Categories

The Season of Giving

Posted on by

The end of another year is upon us.  As with each year, this year ends with the holiday of giving, Christmas, and so our minds turn to gifting.  The most common questions that people have when it comes to gifting is: How much can I gift before I have to pay tax? And, how much can someone receive before they have to pay tax?  Much to most people’s surprise, few gifts would ever result in the giver of the gift paying gift tax, and the recipient of the gift never pays gift tax.

I have written numerous times about gifting and gift tax.  I can’t tell you how many people come to see me and tell me that they cut out my articles and have been saving my articles for years.  People tell me that they have hundreds of my articles saved.

Of course, I am flattered by this fact, and it affirms for me my initial thoughts for writing these articles. If I simply ran an ad saying “I’m great.  Come to me!,” I’d be no different than any other advertiser.  But by giving people information, I introduce myself to them, letting them know what services I provide, and I provide them with information.  I also let them know what I know about my practice area.

But I can tell you that no matter how many articles I write about gifting and gift tax, I will never get the message of truth about these issues to the masses. Most every person who comes to see me tells me their belief that they can only gift $15,000 (or some figure, which ranges anywhere from $10,000 to $15,000) a year without paying gift tax.  Oddly, though, people rarely understand when a gift occurs.  For instance, a person will tell me that they can only gift $15,000 a year, then they’ll tell me that they gave their house to the children.

A gift occurs anytime you give something of value away and do not receive that thing’s value. For instance, if I write you a check for $15,000, and you give me nothing, then I have made a gift of $15,000.  If I transfer my house to you and my house is worth $400,000, then I have made a gift of $400,000.  If I give you my house worth $400,000, and you give me $200,000, then I have made a gift of $200,000.

When people talk about gift tax, they are talking about federal gift tax. There is no New Jersey gift tax.  For federal gift tax, there is an amount that a person can give away each year to an unlimited number of people.  This exclusion from the gift tax is called the “annual exclusion.”  The current annual exclusion gift is $15,000.  This is where people get the “I can only give $15,000 a year without paying gift tax” rule from; however, this is only half of the rule.

Each person receives a credit equivalent against gift tax of $11,200,000.  What this means is, you would have to give away, at least, $11,200,000 before you would ever pay gift tax.  Because of the annual exclusion, a person can give away $15,000 a year to an unlimited number of people without reducing his $11,200,000 lifetime credit.

For example, if I gave away $15,000 to 1,000 people, then I would not reduce my $11,200,000 lifetime credit at all. If I give away $16,000 to the 1,001st person, then my lifetime credit against gift tax will be reduced from $11,200,000 to $11,199,000.

So, unless you are worth more than $11,200,000 (and that would certainly only be the top 1% of our society), then you have no chance of ever paying gift tax. You simply do not have enough money to ever pay gift tax.

On the other hand, gifts can cause issues for Medicaid eligibility. Any gift that you make will count against your eligibility for Medicaid for five years following the gift, but that is a discussion for another day.  The lesson of today’s article is, don’t let gift tax get in the way of your giving.

Debts of the Estate

Posted on by

Being an executor of a decedent’s estate can be daunting and intimidating.  As an executor, you are handling the affairs of someone else (the person who has passed away) for the benefit of other people (the people who are inheriting the decedent’s property, that is, the beneficiaries of the estate).

Most people who are charged with the role and responsibility of being an executor want to do a good job. They want to do things correctly.

A big part of being an executor is ensuring that all the debts of the decedent are paid. Some estates have insufficient assets to pay all the debts of the decedent.  These estates are said to be insolvent, because the assets of the estate are insufficient to pay the debts of the estate.

Ironically, I find that insolvent estates, which typically have few assets, are some of the more difficult estates to administer. You would think, for instance, that an estate worth only $30,000 wouldn’t be that hard to administer, but if the decedent had $120,000 in debts and only $30,000 in assets, the administration of the estate can get sort of tricky.

There is a procedure to be followed in these instances, and the debts of the estate are given a priority as to their payment given the nature of the debt. In order to properly administer an insolvent estate, I would say that the retention of the services of an attorney are a must because a court action must be filed on behalf of the estate in order to declare the estate insolvent and have a debt payment plan approved.

