Texas Estate Planning

How Does Power of Attorney Work?

Depending on how you structure a power of attorney, an agent can – in some instances – transfer money and property to themselves.
However, it’s uncommon and only allowed in specific circumstances and the laws vary by state.
Yahoo Finance’s recent article entitled “Can a Power of Attorney Transfer Money to Themselves?” explains that a power of attorney is when you assign someone (known as an agent or attorney-in-fact) the authority to make legally binding decisions on your behalf. Most of these documents have a limited grant of authority.
A general power of attorney is a type of durable power of attorney (the other two are special power of attorney and healthcare or medical power of attorney). With this, an agent is permitted to make just about any decisions at all on your behalf while the power of attorney assignment remains valid. However, even a general power of attorney has limits.
An agent typically can’t transfer money, personal property, real estate, or any other assets from the grantee to him or herself, and it’s usually deemed a fraudulent conveyance.
However, a power of attorney can transfer assets to themselves, if they have specific written consent from the grantee (or creator of the document).
The grantee can authorize most forms of property transfer, provided the assets are theirs to give and the authorization is specific.
A grantee can only give this authority to an agent, if he or she is mentally and legally competent.
If you think you’ll want your power of attorney to have this authority at some point, be sure to write it out in the original grant because you may not be able legally to amend this document when the issue comes up in the future.
Reference: Yahoo Finance (Sep. 21, 2021) “Can a Power of Attorney Transfer Money to Themselves?”

Don’t Follow Queen of Soul: Think about Estate Planning

The Albuquerque Journal’s recent article entitled “Learn from Aretha’s estate mess and ‘Think’” talks about the new bio pic called “Respect” that traces 20 years of the life of Aretha Franklin, the Queen of Soul and the number one singer of all time in a Rolling Stone ranking from 2010.
Aretha died in 2018. She had four sons from either three or four fathers. Their ages spanned 15 years. The oldest, born when Aretha was 12, has special needs and lives in a group home. When she passed, all evidence pointed to the fact that she had no will. The sons – in birth order, Clarence, Edward, Ted, and Kecalf – agreed to a friendly and equal split of the estate. Michigan law supported this. They designated a cousin, Sabrina, as the executor.
This was good, until Sabrina started finding wills. There were two from 2010 and one from 2014. They were all in Aretha’s handwriting, the last one in a spiral notebook found under cushions of a sofa.
Michigan law permits an entirely handwritten will and even allows a will to be unsigned, if it clearly shows the decedent’s wishes. Her 2014 will first named the three younger sons as co-executors. Aretha then crossed out all names but Kecalf. Ted and an attorney appointed to represent Clarence challenged Kecalf’s competence to serve as Aretha’s executor.
But wait! A fourth will was found. That one was actually typed and established a trust for Clarence. Aretha initialed some pages, but she didn’t sign it.
At that point, Sabrina gave up and resigned as Aretha’s executor.
The probating of Aretha’s estate went from a friendly division of assets to a hot mess.
The sons were now “playing games that they can score,” and wondering if Aretha stopped to think what she was trying to do to them.
The Probate Court judge appointed Aretha’s friend Reginald Turner, who recently was named President of the American Bar Association, as temporary estate representative.
The sons’ fighting is ongoing.
Aretha’s estate has a lot of issues. Don’t be like the Queen. Get your estate plan set and revise it, as needed, with the help of an experienced estate planning attorney.
Reference: Albuquerque Journal (Sep. 12, 2021) “Learn from Aretha’s estate mess and ‘Think’“

What are Biggest Blunders I Can Make in Retirement?

