the agent and alternate agent is essential. should the spouse be the agent or adult children from the prior marriage? If adult children, will the agent be accessible in the event of a medical emergency?
The facts of each case will differ as will the needs of the couple entering into a second marriage. Management of and payment for health care in a second marriage should not be overlooked in Prenuptial Agreements.
Sunday, August 15, 2004
Per Stirpes
An essential part of drafting a will or a living trust involves collecting information about personal and financial objectives of a client. Most clients are very clear as to whom they wish to leave their personal and financial property - a surviving spouse, children, and grandchildren are the most common beneficiaries.
It is also our job to make sure that those intended beneficiaries receive their inheritance. What happens if the intended beneficiary of a specific or residuary bequest under a will or trust dies before the client? Who will inherit?
There are three designations commonly seen in estate planning documents such as wills and trusts - Per Stirpes, Per Capita and By Representation. Each will be discussed over the next few weeks. We will also be discussing the importance of these designations in 'will substitute' instruments such as IRA and 401K plans, life insurance, etc.
The most common phrase used in estate planning documents is "per stirpes". Essentially, "per stirpes" means that a distribution will be made to the surviving family members in the family tree when an individual dies before the testator or settlor of a trust. This means that surviving "issue" will inherit equal portions of the share their deceased ancestor would have taken if living. "Issue" are persons descended from a common ancestor.
For example, assume that Mr. Client leaves his estate to three Children, A, B, and C, each of whom has three children. At the time of Mr. Client's death, one of his children, A, has predeceased. Mr. Client's Will says, "I leave all of my property, real and personal, to my three children, per stirpes." Who will inherit and in what proportions? The answer is that Mr. Client's two living children (B & C) will each inherit a 1/3 share of his estate. The remaining 1/3 share which would have been inherited by the predeceased child, A, will now be divided equally between the three surviving children, or issue, of A.
Sometimes, instead of using the phrase, per stirpes, estate planners will use another format. For example, Mr. Client's trust says, "The Settlor directs that the trustee shall distribute all of the then remaining property, both real and personal, of this trust to Settlor's Children A, B, and C, except that, should any of them not be living at such time, but leave issue surviving, the issue of such predeceased child shall take the share, per stirpes, which their parent would have taken, had he or she survived." The result is the same if A should predecease Mr. Client and leave three surviving children.
What happens if there is no per stirpes designation in a will or trust? The answer will be discussed next week.
It is also our job to make sure that those intended beneficiaries receive their inheritance. What happens if the intended beneficiary of a specific or residuary bequest under a will or trust dies before the client? Who will inherit?
There are three designations commonly seen in estate planning documents such as wills and trusts - Per Stirpes, Per Capita and By Representation. Each will be discussed over the next few weeks. We will also be discussing the importance of these designations in 'will substitute' instruments such as IRA and 401K plans, life insurance, etc.
The most common phrase used in estate planning documents is "per stirpes". Essentially, "per stirpes" means that a distribution will be made to the surviving family members in the family tree when an individual dies before the testator or settlor of a trust. This means that surviving "issue" will inherit equal portions of the share their deceased ancestor would have taken if living. "Issue" are persons descended from a common ancestor.
For example, assume that Mr. Client leaves his estate to three Children, A, B, and C, each of whom has three children. At the time of Mr. Client's death, one of his children, A, has predeceased. Mr. Client's Will says, "I leave all of my property, real and personal, to my three children, per stirpes." Who will inherit and in what proportions? The answer is that Mr. Client's two living children (B & C) will each inherit a 1/3 share of his estate. The remaining 1/3 share which would have been inherited by the predeceased child, A, will now be divided equally between the three surviving children, or issue, of A.
Sometimes, instead of using the phrase, per stirpes, estate planners will use another format. For example, Mr. Client's trust says, "The Settlor directs that the trustee shall distribute all of the then remaining property, both real and personal, of this trust to Settlor's Children A, B, and C, except that, should any of them not be living at such time, but leave issue surviving, the issue of such predeceased child shall take the share, per stirpes, which their parent would have taken, had he or she survived." The result is the same if A should predecease Mr. Client and leave three surviving children.
What happens if there is no per stirpes designation in a will or trust? The answer will be discussed next week.
Thursday, August 5, 2004
What Happens When "Per Stirpes" is not used?