But even with solvent estates, the payment of creditors can get tricky. There are odd legal phrases that when the layperson hears them, I am confident he thinks they mean something other than what they truly mean.

For instance, if you were told that creditors of the estate have nine months from the date of the decedent’s death to present their claim (or debt) and if they don’t present their claim within that nine-month period of time their claim will be barred, you would think that if, for instance, Doctor Smith doesn’t send his medical bill to the executor within nine months of the decedent’s death, then Doc Smith isn’t being paid, ever. But this is incorrect.

Creditors have nine months to present their claims to the executor following the decedent’s death. Most creditors of an estate are “contract creditors,” creditors who performed some service to the decedent pursuant to a verbal or written contract.  For instance, a medical debt would be a debt based in contract law.

A contract creditor typically has six years from the date the services were provided to sue. All the nine-month limitation period is saying is this:  If the executor waits nine months following death before make distributions of the estate to the beneficiaries, then the creditor (Doctor Smith) cannot sue the executor for making a premature distribution of the estate.  Doctor Smith could still sue on his debt if the debt isn’t paid, but if the executor waited nine months, then Doctor Smith cannot sue the executor personally for administering the estate improperly.

Of course, if the executor distributed the money to the beneficiaries, who is Doctor Smith going to sue? The estate now has no money.

If the executor did things correctly, then the executor would have taken “release and refunding bonds” from each of the beneficiaries. A refunding bond is a document that each beneficiary signs that says, in essence, if a debt of the estate is presented, I will refund to you, the executor, my proportionate share of the debt based upon the proportion by which my share of the estate relates to the debt.

So, if here are four beneficiaries each receiving an equal share of the estate and Doctor Smith’s bill is $1,000, then each beneficiary must refund $250 to the executor to pay his share of the debt. If the beneficiaries do not do this, then Doctor Smith could sue each beneficiary on the refunding bond, essentially enforcing the agreement each beneficiary entered with the executor.

Planning for a Disabled Loved One

Posted on by

What is the difference between a special needs trust and a supplemental benefits trust?  If you have a family member who suffers from a disability, the answer to this question can be quite important.

A great number of people suffer from a disability.  Many of these individuals receive means-tested government benefits, such as Medicaid (the federal medical assistance program) or Supplemental Security Income (the federal cash assistance welfare program).  When a program is “means-tested” it means that a person’s assets and income affect his eligibility for the program.

For instance, both Medicaid and SSI have a $2,000 resource limit.  If the beneficiary’s assets exceed $2,000, he will be determined to be ineligible for the program.  For a person with a disability who has significant medical expenses, ineligibility for Medicaid could have devastating effects.

Certain trusts can assist a Medicaid beneficiary in maintaining his eligibility for the program.  A trust is an agreement pursuant to which one person, called the trustee, manages and invests the assets of the trust for the benefit of the trust’s beneficiary.

The terms of a trust can vary greatly.  Many people who come to see me talk as if there is one trust with one set of terms, but the reality is, the person who creates the trust, called the grantor, is free to establish the terms of the trust.

When it comes to Medicaid, it is important that the terms of the trust do not mandate the availability of the trust’s asset to the beneficiary.  The trust must be drafted as what is commonly known as a wholly discretionary trust.  A wholly discretionary trust is a trust the terms of which permit the trustee complete discretion in making distributions of assets and income to the trust’s beneficiary.

For instance, the terms of the trust might say, “My trustee has sole and complete discretion in making distributions of principal or income to the trust’s beneficiary.”  While the trust agreement could say that the trustee is take into consideration certain circumstances that are occurring in the beneficiary’s life (for instance, his need for dental care), the dispositive terms of the trust leave the obligation to make a distribution of principal or income at the sole and absolute discretion of the trustee.

Both a supplemental needs trust and a special needs trusts are wholly discretionary trusts designed to maintain a Medicaid beneficiary’s eligibility for benefits.  The difference between the two trusts is that a supplemental benefits trust is typically funded with the assets of a person other than the trust’s beneficiary (such as the beneficiary’s parents) whereas a special needs trust is typically funded with the assets of the trust beneficiary (that is, the disabled person’s assets).

Also, a special needs trust must contain a “payback provision.”  Because the assets in the trust are the assets of the Medicaid beneficiary, any money left in the special needs trust must first go to the state to payback the state for any Medicaid benefits it paid during the beneficiary’s life.  With a supplemental needs trust, because the money did not belong to the Medicaid beneficiary (for instance, it belonged to his parents), no payback is required.

