Power of Attorney Authorization

An often-overlooked component of estate planning is the Power of Attorney Authorization. When you sign such an Authorization, you grant someone else the power to, essentially, be your agent. That person can withdraw money from your bank accounts, sign checks, take out loans in your name, and so on.

 

Why?

 

You might wonder why you would want to provide someone with such power. Suppose I have a stroke, which leaves me mentally and physical incapacitated. My wife decides that we should sell our house so that we can move into a home that is handicap-accessible. But there’s a problem: the house is titled in both of our names, meaning that my signature is required to sell the home, and since I’m now mentally incapacitated, the law says I can’t sign. My wife, if she wants to move forward with selling our house, must now petition a Court to be appointed as my Guardian, which means extra time, hassle, and expense.

 

mattressPay Now, Peace of Mind Later

 

Paying upfront is rarely fun. Our tendency is to think, “I’ll save some money by buying a cheaper mattress or buying some cheaper tires or buying a cheaper pair of shoes.” In the same vein, many today think, “I don’t need to see an attorney regarding estate planning; I’ll save some money because these sorts of things will never happen to me.” Of course, everyone thinks it will never happen to him or her. We just don’t know what life is going to throw our way. I recommend that you invest upfront so that you can rest assured that you and your loved ones are taken care of.

 

–Joel Dendiu

Probate Versus Non-Probate Transfers

An important concept to understand when engaging in estate planning is “probate versus non-probate transfers.” Any property that passes through or under a will is called a probate transfer. Suppose I die, and my will states (among other things), “I give, devise, and bequeath all of my property, both real and personal, to my spouse.” On the date that I died, I owned a house in my name only. My will gets submitted to the court (part of the probate process), and the house eventually ends up in my wife’s name due to my wishes as laid out in my will. The actual probate process contains many more steps than that, but for the purposes of this article, that explanation will suffice.

 

Non-probate transfers

 

But further suppose that I have a life insurance policy with my son as the named beneficiary. Upon my death, my wife seeks to collect the life insurance policy for herself. My wife reasons, “Joel’s will said that I take everything.” But the life insurance policy is a non-probate transfer. It does not pass through or under my will. So even though my will says that I leave everything to my spouse, my spouse is not entitled to the proceeds of the life insurance policy; my son, as the named beneficiary, is.

 

Contradictions

 

The situation above surprises a lot of people. Most people think, “The will says my spouse gets everything, so he/she really should get everything.” But the will has absolutely no power, control, or authority over any non-probate transfer…and there are a lot of different types of non-probate transfers. Joint checking accounts, for example (so long as they have rights of survivorship), pass instantaneously upon the person dying; the will is not involved at all. So if I had a joint checking account with my son, and my wife’s name wasn’t on it, she wouldn’t get the funds in that checking account, just like she wouldn’t get the funds from the life insurance policy. Most people naturally think, “If there is a contradiction in the estate plan—say, between a will and a life insurance beneficiary—then the will controls.” But that’s just not how it works.

 

Don’t leave it to chance

 

There’s simply no reason to leave these sorts of situations to chance. You might think you have a decent understanding of the law, but I do estate planning for a living. It’s my job. I have almost certainly thought of things that you haven’t thought of. Use me to ensure that your last wishes actually happen.

 

–Joel Dendiu

New Will vs. Codicil

Changes to your will

There may come a time when you want to make changes to your will. Part of what I do when I create your estate planning documents is to craft the documents in a way that cuts down on the need for revisions later in life. But sometimes, revisions are unavoidable. If/when you do need a revision, should you draft a codicil (that is, an amendment or addition)? Or should you draft an entirely new will?

You = me

When I say “you,” I really mean “me” (or at least someone like me). Non-attorneys are allowed to draft their own estate planning documents, but the results can be disastrous if the documents are drafted incorrectly. So let’s assume you come to me and say, “I now want to leave 75% to Anne and 25% to Bob.” Before typewriters and word processors, a codicil would have been your best bet. The attorney fee would be a lot lower to draft a codicil than it would be to write out an entirely new will.

Cloning sheep

But we live in a different world. To quote Jerry Seinfeld, “We’re cloning sheep now.” You might be able to provide me with an electronic copy of your will. Making a few changes to such a copy can be a very easy process. At the very least, you should have a paper copy that I can scan and then use Optical Character Recognition software on. This will be more time-intensive than an electronic copy, but it won’t take much more time than a codicil would.

Are codicils bad?

Why do I appear to be so against codicils? First, a codicil requires the same formalities (attested in front of and signed by two witnesses) as a will, so there’s really no advantage there. Second, a codicil is an extra document that must be kept track of and eventually submitted to the court when you pass. More documents means more of a chance of something getting lost or being missed. Finally, a codicil can be misinterpreted. What if it revokes an entire Article of your will? The revocation might be clear, but perhaps another Article of your will depends upon the first Article. What is a court to do when faced with these documents? There’s less of a chance of something like this happening when an entirely new will is drafted.

I hope you’ll contact me when faced with these sorts of issues so that I can provide you with peace of mind regarding your estate plan.

–Joel Dendiu

More On Trusts

Flexibility

Last time, I wrote about using a testamentary trust to prevent your minor children from receiving a large lump sum when they turn 18. Trusts can be used to accomplish other goals as well. One of the biggest benefits of a trust is flexibility. While a will, in a sense, only “speaks once,” a trust can allow your wishes to continue well after you are gone.

Two goals

Suppose you have adult children and that your first spouse, unfortunately, passed away. You re-marry someone who also has children from a prior marriage. You want to ensure that your spouse is taken care of when you pass, but it’s also your preference that when your spouse passes, the remainder (if any) of your property goes to your heirs, not your spouse’s heirs. There isn’t anything wrong with this desire, and it is, in fact, quite common.

A simple will would be inadequate

Accomplishing this goal with a simple will would be difficult. A will passes property from one person (deceased) to other people (living). If all of your property passes to your spouse when you pass so that your spouse is taken care of, nothing guarantees that that property will eventually end up with your heirs. Your spouse may promise, “I’ll make sure that the property coming from you gets to your children,” and your spouse may even mean it. But your spouse would have to take certain steps to ensure that this occurs (like keeping the property segregated, drafting her will in the correct way, etc.).

How to accomplish both goals with a trust

A trust provides a solid solution. You can place your property—either before or after death—in a trust and name your spouse as a beneficiary of that trust. Your spouse doesn’t technically own that property, but you can draft the trust document such that she receives regular distributions from the trust, which adequately provides for her (your first goal). You can then add a provision that upon your spouse’s death, the remainder of any property in the trust goes to your heirs, not your spouse’s (your second goal). This is possible because, again, your spouse doesn’t legally own the property in the trust, whereas if you pass all of your property to her under a will, your spouse does own the property.

Legal fictions

Trusts can be complicated, and I plan to write more about them later. For now, it’s enough to know that they are, in a way, legal fictions. Legally, the property is placed in the hands of a trustee. But equitably—or, put another way, how things actually play out—the property belongs to the beneficiaries.

As I’ve said again and again, this stuff can be tricky. Employ me to navigate your way through estate planning. It’s my promise that I’ll make things as smooth as possible.

–Joel Dendiu

The Testamentary Trust

Pick an age, any age…

For married couples with minor children, I’ll oftentimes recommend drafting a “testamentary trust” into the will. When the first spouse dies, the surviving spouse takes everything (which usually occurs through joint titling anyway). When the remaining spouse dies, if the children are under a certain age—say, 21 or 25—the will states that the sole heir of the estate is a trustee. The will further designates that the trustee is to hold the property in trust for the benefit of the children. Once the youngest child reaches a certain age, the trustee is to distribute the remaining trust assets to the children.

What 18-year-old is good with money?

There are two big advantages to this setup. First, it allows you to prevent the children from having complete control over a potentially large inheritance at age 18. Suppose you and your spouse pass and are survived by two teenaged-children. Your will names a guardian, and that person is appointed guardian of your children. While the inheritance belongs to the children, the guardian still has a level of control over the money…but that automatically ends when the child turns 18. If, instead, you create a testamentary trust (with your will) and name the guardian as trustee, then the children do not automatically have full control over the inheritance at 18. You can designate any age you wish. And even though the money “belongs” to the trustee, the trustee is holding the money for the benefit of your children. The guardian cannot just do with the money what he or she pleases (there are protections in place in the law of trusts).

Flexibility

The second benefit of a testamentary trust is flexibility. Suppose that you don’t have a testamentary trust, and each teenaged-child receives one-half of your estate. One of the children contracts a disease and incurs substantial medical bills, eating up her share of the estate. Now, if that child decides to attend college, she has a hard time paying for it. But if a trust exists, the trustee has some discretion in how to distribute the assets. The trustee could use trust property to pay for the medical bills and still help that child pay for college. Your first thought might be, “That doesn’t seem fair to the other child.” But if you and your spouse were alive, you most likely wouldn’t say to the child that got sick, “Well, since you contracted this disease, we aren’t going to help you with college. That just wouldn’t be fair to your brother.”

Here to help

During your consultation with me, these are the sorts of things we talk about. I’m here to help take care of your loved ones.

–Joel Dendiu

Do I Need a Will?

The setup

Let’s suppose you are married with no children and have the following assets:

  1. A house.
  2. Two cars.
  3. A checking account.
  4. An IRA.

Let’s further suppose that the house, both cars, and the checking account are titled jointly, and your spouse is a 100% beneficiary of the IRA. One more thing: the house has a transfer-on-death deed, the two cars have transfer-on-death registrations, the checking account is Payable on Death (POD), and the IRA has a 100% contingent beneficiary, all to a brother that you love dearly (a decision that your spouse agrees with).

Some scenarios

Do you need a will? Let’s see what happens in various scenarios. