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Who Has the Power: Attorneys-in-Fact, Personal Representatives, Guardians, and Trustees

Estate planning can be complicated. In addition to different ways to structure a plan, multiple people can be involved. Most of the time, the people making decisions within the different documents are the same person. However, they don’t have to be. As such, it’s important to understand what the different positions and documents require.

Attorneys-in-Fact – This person can also be called an Agent, but it’s the person acting through a Power of Attorney. Their power either begins immediately or when a person is no longer able to make decisions for themselves. However, this power ends with the person creating the document (also known as the principal) dies. The attorney-in-fact can have many different responsibilities, but I generally divide it into two categories. The first being responsibility over the principal’s assets which remain in the principal’s name and legal decisions. The best example of this is generally making decisions over insurance policies or retirement accounts. They must use these assets for the principal’s benefits. The second category is medical decisions. The attorney-in-fact has the power of what treatments the principal should receive, may sign off on medical waivers, and will make the final decision on end of life treatment.

Personal Representative – Previously called an executor or executrix, this is the person acting under an individual’s will. When acting as a personal representative (or PR), that person will have to locate the will and deliver it to the probate court. They will then be responsible to the court to determine what assets must pass through probate with an inventory and accounting of those assets. The PR will have to determine what to do with assets, pay any creditor claims, and is responsible for all filings submitted to the court. At the end of the probate matter, the PR will also be the one who divides the estate to any beneficiaries.

Guardians – For many families, this is the most important role. This is specified in the will and is vital for determining who is responsible for minor or incompetent children. The court has the final decision on who a guardian will be, but a parent’s will and wishes are often respected.

Trustees – A trustee is the person responsible for enforcing the terms of the trust.   Essentially this means that when the principal is no longer able to make decisions (or chooses not to), the trustee will take control of any assets held in the trust’s name. At that point they will use the assets for the person who created the trust. When the principal passes, the trustee will be responsible for either distributing the remaining assets to the beneficiaries or managing the assets for the beneficiaries. This position can last for multiple years and generations.

All of these roles require a person to act in the best interests of the principal or the beneficiaries, but there can be very little oversight. A lot of responsibility and power comes with attorneys-in-fact, personal representatives, guardians, and trustees and there is definitely the ability to abuse the power. As such, it’s extremely important to choose the right person for each role and most importantly choose someone who can be trusted.

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Questions to Ask Your Estate Planning Attorney

This week I had the benefit of sitting through four hours of information regarding the taxation of IRAs. I call it a benefit very intentionally. It’s a benefit for me and a benefit for my clients. Now, I am not a tax attorney or a CPA, but taxes and knowing IRS law and regulations directly affect how I draft documents and advise my clients to list their beneficiaries. Those decisions are extremely individualized and often is a discussion with the client and their tax or financial advisor, so unfortunately, you’ll never see a discussion of those issues here. However, it made me ask what the estate planning attorney you are working should know. As such, here are some questions to ask your estate planning attorney before working with her:

  • How do you charge? What other fees should I expect?
  • Will you work with my other financial professional? Are there additional fees for doing so?
  • Do you fund a trust for me or help me change beneficiaries?
    • I always send my clients away with homework, whether there is a trust involved or a just a will, my clients often will need to update a title or beneficiary. Some attorneys will do this for their clients (generally for an additional fee). If you know you will not do these things, I strongly recommend finding an attorney who will do this. However, if you are cost conscious, then an attorney who doesn’t do this may not be important.   No matter what, I would still recommend hiring an attorney who will advise you on titling and beneficiaries; as well as one who will follow up to ensure you have changed appropriate titles and beneficiaries.
  • How often will you contact me?
    • Tax laws (among others) change every year and you don’t want to be the one responsible for knowing if those laws change and if they affect your plan. I would recommend an attorney who will at least talk with you once a year to determine if an update to your plan is necessary.
  • How often and how many wills/trusts/estate plans do you complete a year? How do you stay current on tax law?
    • The number of plans an attorney completes a year directly relates to their incentive to stay current on law affecting those plans. So while an attorney may have done hundreds, if they only do a few year, are they really knowledgeable of the current law? I know many older attorneys who do not advise beneficiary designations in the most advisable way because the law has changed since they last actively practiced.

You should be comfortable working with whomever you hire and this needs to include communication, knowledge level, and expectations. Know what you and your professional expect from one another at the beginning and your estate plan is much more likely to be what you expect and want. Hopefully, these have made you think of your own questions for any attorney or any financial professional you are looking to hire. In the end, remember, the decision is your and you are the client.