Finally, a special needs trust must be established before the Medicaid beneficiary attains the age of sixty-five.  A supplemental benefits trust can be established at any age, because once again, the money was never the money of the beneficiary, so the government has no interest in substantially restricting the creation of a supplemental benefits trust.

Your Rights in a Nursing Home

Posted on by

Last week, I described the different long-term care facilities.  There are three primary long-term care facilities:  assisted living residences, nursing facilities, and continuing care retirement communities (or CCRC).

This week, I wanted to write a little about the practical aspects of entering these facilities.  Your rights can vary quite a bit in these different facilities, and those rights can have a practical aspect on you.

Nursing facilities are governed by the Nursing Home Reform Act, a law that has existed since 1987.  There are various rights guaranteed to every nursing facility resident.  The right to privacy, the right to confidentiality, the right to be free of restraints, the right of free choice are just a few of the rights guaranteed to every nursing facility resident in the United States.

A nursing facility also cannot obtain a guarantee of private payment from a third-party and it cannot require a prospective resident to guarantee private payment for any length of time or to refrain from applying for Medicaid benefits. Nursing facilities also cannot treat residents who are eligible for Medicaid benefits differently than those residents who are ineligible for Medicaid benefits.

For those residents who are eligible for Medicaid benefits, nursing facilities must accept Medicaid as payment in full. For instance, a nursing facility cannot ask the resident’s family to supplement the resident’s stay in the nursing facility if the resident is eligible for Medicaid benefits.

Almost every nursing facility in the state of New Jersey accepts Medicaid benefits. If the facility accepts Medicaid benefits, then it must agree to accept a minimum amount of its residents as Medicaid beneficiaries.  For instance, a facility must agree to accept at a minimum 45% of its residents as Medicaid beneficiaries.

In almost every nursing facility, every bed in the facility is dual certified for both a Medicare and Medicaid patient, meaning that in those beds, the facility must accept a resident who is eligible for Medicare or Medicaid. This can be very important because most people enter a nursing facility after being discharged from a hospital.  The resident enters the nursing facility to receive rehabilitative services, frequently as a Medicare beneficiary.

The family may decide that the resident needs to remain in the facility after his rehab is over. The resident will then switch to being either a privately paying resident or a Medicaid beneficiary.

The nursing facility might tell the family that they don’t have any Medicaid beds, but as stated above, in most facilities, every bed is dual certified for Medicare and Medicaid patients. Chance are quite high that the resident already is in a Medicaid bed—the same bed from which he was receiving rehabilitative services covered by the Medicare program.

Since the nursing facility cannot require a resident to refrain from applying for Medicaid benefits pursuant to the Nursing Home Reform Act, the facility cannot prevent the resident from applying for Medicaid benefits to cover the cost of the Medicaid certified bed in which he currently lies his head. The facility also must refrain from requiring the family (a third-party) from guaranteeing private payment for the resident’s stay.

Knowing that they cannot discharge you simply because you are converting from a short-term Medicare beneficiary to a long-term Medicaid beneficiary, many nursing facilities pressure the resident or his family to remove the resident from the facility. “We don’t have any Medicaid beds.”  “We don’t take a person Medicaid pending.”  “You will have to take the resident home and care for him in your home.”  These are common statements that nursing facility staff make to family members.  These statements are almost always incorrect.

Next week, I will write about your rights in an assisted living residence and a CCRC. Hint:  Those rights are substantially less than your rights in a nursing facility.

What Are My Rights

Posted on by

There are several common facts that people should know about long term care facilities.  Long term care facilities come in different varieties.  There are assisted living residences, a nursing facilities (commonly known as a nursing homes), and a continuing care retirement communities or CCRC.  Each type of facility is governed by different laws and each has a different type of license.

From a layperson’s point of view—which to a large extent includes me because I am not qualified or overly knowledgeable about the licensing standards for each of these facilities—an assisted living residence is similar to a hotel in appearance.  Compared to a nursing facility, an assisted living residence typically will have fewer professional staff members (for instance, nurses) than a nursing facility.