We began our discussion last week on the importance of proper designation of beneficiaries in estate planning documents, such as Wills and Living Trusts, and on beneficiary designation forms for life insurance, IRA's, 401K's and certain bank accounts.
The most common planning phrase used is per stirpes. Here, the issue (children or grandchildren) of a predeceased child will take their ancestor's share. What happens if no designation is made? That is, what happens if the phrase per stirpes is not used?
Under wills executed before September 1, 1992, if per stirpes is not specified, the distribution will be per capita if all beneficiaries are equally related to the testator, and per stirpes if not equally related.
A per capita distribution means that each person who is entitled to inherit receives an equal share. Assume Mr. Client has four children - A has two children, B has 1 child, C has 1 child and D has three children. A and C die before Mr. Client. Mr. Client's will does not specify per stirpes. All 5 beneficiaries - A's two children, B, C's child and D - will divide the estate equally.
Under wills executed after September 1, 1992, if a disposition of property is made to "issue" without the phrase per stirpes or per capita, then the issue take by representation. Again, assume Mr. Client has four children - A has two children, B has 1 child, C has 1 child and D has three children. A and C die before Mr. Client. Now, B and D will each receive their 25% share of Mr. Client's estate; A's two children and C's one child (three in total) will share the balance of the estate (about 16.5% each).
In calculating a share by representation, the intital division of shares is made at the first generation level (here, the children of Mr. Client) in which a member is living. Members of the nearest generation to the testator will each receive one share and the remaining shares are combined and equally divided among the heirs in the next generation.
The most common planning phrase used is per stirpes. Here, the issue (children or grandchildren) of a predeceased child will take their ancestor's share. What happens if no designation is made? That is, what happens if the phrase per stirpes is not used?
Under wills executed before September 1, 1992, if per stirpes is not specified, the distribution will be per capita if all beneficiaries are equally related to the testator, and per stirpes if not equally related.
A per capita distribution means that each person who is entitled to inherit receives an equal share. Assume Mr. Client has four children - A has two children, B has 1 child, C has 1 child and D has three children. A and C die before Mr. Client. Mr. Client's will does not specify per stirpes. All 5 beneficiaries - A's two children, B, C's child and D - will divide the estate equally.
Under wills executed after September 1, 1992, if a disposition of property is made to "issue" without the phrase per stirpes or per capita, then the issue take by representation. Again, assume Mr. Client has four children - A has two children, B has 1 child, C has 1 child and D has three children. A and C die before Mr. Client. Now, B and D will each receive their 25% share of Mr. Client's estate; A's two children and C's one child (three in total) will share the balance of the estate (about 16.5% each).
In calculating a share by representation, the intital division of shares is made at the first generation level (here, the children of Mr. Client) in which a member is living. Members of the nearest generation to the testator will each receive one share and the remaining shares are combined and equally divided among the heirs in the next generation.
Monday, August 2, 2004
The Use of a GRAT (Grantor Retained Annuity Trust)
A GRAT (grantor retained annuity trust) is a technique for transferring property to members of the grantor's family at a reduced transfer tax cost. A grantor creates a GRAT by transferring property to a trust and retaining a "qualified annuity interest" in the property. The trust lasts for a specified period of time that the grantor is expected to outlive(the trust "term"). At the end of the specified term, the trust property passes to the trust's remainder beneficiaries (members of the grantor's family).
GRATs take advantage of special IRS valuation rules which make tax savings possible. The grantor is treated as having made a gift of a remainder interest in the property, the value of which is determined under these special IRS valuation tables. For tax purposes the value of the interest passing to the grantor's family (the gift) is less than the total value of the property at the time the trust is created because the value of the gift is deemed to be (1) the value of the property (2) as reduced by the value of the interest retained by the grantor. The grantor's Applicable Credit against gift and estate taxes (currently $675,000, and increasing in phases to $1,000,000 in the year 2006) can be applied to the reduced gift to avoid or minimize the payment of gift tax on the transfer to the trust. If the trust does not qualify as a GRAT, the special valuation rules would not apply and,as a result, the value of the retained interest would be deemed to be zero, meaning that the grantor would have to pay gift tax (or apply his Applicable Credit) the entire value of the trust property at the time he created the trust.
