Oconee Estate Planning Blog

What Should a Power of Attorney Include?

The pandemic has taught us how swiftly our lives can change, and interest in having a power of attorney (POA) has increased as a result. But you need to know how this powerful document is and what it’s limits are. A recent article from Forbes titled “4 Power of Attorney Clauses You Need To Focus On” explains it all.

The agent acting under the authority of your POA only controls assets in your name. Assets in a trust are not owned by you, so your agent can’t access them. The trustee (you or a successor trustee, if you are incapacitated) appointed in your trust document would have control of the trust and its assets.

There are several different types of POAs. The Durable Power of Attorney goes into effect the moment it is signed and continues to be valid if you become incapacitated. The Springing Power of Attorney becomes valid only when you become incapacitated.

Most estate planning attorneys will advise you to use the Durable Power of Attorney, as the Springing Power of Attorney requires extra steps (perhaps even a court) to determine your capacity.

All authority under a Power of Attorney ceases to be effective when you die.

There are challenges to the POA. Deciding who will be your agent is not always easy. The agent has complete control over your financial life outside of assets held in trust. If you chose to appoint two different people to share the responsibility and they don’t get along, time-sensitive decisions could become tangled and delayed.

Determine gifting parameters. Will your agent be authorized to make gifts? Depending upon your estate, you may want your agent to be able to make gifts, which is useful if you want to reduce estate taxes or if you’ll need to apply for government benefits in the near future. You can also give directions as to who gets gifts and how much. Most people limit the size of gifts to the annual exclusion amount of $15,000.

Can the POA agent change beneficiary designations? Chances are a lot of your assets will pass to loved ones through a beneficiary designation: life insurance, investment, retirement accounts, etc. Do you want your POA agent to have the ability to change these? Most people do not, and the POA must specifically state this. Your estate planning attorney will be able to custom design your POA to protect your beneficiary designations.

Can the POA amend a trust? Depending upon your circumstances, you may or may not want your POA to have the ability to make changes to trusts. This would allow the POA to change beneficiaries and change the terms of the trust. Most folks have planned their trusts to work with their estate plan, and do not wish a POA agent to have the power to make changes.

The POA and the guardian. A POA may be used to name a guardian, who would be appointed by the court. This person is often the same person as the POA, with the idea that the same person you trust enough to be your POA would also be trusted to be your guardian.

The POA is a more powerful document than people think. Downloading a POA and hoping for the best can undo a lifetime of financial and estate planning. It’s best to have a POA created that is uniquely drafted for your family and your situation.

Reference: Forbes (July 19, 2021) “4 Power of Attorney Clauses You Need To Focus On”

Suggested Key Terms: Power of attorney, Estate Planning Attorney, Trustee, Guardian, Beneficiaries, Beneficiary Designation, Agent, Durable, Springing

Has COVID Affected Baby Boomers’ Retirement Plans?

Baby boomers, who are either in retirement or very close to it, have had COVID-19 make an especially significant effect on post-work plans. That’s according to a recent survey from the Center for a Secure Retirement and CNO Financial Group. With the coronavirus, Boomers had to help family financially, which meant less for their own retirement.

Money Talks News’ recent article entitled “5 Impacts the Pandemic Had on Baby Boomers’ Retirement Plans” provides five important ways the pandemic has changed baby-boomer retirement dreams. The results are based on a survey of more than 2,500 middle-income boomers — defined as Americans who were born between 1946 and 1964, and who have an annual household income between $30,000 and $100,000 and less than $1 million in investable assets.

1. Their main ‘non-negotiable’ retirement priorities have changed. Before the pandemic, 56% of boomers said maintaining financial security and independence was their top “non-negotiable” retirement priority. However, it’s now back to the basics for more boomers. The top retirement priorities are now: spending time with grandchildren (43%); maintaining financial stability and independence (35%); staying active (34%); being able to travel (30%); and living close to family and friends (25%).
2. They’ve supported other family members financially. Many middle-income boomers reported that they assisted family members financially during the pandemic, with 41% of those surveyed saying that was the case.
3. They haven’t been able to save much for retirement. Among middle-income baby boomers who offered cash to support family during the pandemic, 75% say they haven’t been able to save as much for retirement as they wanted.
4. They’ve delayed plans to move. Retiring by the beach or near the grandkids are common retirement destinations. However, the pandemic has thwarted those plans for many a baby boomer. Among middle-income baby boomers who helped support family during the pandemic, 65% say that they delayed their moving plans.
5. They’ve re-evaluated retirement finances and expenses. Helping the kids in the pandemic has meant an adjustment for many baby boomers’ budgets. About half (51%) responded that they’ve re-evaluated finances and expenses for retirement.