The residents often live in a room by themselves and share common areas for eating and socializing. The residents of assisted living residences are typically more active than residents of nursing facilities.  The residents will frequently go on day trips organized by the facility.

Nursing facilities when compared with assisted living residences are more hospital-like in nature. There are a number of nurses on duty at any given time and the residents are frequently visited by a staff physician.

Residents are often less cognizant of their surroundings than residents of assisted living residences. The residents rarely, if ever, go on day trips.  Unless there is a medical reason for a resident to have his own room, residents share rooms with one or more other residents of the facility.

A continuing care retirement community has various living arrangements at one facility. Most residents live in independent living areas, essentially apartments, but with common areas for eating and socialization.  If a resident’s care needs increase, the resident can move to the assisted living section of the CCRC, and if the resident’s care needs increase significantly, the resident can move to the nursing facility section of the CCRC.

The benefit of a CCRC is that the resident never has to leave the facility—or so they are told—if their care needs increase; the resident simply moves to a different area of the same CCRC. CCRC’s cost more than standalone assisted living residences and nursing facilities.  A CCRC will frequently require a large, upfront entrance fee—ranging anywhere from $100,000 to $500,000.  The entrance fee may be partially or wholly refundable when the resident vacates the CCRC, though the resident does not earn interest on the money given for the entrance fee.

Each of these facilities is governed by its own set of rules. For instance, residents of nursing facilities have significant rights that have been codified since 1987 in the Nursing Home Reform Act.  The right to privacy, the right to visit with friends and family, and the right to be free from restraints are just a few of the legal rights that have been established by the law for every nursing facility resident in this country for the past thirty years.  A resident of the nursing facility section of a CCRC would also be protected by the rights codified in the Nursing Home Reform Act.

On the other hand, a resident of an assisted living resident has far fewer legal rights than a nursing facility resident. I know of no codified system of rights that protects an assisted living resident.

The differences in the rights granted to the residents of these different facilities can make practical differences in the lives of the residents. Next week, I will write about how the rights of residents can have a practical application to the residents’ lives and the lives of their family members.

Beware of Your Own Generosity

Posted on by

Few issues prompt more questions to me than the concept of gifting.  In my experience, when it comes to gifts, people tend to focus on the unimportant and ignore, or are ignorant of, the important issues associated with gifting.

A gift occurs anytime a person gives something away and does not receive something of equal value in exchange for the thing given.  Clearly, if Mrs. Smith gives her son $10,000 and her son gives her nothing in return, a gift has occurred; however, gifts occur all the time without people knowing that a gift has occurred.

For instance, if Mrs. Smith gives her son her car, Mrs. Smith has gifted her car to her son.  Whatever the value of the car was at the time of the gift is the value of the gift.  Similarly, if Mrs. Smith “sells” her car to her son for $500 and the car is worth $5,000, then a partial gift has occurred.  If the son removes Mrs. Smith’s name from a bank account that held Mrs. Smith’s money and adds his name to the new account, then a gift of the bank account has occurred.  If Mrs. Smith adds her son’s name to the deed for her house, then a partial gift of Mrs. Smith’s house to her son has occurred.

Most people think they can only gift $15,000 a year without paying gift tax.  The fact of the matter is, a person can gift $11,200,000 during her lifetime without paying gift tax.  If a person gifts more than $15,000 in any given year to one person, then a gift tax return must be filed and the amount of the gift above $15,000 reduces the lifetime credit dollar-for-dollar.

Assume that Mrs. Smith gifts $20,000 to her son. Mrs. Smith must file a gift tax return, an IRS form 709.  No gift tax will be owed, but Mrs. Smith lifetime credit against gift tax will be reduced from $11,200,000 to $11,195,000.  Since most people have nowhere near $11,200,000, most people should have no concern about ever paying gift tax, and since a gift tax return is a simple tax form that most anyone can complete, there is little hassle associated with making a large gift.

What is a concern for gifting is the potential impact of the gift on the person’s eligibility for Medicaid benefits. If Mrs. Smith gives her son $20,000 or a partial interest in her house or her car, then those gifts could come back to haunt Mrs. Smith’s eligibility for Medicaid benefits if Mrs. Smith requires long-term care and applies for Medicaid benefits within five years of making the gift.

This is what the Medicaid five-year lookback is all about. When a person gifts any asset within five years of filing an application for Medicaid benefits, those gifts can come back to haunt the person’s application for Medicaid.

Pursuant to the five-year lookback, all gifts made within five years of applying for Medicaid benefits are aggregated. The aggregate value is then divided by a number, which is based upon the statewide average cost of a nursing home room.  That number is currently around $10,500.  So, for every $10,500 of aggregate gifts that Mrs. Smith made during the lookback period, she will be ineligible for Medicaid benefits for one month.

Since Mrs. Smith has no money—she is, after all, applying for Medicaid—she is subject to being discharged from the nursing home in which she resides if Medicaid assesses a penalty period against her for making gifts during the lookback period. If her son doesn’t want her discharged from the nursing home, her son may have to pay for the cost of her care.  Since a nursing home can cost upwards of $14,000 a month, the cost of Mrs. Smith’s care might exceed the value of the gifts that Mrs. Smith made to her son.

 

My Mom

Posted on by

This past week, my mother passed away.  She was 93 years old—three weeks shy of 94.  For the last six years of her life, my mother resided in a nursing home.

Like most children, I believe that my mother was a great person.  Without question, she was someone who loved being a parent and tried her hardest to be the best parent she could be.  All my mother wanted to be in life was a mother, so measured from that perspective, her very long life was an absolute success.

Years ago, I was able to qualify my mother for Medicaid benefits.  The fact that I qualified her for those benefits saved my father, aged 90, from financial ruin.  My dad still lives at home and has been able to reside at home because my mom qualified for Medicaid benefits.

There are several things that I gathered from my personal experiences that resonate with me every day.  People seek my advice about their parents and their parents’ need for long-term care.  After meeting with thousands of people and measuring their experiences against my own, I can tell you that while we all believe we are unique people with a unique set of facts, the reality is, on whole, we are mostly very much the same.

My mother never wanted to live in a nursing home.  I hear similar statements from clients all the time.  But when I say my mother never wanted to live in a nursing home, I mean she never wanted to live in a nursing home and would have rather just died on the spot if she thought she would ever live in such a place.

Before my mother became a full-time resident of a nursing home, she was in nursing homes on two occasions for rehabilitation.  When I would visit her during those short stays, she was practically hyperventilating from her agitation.  No matter how many times I would tell her that she was only there for rehabilitation and would be going home soon, she wanted to go home right then and there.  And she was adamant and angry.

After suffering several strokes, my mother suffered from vascular dementia.  Due to her strokes, her care needs simply reached a level where it wasn’t feasible for her to remain at home, so we placed her in a nursing facility where she received excellent care for six years.

Because of the effects of dementia, my mother never realized that she was living in a nursing facility, so she was actually comfortable and peaceful in the nursing home.  For the first four years of her stay, she was somewhat conversational and always appeared relaxed and relatively happy.  Eventually, the dementia took over her mind to an extent where she wasn’t conversational, but she always appeared relaxed and comfortable.

So many people come to see me and tell me that they will never live in a nursing home. When they tell me this, I remember my mother.  Sometimes a person’s care reaches a level where family members cannot provide the care.  It would be unsafe for the person who needs the care to remain at home and for the caregiver to provide that care.  Many caregivers—spouses or adult children—suffer mental and physical harm attempting to provide care to an elderly person at home.

So, the point I take away is, never say never, because if my mother spent six years in a nursing home, anyone can end up spending a significant amount of time in a nursing facility.

Another point I bear in mind with respect to my mother’s care is the way people view a particular nursing facility. Many people ask me for a referral of a “good” nursing home.  I always tell people to visit www.medicare.gov, which is a government site that ranks nursing facilities on various criteria, and to visit the actual nursing home to get a sense of the care that is being provided.  I also suggest that people chose a nursing home near their house, because it makes it much easier to visit the family member.

I thought the facility in which my mother resided is the best nursing facility. I thought the care she received was outstanding.  The facts of her case bear my opinion out.  She resided in that facility for six years, which is longer than any other client of mine has ever resided in a nursing facility and a lot of my clients have resided in nursing facilities.  But I have had clients tell me they don’t like the nursing home where my mother lived.  That’s fine, and that’s why I try not to recommend facilities.  It’s a personal opinion.