Wealth Insider’s recent article entitled “8 Things You Should Not Do in Retirement” reviews some poor decisions that could sink your retirement and how to avoid them.
1. Failing to create or update legal documents. Circumstances and laws change, so our legal paperwork needs to change along with them. It could be a birth, a death, a divorce, or a new tax law that necessitates a review.
2. Not creating a budget. You’re on a fixed income in retirement, so you’ll have to budget for things like medical bills not covered by Medicare; household help if you can no longer do yard work or deep cleaning; food for specialized diets and home modifications, like grab-bars in the bathroom or a wheelchair ramp out front.
3. Going into debt. According to an Experian study, the average baby boomer owed $97,290 in 2020. That included mortgages and student loans, along with consumer debt. You should plan to go into retirement with no debt. If you have substantial debt, consider credit counseling.
4. Spending fixed income on adult children. This may jeopardize your own long-term comfort and security.
5. Withdrawing too much money. If you claimed Social Security before your full retirement age, you’ll have permanently reduced benefits. Conventional wisdom says to take no more than 4% out of your accounts each year. Out-of-control spending may cause you to loot your retirement funds faster than you should.
6. Becoming sedentary. A lack of exercise can lead to plenty of health issues, says the National Institute on Aging, part of the U.S. Department of Health & Human Services. Being active improves energy, physical strength, balance and sleep. It can also help you reach or maintain a healthy weight, reduce stress and anxiety levels, improve cognitive function and manage or even prevent certain diseases. Added together, these improvements could make it possible to live independently for longer, or maybe for the rest of your life.
7. Letting yourself become isolated. Extended periods of isolation can result in serious physical and mental health issues, according to the National Institute on Aging, such as depression, anxiety, cognitive decline, high blood pressure, obesity, weakened immune function and heart disease. Get out there and do things like volunteering, auditing classes at a college or university, adopting a pet (if you’re physically able), joining an exercise class, or revisiting an old hobby or taking up a new one.
8. Being too generous. Rather than messing up your own finances, make “charitable giving” part of your budget, perhaps as a specific percentage, like a 10% church tithe. When you’ve reached that amount, stop. Before you decide to give to a cause, check it out through websites like GuideStar or Charity Navigator to see what amount actually goes toward helping others.
Reference: Money Talks News (Oct. 18, 2021) “8 Things You Should Not Do in Retirement”

What’s the VA Doing about the Backlog in Claims?

The VA says that it’s planning to hire more people and use mandatory overtime for thousands of already-working claims staff and emergency coronavirus pandemic funding to help stem the problem.
Military Times’s recent article entitled “VA to hire 2,000 new processors to help with looming spike in claims backlog” says that despite that, Veterans Benefits Administration officials expect it to take two and a half years to bring the backlog back down to pre-pandemic levels. Moreover, they’re asking veterans to wait for their claims to be processed and not to panic.
“We don’t want people to worry when they see that number,” said Mike Frueh, VA’s Principal Deputy Under Secretary for Benefits. “We want veterans to keep filing their claims.”
As of the end of September, the claims backlog (the number of cases that have been pending for more than four months) was 208,000—nearly three times the typical monthly backlog total from before the start of the coronavirus pandemic in early 2020. The VA says that office closures caused by the pandemic steadily drove up the backlog total for much of last year. In addition, the issue grew due to several court decisions and new laws mandating additional benefits for troops exposed to Agent Orange during the Vietnam War. It’s also why VA officials know another backlog spike is coming.
About 70,000 claims related to new benefits rules for Parkinsonism, bladder cancer and hypothyroidism linked to poisoning from the chemical defoliant are due to hit the four-month mark at the end of October. Frueh said officials think the backlog will reach more than 260,000 by then. However, he said officials are processing cases at a record rate, and don’t expect the backlog to reach the same challenges as in 2013, when an influx of new benefits swelled the total to more than 600,000. Thousands of those cases lingered in the VA system for years without resolution.
“We are the front door to VA benefits and services,” he said. “This is a natural consequence of people filing more claims.”
The VA processed more than 1.5 million claims in fiscal 2021, the most ever. However, they also received about 1.7 million claims and expect the number to rise even higher with the recent benefits changes. The short-term hiring of new workers will provide long-term relief to the claims processing problems. However, it will take months before those staff are fully trained and able to handle standard workload amounts.
Since May, the benefits administration required 20 hours of mandatory overtime a month to deal with the backlog spikes. Those requirements will continue for the foreseeable future, Frueh said.
In a statement, VA Secretary Denis McDonough said the department remains “committed to ensuring timely access to benefits and services for all veterans.”
Reference: Military Times (Oct. 13, 2021) “VA to hire 2,000 new processors to help with looming spike in claims backlog

What Do I Need in My Estate Plan?