Reference: Money Talks News (Aug. 2, 2021) “5 Impacts the Pandemic Had on Baby Boomers’ Retirement Plans”

Suggested Key Terms: Estate Planning Lawyer, Probate Attorney, Retirement Planning, Financial Planning, COVID-19 (coronavirus), Baby Boomers

How Do I Avoid Estate Planning Mistake with a Blended Family?

The Wealth Advisor’s recent article entitled “Remarried With Children? 5 Estate Planning Mistakes to Avoid” says that you can’t guarantee that everyone in the blended family will be happy with the arrangements you’ve made with a second marriage.

Mistake #1: Failing to change beneficiaries. With a beneficiary designation, the money passes directly to your intended beneficiary without probate. Look at all of your financial accounts to be certain that your spouse is designated the beneficiary if that’s what you want. Plus, check your life insurance beneficiaries because these payouts also bypass probate.

Mistake #2: Failing to update your last will. Your last will determines much of who gets the assets you and your spouse accumulated during your lifetimes. You probably don’t want your ex-spouse to get these. People on their second marriage frequently decide that the surviving spouse gets all the assets; upon the death of the second spouse, the remaining assets will be divided evenly among all of the children. There are ways to make that happen, but it takes very special legal planning.

Mistake #3: Treating all heirs equally. Most spouses aren’t financial equals when they marry, and this is particularly so in second marriages. If your new spouse moves into your house, for example, you may want your children to get the proceeds when it’s sold, not your spouse or your spouse’s children. There are many reasons why parents don’t treat children equally, including when there’s a child who’s disabled or has special needs. A child may also suffer from an addiction and require a trust that provides stipends at regular intervals to the beneficiary and deters creditors from getting money in the trust.

Mistake #4: Failing to give while you’re still alive. If you’re planning to leave money to your kids, you might think about giving it to them now. You can give up to $15,000 per person without having to pay the federal gift tax or deal with the IRS. Plus, your spouse may also give the same amount.

Mistake #5: Failing to work with an experienced estate planning attorney. If you’re older and on your second marriage, your life is probably complex with ex-spouses and children and stepchildren. Blended families and comingled assets make things complicated, as does a child with special needs or an aging parent. An experienced estate planning attorney can work through all of your issues and make sure you have the best and most comprehensive plan for your circumstances.

Reference: The Wealth Advisor (July 12, 2021) “Remarried With Children? 5 Estate Planning Mistakes to Avoid”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Asset Protection, Trusts, Probate Attorney, Estate Tax, Gift Tax, Beneficiary Designations, Life Insurance, Blended Family

Why Do I Need a Will, Like Yesterday?

A recent Gallup poll found that fewer than half of Americans (46%) have a last will that states the way in which their assets are to be handled after their death.

Surprisingly, the results of this survey have been nearly unchanged since 1990 at between 44% and 51%.

Real Simple’s recent article “6 Reasons You Need to Make a Will Now” says that one of the most common myths is that a last will isn’t needed if you want all of your assets to go to your family.