Guardian ad Litem

Posted on by

A recent appellate division case makes clear the role of a guardian ad litem.  When a person cannot handle his financial or medical affairs due to physical or mental disability, a guardian might be appointed for him.

In order to appoint a guardian for a person, a court action is required.  The court action must be supported by the reports of two physicians who have examined the incapacitated person and opined that he can no longer handle his financial or medical (or both) affairs due to mental or physical infirmity.

For instance, if Mr. Smith suffers a massive stroke, he may be unable to handle his affairs. If Mr. Smith failed to sign a power of attorney and an advanced healthcare directive, then no other person could make decisions for him.

Mr. Smith’s children will want to help him, but legally, they can’t because they don’t have the authority to make decisions for him or access his financial accounts (bank accounts, annuities, IRAs, etc.). One of his children will have to initiate a guardianship action.

Once the child files the guardianship action, the court will appoint an attorney for Mr. Smith. In a guardianship action, the court is being asked to declare that Mr. Smith  can no longer handle his affairs and that someone else (his child) has the authority to make decisions for him.  If the court decides this is the proper course of action, then the court is depriving Mr. Smith of fundamental rights—Mr. Smith can no longer make decisions for himself.

Since it is alleged that Mr. Smith can no longer make decisions for himself, the court must appoint an attorney for him to ensure that his fundamental rights are not inappropriately being taken away from him. That lawyer must advocate for Mr. Smith.  If Mr. Smith tells the attorney that he does not want a guardian, then the attorney must advocate for what Mr. Smith wants, unless what Mr. Smith wants is plainly harmful to Mr. Smith.

A guardian ad litem does not have the same role as the court appointed attorney. A guardian ad litem is appointed in some (not all) guardianship actions to opine as to what is in the best interests of the proposed ward, that is, Mr. Smith in my example.  Mr. Smith’s court appointed counsel might believe that Mr. Smith needs a guardian, but Mr. Smith might tell his attorney that he doesn’t want a guardian.  In such a case, the court could appoint a guardian ad litem to opine as to Mr. Smith’s need for a guardian.

Once the court declares that Mr. Smith is mentally incapacitated, the court could leave the guardian ad litem in place in order to accomplish some goal. The guardian ad litem could have a special skill from which the court believes Mr. Smith would benefit.  For instance, if Mr. Smith were being sued for an automobile accident in which he was involved, the court could appoint a guardian ad litem who is an attorney with extensive experience in litigation involving automobile accidents.

The court could empower the guardian ad litem to negotiate and enter an agreement disposing of the lawsuit against Mr. Smith. With such authority, the guardian ad litem could negotiate a settlement of the lawsuit against Mr. Smith and enter a settlement agreement disposing of the lawsuit.

A guardian ad litem is not appointed in most guardianship actions, but in some cases, the appointment of a guardian ad litem can be very beneficial. If a guardian ad litem is appointed, it is important to remember the differences between the court appointed counsel and the guardian ad litem, because even attorneys get their roles confused.

What Is a Trust?

Posted on by

Many clients ask me if they should have a trust.  The client has heard of some person who has a trust, and they believe that a trust would be appropriate for them.

A trust is a fiduciary relationship in which one person, called the trustee, is holding assets (cash, stocks, bonds, mutual funds, real estate) for another person, called the beneficiary.  A fiduciary relationship is one in which the fiduciary has the utmost duty of care to handle the assets of another person.  So, with a trust, the trustee is the fiduciary, holding the assets of the beneficiary with the utmost duty of care.

The person who establishes the trust is called the grantor.  The grantor places his assets into the trust.  The trustee holds and invests the assets of the trust.  And the beneficiary derives the benefits of the trust.

With many trusts, the grantor establishes the trust for the benefit of himself with some other person, such as his children, as remainder beneficiaries after his death.  In such cases, the grantor also serves as the initial trustee of the trust, with one of the children serving in the role of successor trustee after the grantor’s death.

Because a trust is really just one person holding assets for another person, the trustee can invest the assets of the trust any way a person can invest assets.  A trust could have its assets invested in multiple types of investments, just as a person could.  For instance, you are probably “invested” in real estate in that you own your home.  A trustee can invest in real estate by owning a home in the name of the trust for the benefit of the trust’s beneficiary.

You probably have a checking account.  A trustee could have a checking account in the name of the trust.  You could invest in CDs, stocks, mutual funds, and annuities.  A trustee could invest in CDs, stocks, mutual funds, and annuities.