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But I Already Have A Plan: When to Update Your Estate Plan

Unfortunately, you might have already formed an estate plan, but that doesn’t mean you’re done. At least once a year (often times more frequently), I check in with clients to make sure their plan has actually been implemented and that nothing needs to change. If you’ve already signed your estate planning documents here are a few times it might be worth calling your attorney to make sure nothing needs to be updated:

Assets – If you have had a large change in wealth or assets since you’ve first set up you estate plan, it’s probably time to review. A change in wealth could mean you need to re-evaluate your beneficiaries, trustees, distributions, along with any changing tax laws that may now apply. Even new assets may warrant a phone call to ensure they are planned for and, more importantly, titled properly.

Moving – This goes hand in hand with new assets, where a new home title should be reviewed to make sure it is done correctly and consistently within your plan. However, if changing states, an estate plan should also be review to make sure state laws don’t require different documents or in case a state estate tax might apply.

Time – Over the years, lives change and as they do it’s important to make sure an estate plan changes with them. If children grow up, distribution ages or events might need to be altered. Trustees or other people named in documents might not seem like a wise choice anymore.

Family Changes – Along the same lines, families change dramatically as well. Distribution ages, structures, amounts, etc. all need to be reviewed as family dynamics and life shifts over the years. Specifically, I would recommend a review for any of the following events.

Divorce – Unfortunately, this is a common family change. Provisions may need to be made or changed if a person needs to be removed from a plan or even if a new structure is necessary to prevent interference with a person’s wishes.

Death – Losing a loved one is often hard enough without thinking about the legal consequences, but eventually documents need to be updated to reflect the loss.

Births – While many documents provide for a later born child, I still recommend a review and an update when including new beneficiaries to avoid unnecessary complications later.

With that being said, my husband and I will be taking the time to review our own plan as we look forward to the birth of our first child in June. Have you recently looked at your documents or had a big life change? Take a moment to consider if you might need a review.

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Take Control Through Estate Planning

I recently had the pleasure of sitting down with Chris Finny from the Finney Law Office. As Chris was explaining how he helps individuals through difficult events in their lives (car accidents, getting hurt on the job, medical procedures gone wrong) I noticed a common theme. Yes, Chris’s clients have been injured in some form, but the bigger more lasting effect is that they have had control taken away from them. Maybe that’s control of their body, their ability to earn a living, or just the management of their finances. Unfortunately, as I learned from Chris, those who have gone through a personal injury case know how quickly they can lose the ability to make decisions. But through effective legal planning, some of that lose is preventable.

I want to suggest some basic documents everyone should think about, so that if you do experience an injury of that type, your wishes are still the ones that are being considered.

First is a medial power of attorney and health care directive. This allows you to set out your medical wishes if you aren’t able later to communicate or enforce them. It also gives you the power to choose who will help enforce those wishes.

There’s also another power of attorney to cover your financial and legal decisions. I truly consider this one of the most important documents of an estate plan and would highly recommend everyone of any age to have one. Again, in this document, you get to choose who handles your finances and makes decisions for you or your family if you’re not capable of making your own.

And of course, don’t forget about the will. While this is the document where you get to override state law and say where your possessions go, for parents it’s a lot more. This is the ONLY legal way to have a say in who will take care of your minor children.

But if you really want control, a trust really is the most effective and detailed way to do so. A trust gives you the ability to make detailed decisions over your finances and beneficiaries, even allowing you to make sure your beneficiaries cannot touch their inheritance until an age or event you decide.

Without these documents, those left to take care of you will have to go to court to earn those rights, and the court has the final say on who will be making decisions for you. So whether you’ve been involved in a personal injury case or just know it can happen to anyone, take some control now and consider your estate plan today.

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You Get Nothing… For Now: Ways to Plan with a Trust

The main reason my clients use trusts are to allow the beneficiary or beneficiaries to receive the use of the assets, but have someone else make the financial decisions. This may because they are minors or there are other circumstances why the beneficiary should not have access to money. The situation directly relates to how the trust document is written, whether the assets remain in trust forever or if they are given to the beneficiary upon some specific event.

If you have or are considering a trust I would consider the following things to determine when to give the beneficiary control of the assets:

  • Why is a trust necessary?
  • Is there ever a time or event that would ensure the beneficiary is responsible enough for the assets?
  • Do I care if the assets are used in a manner I would not approve?
  • Am I concerned about a spouse or future spouse potentially being involved with the assets?
  • Are there events in the beneficiary’s life that should be encouraged through a gift?
  • Are there events in the beneficiary’s life that I want to celebrate with a gift?