When the grantor's retained interest terminates, the property remaining in the trust passes to the grantor's beneficiaries free of a gift tax, even if it has appreciated in value since the trust was created. If the grantor survives the trust term, the trust property won't be includable in his estate for estate tax purposes when he dies because he will no longer have any interest in the property. If the grantor dies during the term, part or all of the trust property will be includable in his gross estate. But, he won't be any worse off than he would have been if he hadn't created the trust in the first place.
GRATs take advantage of special IRS valuation rules which make tax savings possible. The grantor is treated as having made a gift of a remainder interest in the property, the value of which is determined under these special IRS valuation tables. For tax purposes the value of the interest passing to the grantor's family (the gift) is less than the total value of the property at the time the trust is created because the value of the gift is deemed to be (1) the value of the property (2) as reduced by the value of the interest retained by the grantor. The grantor's Applicable Credit against gift and estate taxes (currently $675,000, and increasing in phases to $1,000,000 in the year 2006) can be applied to the reduced gift to avoid or minimize the payment of gift tax on the transfer to the trust. If the trust does not qualify as a GRAT, the special valuation rules would not apply and,as a result, the value of the retained interest would be deemed to be zero, meaning that the grantor would have to pay gift tax (or apply his Applicable Credit) the entire value of the trust property at the time he created the trust.
When the grantor's retained interest terminates, the property remaining in the trust passes to the grantor's beneficiaries free of a gift tax, even if it has appreciated in value since the trust was created. If the grantor survives the trust term, the trust property won't be includable in his estate for estate tax purposes when he dies because he will no longer have any interest in the property. If the grantor dies during the term, part or all of the trust property will be includable in his gross estate. But, he won't be any worse off than he would have been if he hadn't created the trust in the first place.
Friday, July 30, 2004
The Elder Suite
The vast majority of caregiving for the senior population is not provided in nursing homes or assisted living facilities. Most seniors are able to receive care at home with the help of their family. In some cases, this is an alternative. However, in many cases this is simply not an option. Location issues, careers, money and raising families of their own prevent many adult children from caring for elderly parents. However, children do not want their senior parent's safety or comfort to be at risk and many want to participate in caring for their elderly parent. This is a common issue for many families with elderly relatives today.
Balancing the needs of the elderly parent and caregiver child can be difficult. However, one solution can be the addition of an "elder suite" to the caregiver's residence. Basically, an elder suite is approximately 300 square feet of living space that is custom tailored to the special needs of senios and is installed on the caregiver's residence. The elder suite has an open layout for easy accessibility and also has the safety features such as shower seating, oversized doors, non-slip flooring, grab bars and panic buttons.
Paying for the elder suite is often less expensive and more time efficient than the costs and time involved in building an addition to the caregiver's residence. The elder suite provides both the senior and the caregiver's family with the privacy and independence each needs. In addition, the elder suite can be removed and the caregiver's residence can be returned to its original condition when the circumstances of the family change.
There is a cost to install the elder suite and you can either rent or buy the elder suite, depending on your situation. Compared to the rising costs of assisted living facilities and nursing homes, this is an ideal option for many families. It allows the parent to remain at "home" and maintain a sense of independence while allowing the caregiver child to have peace of mind that his or her parent is comfortable and safe.
Balancing the needs of the elderly parent and caregiver child can be difficult. However, one solution can be the addition of an "elder suite" to the caregiver's residence. Basically, an elder suite is approximately 300 square feet of living space that is custom tailored to the special needs of senios and is installed on the caregiver's residence. The elder suite has an open layout for easy accessibility and also has the safety features such as shower seating, oversized doors, non-slip flooring, grab bars and panic buttons.
Paying for the elder suite is often less expensive and more time efficient than the costs and time involved in building an addition to the caregiver's residence. The elder suite provides both the senior and the caregiver's family with the privacy and independence each needs. In addition, the elder suite can be removed and the caregiver's residence can be returned to its original condition when the circumstances of the family change.
There is a cost to install the elder suite and you can either rent or buy the elder suite, depending on your situation. Compared to the rising costs of assisted living facilities and nursing homes, this is an ideal option for many families. It allows the parent to remain at "home" and maintain a sense of independence while allowing the caregiver child to have peace of mind that his or her parent is comfortable and safe.
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