1. While the state has laws on what happens if you die without a last will, what if that’s not exactly how you want your estate to be distributed?
2. Another major reason for creating a last will is to make certain that someone is named to care for your minor children.
3. A last will lets you designate guardians to care for your children after your death. Without a guardian in a last will, a judge will decide who raises your children if you pass away. That judge likely would be someone who does not know you or your children or your family and friends. Without a last will, you will be allowing this “stranger” to make this life-changing decision for your children.
4. Also, there are taxes. If you have a last will in place, it will minimize estate taxes your family may have to deal with. A comprehensive estate plan created with the help of an experienced estate planning attorney can reduce tax exposure by as much as 40%. This move alone can help avoid having to pay taxes on your income a second time.
5. A last will isn’t just for your benefit. Your family will ultimately be most impacted by whether you took the time to draft up this important document. Creating a last will can give them some peace and comfort during a difficult time. In contrast, not having a last will leaves them with no guidance as to your wishes and can add to their burdens and stress during their grieving.
6. Care and maintenance of pets. The law says that pets are just property. If you regard your pets as members of the family, then you can leave money to an individual whom you designate as the caregiver for your pet if it survives you. A last will lets you to give your pet to a chosen loved one. This simple step alone can help prevent your pet from going to a shelter.

Reference: Real Simple (June 25, 2021) “6 Reasons You Need to Make a Will Now”

Suggested Key Terms: Estate Planning Lawyer, Wills, Intestacy, Probate Court, Inheritance, Asset Protection, Probate Attorney, Estate Tax

What Happens to My Home If I Leave It to a Medicaid Recipient in My Will?

When a beneficiary is on Medicaid and she’s set to get a bequest of the grantor’s home in her last will, the question may arise about the impact on her Medicaid benefits.

The answer will depend on the Medicaid program and what the daughter decides to do with the house, says nj.com’s recent article entitled “What happens to my daughter’s Medicaid if I leave her my home?”

Medicaid provides health coverage for some low-income people, families and children, pregnant women, the elderly, and people with disabilities.

In some states the program covers all low-income adults below a certain income level.

Medicaid programs are required to follow federal guidelines, but coverage and costs may be different from state to state.

Here, if the daughter receives Medicaid because she also receives SSI or has ABD Medicaid, the house will not be counted as a disqualifying asset if the house is the daughter’s principal place of residence.

If the daughter sells the house, the sale proceeds would be countable.

If she is getting expanded Medicaid through Obamacare, her eligibility would be based on income. So, if the daughter rented the house or sold the house, the income that would be generated could disqualify her from continuing to receive benefits, depending on the amount of income she gets.

If the daughter is disabled, consider leaving the daughter the house in a special needs trust. With a special needs trust, there’s a legal arrangement and fiduciary relationship that allows a physically or mentally disabled or chronically ill person to enjoy trust assets without jeopardizing their eligibility for Medicaid.

A Medicaid Asset Protection Trust is an irrevocable trust, and assets placed in the trust are considered completed gifts to the beneficiaries, protecting the assets from Medicaid (after the look-back period).

With a Medicaid Asset Protection Trust, even if the house is sold, the sale proceeds wouldn’t disqualify the daughter from receiving Medicaid.

Ask an experienced elder law attorney for help with this situation.

The laws regarding Medicaid and Medicaid eligibility are extremely complex and vary from state to state. Accordingly, nothing in this article should be considered legal advice.

Reference: nj.com (July 30, 2021) “What happens to my daughter’s Medicaid if I leave her my home?”

Suggested Key Terms: Elder Law Attorney, Special Needs Trust, Medicaid Trust Planning, Medicaid Planning Lawyer, Disability

What Should I Know about Medicaid and VA Pensions?

For seniors who are looking at Medicaid and VA Pensions, there are a few key things to consider, says WRAL.com’s recent article entitled “The top 5 things to know about Medicaid and VA pension.”