“An effective estate plan uses a collection of documents and teamwork to protect one’s assets and personal property. An effective estate plan also explains and carries intentions of how to pass control down to successors in the event of your absence.”
Digital Journal’s recent article entitled “What is an Estate Plan and What are its Benefits?” explains that an estate plan usually includes the following:
A will;
A financial power of attorney and a medical power of attorney (with consent);
A living will; and perhaps
A living trust.
You also need an experienced estate planning attorney who understands the possible strategies that are available to you for your family.
There are many significant benefits to establishing an effective estate plan, including deciding who will inherit specific assets, possessions, or valuables; and designating guardians for minor children; and avoid or minimizing taxes.
Without an estate plan, heirs must go through a very stressful probate process, which can take years. It can also be expensive. With a will, you can protect your young children and ensure that they are cared for by designating a guardian. Without a will, the court decides who will care for your children.
You can also stop fights before they start with an estate plan. One sibling—for whatever reason—may think he or she deserves more than the others. Such disagreements can easily wind up in court, with family members fighting each other and costing thousands in legal fees.
With an effective estate plan, you can make certain your assets are handled the way you intended if you were to become mentally incapacitated or pass away. You can choose who will be in charge of your medical affairs, financial affairs, and even specific assets such as a small business. If a business owner doesn’t have an estate plan, state law would determine who would be in control of the business.
A big question for a small business owner is who will oversee the business if he or she becomes incapacitated or dies. A key is determining the best strategy after the death of the owner. A business succession plan is critical.
Reference: Digital Journal (Sep. 2, 2021) “What is an Estate Plan and What are its Benefits?”

What Is Probate?

WTOP’s recent article entitled “Everything You Need to Know About Probate” explains that probate is the court-supervised proceeding, in which the assets of the decedent are distributed to his or her heirs. This involves validating the decedent’s will, distributing assets and ensuring that the debts of the estate are paid.
Probate is how assets formally pass from one person who passed away to their heirs or beneficiaries. Probate can be long and complex or pretty efficient. Each state has its own probate code, and some have a small estate probate process for estates that are under a certain threshold. The administration of the estate involves the executor or personal representative, beneficiaries, creditors and a probate judge.
The probate process is required by state law to manage the decedent’s assets and property that aren’t transferred by contract law, state titling law, or trust law. As a result, any assets or property awarded in a last will or assets owned by an individual who dies without a will may require probate.
Property that passes through probate includes assets and property awarded to heirs through a will, such as household goods, automobiles and personal property owned at death but not awarded in the will and not otherwise transferred.
If a person dies intestate or without a valid will, the disposition of their probate property will be controlled by the laws of intestacy of the state where the decedent resided at death. Probate property is all property that was held individually and that does not have a beneficiary designation.
Each state has its own probate process. However, the first step in probate generally is to produce a will. A probate attorney can determine if all of the heirs will consent to have it probated. If there’s not going to be any objection, the attorney can prepare the probate documents and have the waivers signed by the distributees. Once they sign and notarize the consent, the attorney can take the will with the probate documents and have it filed.
After a will is deemed valid, the executor of the estate and the attorney will file certain documentation with the court. This might include the will, a certified copy of the death certificate, a list of names and addresses of the decedent’s heirs and any known creditors. Creditors will be paid first, then the remaining assets are distributed to the heirs. After any required tax returns are filed, the executor will ask the court to close the estate.
Reference: WTOP (Aug. 31, 20211) “Everything You Need to Know About Probate”

Some of Most Famous (or Infamous) Estate Planning Mistakes

Blunders in the estate planning of high-profile celebrities is one very good way to learn the lesson of what not to do. The Wealth Advisor’s recent article entitled “Lessons To Be Learned From Failed Celebrity Estates” gives us some celebrity estates where the mistakes have caused problems for their heirs.
James Gandolfini. The Sopranos actor left only 20% of his estate to his wife, but if he’d left more of his estate to his wife, the estate tax on that gift would have been avoided. He failed to maximize the tax savings in his estate. Consequently, 55% of his total estate, including a significant art collection, went to pay estate taxes.
James Brown. The Godfather of Soul left the copyrights to his music to an educational foundation, his tangible assets to his children and $ 2 million to educate his grandchildren. However, because of ambiguous language in his estate planning documents, his girlfriend and her children sued. Six years later and after the payment of millions in estate taxes, his estate was finally settled.
Michael Jackson. The King of Pop had a trust—but he never funded it in his lifetime. As a result, there’s be a long and costly battle in the California Probate Court over control of his estate.
Howard Hughes. Although he wanted his $2.5 billion fortune left to medical research, no valid written will could be discovered at his death. Instead, his wealth was divided among his 22 cousins. Because Hughes Aircraft Co. was gifted to the Hughes Medical Institute prior to his death, it wasn’t included in his estate.
Michael Critchton. The famous author was survived by his pregnant fifth wife. His son was born after his death, but since his will and trust didn’t anticipate a child being born after his death, his daughter from a previous marriage tried to exclude his son from his estate. While the California statute would have included his son in his estate, as pretermitted heir, the author had language that specifically overrode the statute and excluded all heirs not otherwise mentioned in his will—failing to anticipate that he’d die with an unborn son—whom he didn’t mention in the will.
Casey Kasem. The DJ’s wife and the children of his prior marriage fought over his end-of-life care and even the disposition of his body. It made for an embarrassing scene, including kidnapping and theft of his corpse.
Prince and Aretha Franklin. Both music superstars died without a will, so their families were each involved in very public, and in the case of Prince, a very contentious settlement of their estates.
If you have an estate plan in place, review your existing documents to make certain that it still accomplishes your wishes. Consider these mistakes of celebrities when you’re creating a comprehensive estate plan.
Reference: The Wealth Advisor (Aug. 31, 2021) “Lessons To Be Learned From Failed Celebrity Estates”