If Joseph Smith were invested in stocks, the stocks would simply be titled “Joseph Smith.”  If Joseph Smith were the trustee of a trust for the benefit of his nephew, Mark Jones, then the stocks would be titled “Joseph Smith, Trustee, of the Mark Jones Trust.”  Titling the stock in this manner would show that Joseph Smith is holding the stocks for the benefit of Mark Jones in a trust.

If Joseph Smith wanted to invest the assets of the trust in real estate, mutual funds, annuities, bonds, etc., all of the accounts or assets in which the trusts was invested would be titled “Joseph Smith, Trustee, of the Mark Jones Trust.”  The trust could invest in one asset or twenty assets, just as you could invest in one asset or twenty assets.

The only limitation to the manner in which the assets are invested is that the trustee must always bear in mind his duty of care to the beneficiary.  When it comes to investing, the trustee must be guided by the Prudent Investor Rule.  The Prudent Investor Rule requires the trustee to invest the assets of the trust in a prudent—careful—manner.

Whether a client needs a trust or would benefit from a trust is always a question of fact given the client’s particular set of circumstances.  A trust is not the right choice for every client.

Many trusts are revocable, meaning that the grantor of the trust can amend or completely revoke the trust any time the grantor chooses.  Revocable trusts often come in handy for estate planning purposes when a client owns real estate in another state, for instance, in Florida.

An irrevocable trust is a trust that cannot be amended or revoked by the grantor.  The grantor could designated another person, such as the trustee or someone else, who could modify or terminate the trust, but in order to be irrevocable, the grantor cannot retain the power to modify or terminate the trust.  Irrevocable trusts are often used to remove assets from the name of the grantor and gift those assets to other persons.

Off to College: Did You Forget Something?

Posted on by

A financial power of attorney and an advanced healthcare directive can be two of the most important documents that you ever sign.  A financial power of attorney permits someone else, called the “agent” or “attorney-in-fact,” to make decisions for the person who signs the power of attorney, called the “principal.”

A power of attorney is only effective when the principal is alive.  Once the principal dies, the agent’s power of attorney authority ends.  Moreover, a principal is always free to revoke any power of attorney authority that he has granted to his agent.

Once a person attains the age of eighteen, no one can make decisions for him unless that person is his power of attorney or court-appointed guardian.  As silly as it may seem, the age of eighteen is the age of majority, and once a person attains that age, he is an adult.

Some people think a spouse can make decisions for you simply because of his/her status as a spouse. This is not the case.  For instance, if Mr. Smith owns an IRA and he is mentally incapacitated, Mrs. Smith would not be able to access that IRA unless Mr. Smith executed (signed) a power of attorney in her favor or she is the guardian of her husband.

When clients come to see me, I always tell them that a Will is important, but a financial power of attorney is even more important.  A Will is for other people.  A Will is only effective after you die, so a Will is not really for you; it’s for those you love.

A power of attorney is for you.  The power of attorney permits someone else to take care of you if you cannot take care of yourself.

An advanced healthcare directive is essentially a financial power of attorney but for healthcare decisions.  The directive grants authority to someone else (called the “agent” or “proxy”) to make decisions for you.  Through an advanced healthcare directive, you can grant someone the authority to access your medical information, which is important given privacy laws.

Over the years, I have had a few clients who I would consider to be good planners contact me about planning for a child of theirs who was going away to college.  The child was about eighteen years of age and the parent realized that if something happened to the child when the child was away at college, the parent would not be able to make decisions for the child.

These parents have contacted me and asked that I draft a financial power of attorney for the child.  This is a smart move.  Now that the parent has a power of attorney, he can continue to make financial decisions for the child.

The parent can still handle the child’s banking, even if the child is perfectly healthy, and if something were to happen to the child—for instance, if the child were to get into an accident—the parent can handle the child’s financial affairs.  Furthermore, the parent could make healthcare decisions for the child and access the child’s healthcare information.

As much as none of us would ever want to think about something happening to one of our children, what would make the situation many times worse is being told that you don’t have authority to make important financial or healthcare decisions for the child who now desperately needs your help.  Eighteen is what the law considers an adult, so your authority over your child legally ends once he attains the age of eighteen.