1. Background and criteria for qualification. An initial question that arises with Medicaid and VA Pension is how to know whether you are eligible. Both are needs-based programs and examine your net worth and your income. You also must satisfy certain thresholds, before you qualify for these benefits.
2. Medicaid and your assets. A frequent concern for those looking at Medicaid, is what will happen to their assets after they no longer need this assistance. Being proactive can help avoid or decrease any asset seizures. Proactive planning can save the house, and Medicaid won’t sell the house out from underneath your spouse. After the death of the person getting Medicaid, the state will attempt to recoup the cost of what it is spent on the individual. In effect, Medicaid becomes a creditor of their estate after their death. The state can potentially foreclose on the house. That is where people hear stories about Medicaid taking the house. However, with planning and the help of a Medicaid planning attorney, a senior can implement some simple tools to avoid this.
3. Misconceptions about Medicaid and VA Pension. A big misconception about these programs is that after you’ve applied once and been denied, you can’t try to qualify again. However, if your life circumstances change, you may meet requirements. Work with an elder law attorney to see exactly when you meet the eligibility requirements, so you don’t miss out on funds that might be needed.
4. Factors that affect qualification. For some planning on receiving Medicaid or VA Pensions, they may inadvertently disqualify themselves or extend their waiting period. A senior will frequently give the house to the children, and then a few years later, they need Medicaid. Medicaid has the lookback period, so they look at the past five or three years, depending on the type of Medicaid, to see if you gave anything away for less than fair market value. A house is a non-countable resource for Medicaid, if you have the intent to return home. However, if you transfer it to your children, it could cause a penalty which presents many complications upon qualifying for benefits. If you sell the house and turn it into cash in your name, the home can be taken. It’s a non-countable resource and turned it into cash, which is a countable resource. This must be spent down before qualifying.
5. Getting started. For information on Medicaid and VA pension eligibility, government websites have more information. But understanding these eligibility requirements can be difficult — and an experienced elder law attorney can make certain that you’re taking full advantage to what you’re entitled.

Reference: WRAL.com (July 1, 2021) “The top 5 things to know about Medicaid and VA pension”

Suggested Key Terms: Elder Law Attorney, Medicaid, Veterans’ Benefits, Financial Planning, Pension

More Benefits for Vets Next Year?

A new plan, to be voted on by a House Appropriations subcommittee, asks for $113.1 billion in discretionary spending for VA programs in fiscal 2022.

That’s an increase of about 8% from current levels and about $176 million more than what President Biden asked for in his budget proposal released last month.

Military Times’ recent article entitled “House lawmakers back big budget boost for Veterans Affairs programs” says that if it were approved, the proposal would result in total department spending of more than $270 billion in 2022.

“This bill demonstrates a strong commitment to our servicemembers, their families and our veterans,” said Rep. Debbie Wasserman Schultz, D-Fla., in a statement accompanying the budget proposal release.

“It’s a blueprint to make our VA and military stronger and more responsive to all those who proudly protect America, now and in the past,” the Democratic Congresswoman said.

Total department spending is expected to be more than $250 billion in fiscal 2022.

This draft budget also includes $10.9 billion for military construction projects next fiscal year—roughly $3 billion above current year levels and $1 billion more than the president’s request.

House appropriators are expected to vote to pass the plan to the full chamber soon. A possible vote on the package is expected in late July.

However, it will likely still be months before a final budget agreement is reached on VA and military construction spending with the U.S. Senate.

The latest plan calls for $97.6 billion for veteran medical care spending, of which $778.5 million would go towards gender-specific care for women veterans ($73 million more than what the White House requested), $902 million for medical and prosthetic research ($20 million more), and $84 million for “whole health” initiatives ($10 million more).

Reference: Military Times (June 24, 2021) “House lawmakers back big budget boost for Veterans Affairs programs”

Suggested Key Terms: Military, Veterans Benefits, Legislation

Powers of Attorney and Advance Directives

A medical crisis only gets worse, when you learn you don’t have legal authority to make medical decisions for a loved one, or find out after a loved one is incapacitated that you can’t gain access to assets in their trust. You need to have certain estate planning legal documents already in place, according to the article “Tips you should know for Powers of Attorney and Advance Directives” from seacoastonline.com.

Power of Attorney. The power of attorney (POA) allows one person, the “principal” to appoint another person as their “agent” (also known as an “attorney in fact”). The agent has the authority to act on behalf of the principal, depending on the powers described in the document. Each state has its own laws about who can be an agent, if more than one person can be appointed as agent and if there are any limits to what power can be given to an agent. Your estate planning attorney will be able to create a POA to suit your situation.

A POA can be created to give extremely broad powers to an agent. This is sometimes called a “general” POA, where agents can do everything that you would do, from accessing and managing bank accounts, applying for Social Security, to filing tax returns. A POA can also be limited in scope, known as “limited” POA. You could permit an agent to only sign a tax return or conduct a specific transaction.