As I’ve been drafting trusts I’ve come across many different times when a client wants to give the beneficiary control of the assets. These are a few of my favorites and the most common:

  • Graduation from school
  • Marriage or Holy Orders
  • Specific ages (25, 30, etc.)
  • No drug use for 5 years
  • No felonies
  • Employment

These are just a few of the clauses I’ve drafted and come across, but the list really is unlimited. What controls would you put in a trust for your beneficiaries?  Share at www.facebook.com/burkhardtlaw

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Do You Know What You Want? Preparing Your Estate Plan

This weekend I had the pleasure of my sister coming into visit and spending a lot of time with two of my youngest nieces. Watching my siblings and listening to them take care their children really reminded me why I got into estate planning. New parents plan for every need their children have and estate planning certainly falls into that range. As children grow, necessities change, but the need for estate planning doesn’t. This month I thought I’d share some of the considerations I suggest to my clients as we’re preparing their estate plan:

1 – How old are your beneficiaries? If minor children receive $15,000 or more, there must be an adult in charge of the assets for them. Who do you want that to be? Minor children need guardians. Have you thought about who you trust with the wellbeing of your children? If your beneficiaries aren’t minors, are they responsible enough with money to receive your entire estate at once?

2 – Do your beneficiaries get along? If they don’t, do you want one of them to make a decision? Would it be better to have a third party like a trust company make decisions? Even if they do get along, will one beneficiary be put in a tough position if they have to say no to another beneficiary?

3 – Is college or another life event important to you? Trusts allow you to give assets at different times in the beneficiary’s life. You can give a distribution earlier if they receive a degree, get married, or really any life event that you want to encourage.

4 – Is it likely they will contest your estate plan? If so, you can prevent them from receiving anything if they challenge the plan.

5 – Are there any other beneficiaries or charities you would like to include? I always set up a list of contingencies is an estate plan to ensure if something happens quickly or all at once, there is at least a backup plan in place. Think about what you would want to happen if your original beneficiaries aren’t able to accept your assets.

6 – Who do you want to make decisions for you? Powers can be divided, but generally I recommend one person being in charge of all the finances and possibly another for medical decisions. Location, age, and ability are all important considerations. Again, I recommend having a backup plan, with at least one, but often times, two contingencies.

There are plenty of other things to consider as well, but generally this gives you a good idea of where to start before talking to a professional. With these basic things in mind, it’s possible to determine what type of estate plan is right for you and your beneficiaries.

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Your Online Estate Plan

Recently, a friend and owner of an IT company (Michelle Herring of CMIT Solutions of St. Charles and Chesterfield), passed along a question she encountered. What do people do about their online accounts when estate planning?

First, I just have to say, I loved that she mentioned this. In a world where more and more of our world is online, it’s a real problem. Even for older families this presents a real issue. Mom now does all of her banking online and doesn’t receive paper billing. How do the kids know what bills are due and what’s already been paid? For those of younger generations constantly on Facebook or even LinkedIn, what happens to those accounts?

Unfortunately, this is the new frontier of estate planning, meaning the laws haven’t caught up with reality. Many (if not all) of the online accounts you use require you to accept a user agreement stating you will be the only person using the account. This means you’re technically violating your agreement with that company if you give another person your password.

Even more of an issue, many online entities have no set policy (and certainly not consistent across companies) of what happens after a user passes: Is a court order required? Can a trust access the account? Does a power of attorney give access?

Few websites truly plan for their user’s eventual (and guaranteed) non-use. There has been discussion that some online entities will or have settings that allow you to give another person access to your account if you don’t log in within a specific amount of time or other forms of estate planning within your online account. After some searching, I could not find these settings in a few of the bigger sites (feel free to share if you do).

So what do you do? There are a few options. Some practical and some not. First and probably the most “legal” (but also probably the least practical) is to keep a list of all your online accounts, so your estate can contact the company and follow the given procedures of that company (if there are any). But really, who has time to create a list and then the hassle of your estate trying to contact and comply with several (plus some) different companies.

Another option is to create a list of all of your accounts and passwords. Either written somewhere or in a document. Hopefully, you can figured out why I don’t recommend this. While it gives your estate access to your accounts, it may inadvertently give access to others as well.

The best solution I’ve seen so far (also recommended to me by CMIT Solutions… seriously, check them out) is to use a password storing cite such as LastPass or KeePass. These applications are secure mobile databases that allow you to store your passwords online on an encrypted site. Essentially, you only have to remember (or share) one password and you have a list of all your online accounts with the passwords. An added feature of LastPass (I installed it over the weekend) is that you don’t have to manually enter the list. As you visit the websites, LastPass will give you the option to save the site and the password.