Do I Need a 529 Education Savings Plan?

Statecollege.com’s recent article entitled “Did You Know 529s Are Powerful Estate Planning Tools?” explains that specialized savings accounts, informally referred to as 529s, could be at the top of your list. These accounts have a number of advantages for beneficiaries. There are also benefits for the donors in the high maximum contribution limits and tax advantages.
Special tax rules governing these accounts let you decrease your taxable estate. That might minimize future federal gift and estate taxes. In 2021, the lifetime exclusion is now $11.7 million per person, so most of us don’t have to concern ourselves with our estates exceeding that limit. However, remember that the threshold will revert back to just over $5 million per person in 2026.
Under the rules that govern 529s, you can make a lump-sum contribution to a 529 plan up to five times the annual limit of $15,000. As a result, you can give $75,000 per recipient ($150,000 for married couples), provided you document your five-year gift on your federal gift tax return and don’t make any more gifts to the same recipient during that five-year period. You can, however, go ahead and give another lump sum after those five years are through. The $150,000 gift per beneficiary won’t have a gift tax, as long as you and your spouse follow the rules.
Many people think that gifting a big chunk of money in a 529 means they’ll irrevocably give up control of those assets. However, 529 plans let you have considerable control—especially if you title the account in your name. At any time, you can get your money back, but it will be part of your taxable estate again subject to your nominal federal tax rate. There’s also a 10% penalty on the earnings portion of the withdrawal, if you don’t use the money for your designated beneficiary’s qualified education expenses.
If your chosen beneficiary doesn’t need some or all of the money you’ve put in a 529, you can earmark the money for other types of education, like graduate school. You can also change the beneficiary to another member of the family as many times as you like. This is nice if your original beneficiary chooses not to go to college at all.
In addition, you can take the money and pay the taxes on any gains. Normally, you’d also expect to pay a penalty on the earnings but not for scholarships. The penalty is waived on amounts equal to the scholarship, provided they’re withdrawn the same year the scholarship is received, effectively turning your tax-free 529 into a tax-deferred investment. You can always use the money to pay for other qualified education expenses, like room and board, books and supplies.
Reference: statecollege.com (Aug. 29, 2021) “Did You Know 529s Are Powerful Estate Planning Tools?”

What Should You Know about Guardianships and Conservatorships?

Guardianships and conservatorships are regulated by state and local statutes, so the details vary. In many states, a guardian refers to someone who oversees personal needs, such as healthcare, feeding and supervision and/or financial affairs. However, there are states where the term “guardian” refers to those who oversee personal affairs, and a conservator refers to those who oversee financial affairs.
Barron’s recent article entitled “Here’s What to Know About Guardianships and Conservatorships to Avoid Problems” explains that state courts have the power to appoint guardians or conservators for adults who are at risk because they are unable to make basic decisions for themselves. These arrangements can only be revoked by the court.
“[O]nce a guardian is appointed, the court is simultaneously removing the individual’s right to make that decision for themselves,” says Nina Kohn, a law professor at Syracuse University in the article. “If a court found that I lacked the capacity to make my own healthcare decisions, and appointed a guardian to make those decisions, I would lose the right to make my own healthcare decisions.”
While the exact figures are unknown, a 2015 survey by the National Center for State Courts estimated there were $50 billion in assets under state courts’ watch in conservatorships. The research also found that there were an estimated 1.3 million open conservatorship or guardianship cases.
A guardianship is usually requested by a family member who engages an elder law attorney to petition the court. However, it may also be requested by a friend, nursing home, state or local government agency, or a professional guardian. Guardians must give the court regular details about the property or funds they manage for those they are appointed to help. A professional guardian may charge the person subject to guardianship reasonable fees for handling their affairs.
After a petition for a guardian is made, generally notice is given to the individual, close relatives and others involved in the individual’s life. The court will then appoint an independent evaluator, such as a social worker, psychiatrist, doctor, nurse, or attorney. A guardian may be appointed without those procedures, if the court finds that there’s an emergency.
A guardian may solely manage an elderly person’s finances, or they may be granted the broad power to determine where the person lives, how their money is spent and what medical treatments they get. A guardian may prepare a budget based on the person’s finances, arrange to have meals delivered, arrange for recreation, or seek court approval to move the person to an assisted-living facility, among other duties.
In light of the fact guardianships may convey broad powers, they should be considered a last resort. A major issue with guardianships in the U.S. is that courts routinely strip individuals of all their rights, instead of tailoring the arrangement to fit the person’s needs. If one plans ahead, a guardianship is almost entirely preventable. To do this, you should have estate planning documents in order, including a will, a trust, power of attorney, medical power of attorney and a living will. Review your estate plans regularly and update your documents, as needed.
Reference: Barron’s (Aug. 28, 2021) “Here’s What to Know About Guardianships and Conservatorships to Avoid Problems”

Should I Ask Mom and Pop about Their Finances?

Adult children should know about their parents’ finances in case of any emergency. They should also know critical information in case of death. NASDAQ’s recent article entitled “9 Questions to Ask Aging Parents About Their Finances” acknowledges that speaking to aging parents about their finances isn’t easy. However, to start this process, the article gives us nine important topics you may want to discuss with your parents:
Do You Have a Financial Plan (and is it enough)? See if your parents have a financial plan. Some parents will have a solid financial plan that will let them to live comfortably into their 80s or 90s. On the other hand, you may discover they’re living on a fixed budget and money is tight. If you see that you’ll need to help them financially now or in the future, start planning ASAP. Any decision to provide them with financial support will likely have an effect on your own financial plan.
Do You Have an Accessible List of All Your Accounts? Ask your parents to draft a list of their financial assets and those named as beneficiaries of those accounts and keep it in a safe place. They should also put together important contacts, such as clergy, CPA, estate planning attorney, physician, etc.
Where’s Your Will, and Who’s the Executor? See where your parents keep their wills and estate documents. Some estate planning attorneys retain an original copy. If your parents don’t have a will, encourage them to see an estate attorney. An item that’s not commonly listed in the will, that you may want to ask about, is if your parents have prepaid for a burial plot or memorial arrangements.
Do You Have Life Insurance Policies that I Should Know About? See if your parents have any active life insurance policies. Get the details of the policies and the policy numbers. If your parents are still working, they may also have life insurance through an employer.
Are There Any Special Bequests to Family and Friends? Family heirlooms and special personal property may be a part of your parents’ estate plan. A sibling may have claimed your dad’s coin collection. Knowing your parents’ intentions and wishes for their keepsakes will make things much easier when they pass. Moreover, having conversations about family heirlooms now can help prevent any hard feelings later. Some people make up a list for their personal bequests and reference it in their wills.
Who Have You Named as Your Financial Power of Attorney? This document lets your parents name a primary and secondary person to make financial decisions on their behalf, if they become incapacitated. If you’re the one named as the person to make financial decisions, find out where all of your parents’ financial assets are held. You should also get information about their Medicare policy, any pensions and their Social Security benefits. It even helps to know their utility companies in case you need to pay these bills and must prove power of attorney.
Do You Have a Living Will? They should each have an advance health care directive or living will and health care power of attorney. These documents designate who has authority to make medical decisions on their behalf, if they became incapacitated or terminally ill. This also includes your parents’ preferences for life-sustaining treatment, including a “Do Not Resuscitate” clause, as well as their preferences on organ donation.
Have You Had Trouble Balancing Your Checkbook Lately or Forgotten to Pay Bills? Have a discussion about key financial decisions with your parents while they are in good health. This will let you make a plan, if they show signs of memory loss. The signs of memory loss include forgetting appointments, making occasional errors while managing household finances, or getting confused about the day of the week.
Do You Have a Long-Term Care Policy? To claim benefits of long-term care insurance, a person typically needs to be unable to perform two out of six common “activities of daily living” (bathing, dressing, toileting, eating, transferring and continence) or have a severe cognitive disorder. If your parents have a policy, access it and review its core benefits, in case you need to help them file a claim.
Discussing your parents’ financial and estate plans isn’t fun, but it will help give both you and your parents some peace of mind to know that they will be provided for, and things will be taken care of in their absence.
Reference: NASDAQ (Aug. 27, 2021) “9 Questions to Ask Aging Parents About Their Finances”