In most estate planning scenarios, the POA is “durable,” meaning the named agent can continue to have authority to act, even if the principal is incapacitated after the documents have been executed. This makes sense: a durable POA generally avoids having to go to court and have a guardian appointed. The person you have selected will be the POA, not a court-appointed person.

Advance Directive. The advance directive allows a person to appoint another person to make medical decisions on their behalf if incapacitated. In some states, this is called a durable power of attorney for health care, and in others it is referred to as a health care proxy.

In most cases, the advance directive becomes effective when one or more treating physicians determine the person no longer has capacity to make or communicate health care decisions. Having this document in place avoids having to go to court to have a guardian appointed. If time is of the essence, any delay in decision-making could lead to a poor outcome. If there is no advance directive and physicians have decided you are unable to make these decisions, they go by a hierarchy of relatives to make the decisions for you. If you have an estranged adult child, for instance, but they are your next-of-kin, they could be the one making decisions for you.

If you have children who recently became legal adults (usually age 18), these documents will protect them as well, since just being their parent does not provide you with the right to make these decisions.

Reference: Seacoastonline.com (June 27, 2021) “Tips you should know for Powers of Attorney and Advance Directives”

Suggested Key Terms: Durable Power of Attorney, Agent, Principal, POA, Advance Directive, Guardian, Health Care Proxy, Advance Directive, Estate Planning Attorney

How to Prepare for Higher Taxes

Taxing the appreciation of property on gifting or at death as capital gains or ordinary income is under scrutiny as a means of raising significant revenue for the federal government. The Biden administration has proposed this but proposing and passing into law are two very different things, observes Financial Advisor in the article “How Rich Clients Should Prepare For A Biden Estate Tax Regime.”

The tax hikes are being considered as a means of paying for the American Jobs Act and the American Families Act. Paired with the COVID-19 relief bill, the government will need a total of $6.4 trillion over the course of a decade to cover those costs. Reportedly, both Republicans and Democrats are pushing back on this proposal.

A step-up in basis recalculates the value of appreciated assets for tax purposes when they are inherited, which is when the asset’s value usually is higher than when it was originally purchased. For the beneficiary, the step-up in basis at the death of the original owner reduces the capital gains tax on the asset. Taxes are reduced significantly, or in some cases, completely eliminated.

For now, taxpayers pay an estate tax on the value of the assets and the basis of appreciated assets is stepped up to fair market value. The plan under consideration would treat appreciated assets owned at the time of death as sold, which would trigger income tax and subject those assets to estate tax.

Biden’s proposal would also subject many families to the estate tax, which they would not otherwise face, since the federal estate tax exclusion is still historically high—$11.7 million for individuals and $23.4 million for married couples. Let’s say a widowed mother dies with a $3 million estate. Most of the value of the estate is the home she lived in with her spouse for the last four decades. Her estate would not owe any federal tax, but the deemed sale of a highly appreciated home would generate income tax liability.

The proposal allows a $1 million per individual and $2 million per married couple exclusion from gain recognition on property transferred by gift or owned at death. The $1 million per person exclusion is in addition to exclusions for property transfers of tangible personal property, transfers to a spouse, transfers to charity, capital gains on certain business stock and the current exclusion of $250,000 for capital gain on a personal residence.

How should people prepare for what sounds like an unsettling proposal but may end up at a completely different place?

For some, the right move is transferring properties now, if it makes sense with their overall estate plan. Regardless of what Congress does with this proposal, the estate tax exemption will sunset to just north of $5 million (due to inflation adjustments) from the current $11.7 million. However, the likelihood of the proposal passing in its present state is low. The best option may be to make any revisions focused on the change to the estate tax exemption levels.

Reference: Financial Advisor (June 28, 2021) “How Rich Clients Should Prepare For A Biden Estate Tax Regime”

Suggested Key Terms: Capital Gains, Estate Plan, Federal Tax, Appreciated Assets, Federal Estate Tax Exemption, Step-Up in Basis, Fair Market Value, Inherited, Gifting