All of these options have their downfall, but no matter how you plan for your online world, it’s important to consider and plan for as well.

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A New Year: Why Estate Planning is Important

Happy New Year! At the start of the New Year, I always have families coming to me wanting to set up an estate plan. It’s something many people put off and I suppose they use the New Year to make a resolution to get it done. So, for this New Years instead of explaining the process and different legal aspects, I simply wanted to explain why I think estate planning is so important (which I hope you agree with if you’re reading this).

I don’t have a personal horror story of how things went wrong or anything along those lines. But I do have (for another few weeks until 2 more are added) 5 nieces and a nephew. I hope that their parents never need their estate plan. However, because their parents have planned for them, I know it’ll be a little bit less difficult if they do.

The only major loss I’ve experienced was my grandmother and I truly cannot tell you how hard that was for me and my family. When it happened, I helped plan the funereal, clean out her house, and do many of the things that just needed to get done. Things went by very quickly and in a haze. It was already a difficult time and I cannot imagine trying to deal with the court and additional legal matters during that time. Because my grandmother had thoroughly planned, we didn’t have to. She made it that much easier for us.

Unfortunately, death is a certainty of life, and in most situations, that’s a very hard truth. A good estate plan can take away a lot of legal complications that occur when a loved one passes. I encourage everyone to make it that much easier for those left behind by creating an estate plan. Much of an estate plan is for your loved ones.

But there’s a whole other aspect of estate planning that is both for you and your family. The probate court doesn’t just get involved at death, it also has authority over adults who can’t make decisions for themselves. When a person becomes incapacitated they no longer can make legal, financial, or perhaps even medical decisions. If they haven’t planned properly, whomever is taking care of them must go to the probate court to get permission to access accounts, sell houses, etc.

When a loved one is already incapacitated much of their loved ones energy is already spent on that person, having to go to court and sort out bank accounts, cars, homes, etc. is just another obligation requiring time and energy that could be spent in other ways.

Essentially, an estate plan makes a hard time easier. There are still legal issues that must be taken care of when a person passes or cannot make their own decisions, but at time that’s already difficult, a bit easier is very helpful.

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Who Has the Power?

First of all, happy Fourth of July!  In honor of the holidays and those who have made it possible, especially our troops, I want to focus on power of attorneys.  Now I understand the connection between the armed forces and a power of attorney may not be completely obvious, but let me explain.  When out of the country for any reason, most people want to have their estate planning documents for understandable reasons.  But when you’re going overseas unsure of when you’re going to return and without easy communication, it’s a different story.  You need someone with authority over your bank accounts, insurance, maybe even your house.  This is where the power of attorney comes in.

The person making those decisions is called the agent or attorney and fact and the person actually making the document is sometimes referred to as the principal.   Now, power of attorneys come in many different forms and for many different decisions.

There are two types of power of attorneys that are important for most families’ estate plans: a springing power of attorney and a durable power of attorney.  A springing power of attorney only grants the agent the power to act for the person when a certain event occurs.  Hence the springing.  Generally, this occurs when two doctors certify that the person is unable to make decisions for themselves.  This is how I write the majority of the power of attorneys because most families do not need another person able to make decisions over their money and assets.  It also avoids problems when there are conflicting instructions between a person completely capable of making decisions and their agent.  Now, if you are going out of the country and someone needs to be able to access and make decisions for your account, you do NOT want a springing power of attorney.  However, that’s a more detail analysis an attorney can help you make on an individual basis.

The durable power of attorney allows the agent to act for a person if they are incapacitated or if it is unsure whether they are dead or alive.  Because many people execute these forms to plan in case of incapacitation, it’s extremely important to make sure the document has the “magic” language of a durable power of attorney.  As I said before, I generally help my clients with a springing power of attorney.  But I also include the magic durable power of attorney language.

Most people need a financial/legal power of attorney AND a medical power of attorney.  They do not need to be separate documents, but normally are because some people want different friends/family making financial decisions and medical decisions.  Whether it’s one document or two, it’s important they are reviewed to cover most situations, ranging from banking to insurance to health care choices.  A power of attorney may be drafted for almost any specific decision to give another the power to make that decision.  I’ve reviewed documents to allow one sibling to sell a car for the other 6 siblings (much easier than 7 signatures).

What every power of attorney has in common though it’s no longer effective after death.  Therefore the other estate planning documents (wills, trusts, etc) are extremely important.  Also, without a power of attorney designating someone to make decisions, a person must go through the probate court to have someone appointed to make those decisions.  A power of attorney is much easier and cheaper.

On a final note, people ask me when an estate plan is needed, and while many young people do not have enough assets to truly NEED a will, they certainly have the potential for medical issues and absolutely need a power of attorney no matter the age.  Many clients even choose to execute a power of attorney for their minor children’s health care decisions so a grandmother or other trusted caretaker can act in the event of an emergency where the parent is not available.  A great idea if the parents are extremely inaccessible (out of the country, etc).

So if you don’t have a power of attorney or have any questions, give me a call.  Or at a minimum, take the time to execute a free medical power of attorney from the Missouri Bar (found here).

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Have You Taken Care of Your Children?

Most of my clients contact me because they want to make their children’s lives easier.  Several call after they have lost a parent and dealt with the mess of someone who wasn’t prepared.  Often I hear the sentiment they never want to make their children go through what they’ve had to do.  So, with this in mind, I thought we’d talk about preparing for your kids, specifically minor kids.

There are two distinct areas of planning when you’re talking about your children and estate planning.  And they really apply to everyone with minor children.  First is guardianship.  If something happens to both parents, who will take care of the children?  Most people know maybe have even told someone.  But have they made it legal?  Having a conversation with a desired guardian or other friend is great and definitely recommended, but doesn’t mean your child will go to that person.  A will is the ONLY way to state your wishes for guardianship.  If you do not state your wishes there, the court will make that decision without your input, and most likely choose an older sibling.
So, now that you know how to legally choose a guardian, who should you choose?  There’s a long list of considerations and each person is going to have a different level of importance with each factor, but in my mind the first qualification is trust.  For instance, one of my best friends chose my husband Scott and me to be the guardian for her son.  Now, we’re about 500 miles away from her and her son, so we don’t get to see him that often and if we do end up being his guardian, he’ll be coming to us.  Honestly, not the perfect situation.  However, she doesn’t think her family will raise him with her values in mind.  She trusts us to make those decisions for him.  In addition, she trusts us to say no if it’s not the right decision at the time.

Hopefully, you’re in a position where several of those people come to mind.  No matter your initial thoughts, I would strongly recommend taking the time to fill out a Guardianship Worksheet.  You can find one at the end of this article.

The next consideration is financial.  Even if you don’t have enough to provide for your children for the rest of their lives, you’ll probably be leaving them something.  If you leave more than $10,000 to a minor without a custodian, the court will appoint one.  Again, this takes away your ability to choose who controls your children’s money.  Essentially, this means you don’t want to leave more than $10,000 directly to a minor.  However, if you give that money to another person without legally specifying it is for the benefit of the child, they have no legal obligation to use the money for the child.

If your estate passes through your will, you may add a provision giving a person control of your child’s assets (either called a conservator or a trustee).  However, if you want to avoid probate and plan to use beneficiary designations or other non-probate transfer (pay on death, transfer on death, etc) you cannot just list another person as the beneficiary and expect them to use it for the child.  The easiest way to avoid probate and to designate an adult to control the money is to set up a trust.  This person is called a trustee and must use the money for the child’s benefit.

As you consider choosing a conservator or trustee, keep in mind, this does not need to be the same person as the guardian.  Doing so will make the guardian’s life easier, but if your chosen guardian is not great with money or just needs some oversight, a separate trustee can provide that.  I’ve also seen parents who want to involve both sides of the family and will choose someone from the mother’s side for the guardian and someone from the father’s side for the trustee.  No matter the arrangement, having two different people as guardian and trustee make the
situation more complicated and the two people must be able to communicate well.  This structure should only be used after much consideration.

Finally, unless specified, a minor will be entitled to their money when they turn 18. Will your children be responsible enough to control their money at 18?  If you’re not sure, or doubt it, you can set up a trust (along with a will containing a trust) with specific ages or life stages (i.e. graduating college) when they can access their money.  A trust also allows additional controls on how the money can be used (school, cars, vacations, etc).

As you can probably tell, for most families with minor children, I recommend a will (stating guardianship) and a trust (controlling the assets).  It doesn’t take much, only $10,000, before naming a trustee has its benefits.  But no matter the documents used, whether will or trust, there’s a lot to be considered when planning for your children.  This gives you a place to start, but a lawyer will help you finish the process.

GuardianshipWorksheet

Burkhardt Law Firm

Phone: (314) 518-1581
Email: mburkhardt@burkhardtlaw.com
Address:
2333 Grissom Dr., Suite 107
St. Louis, MO 63146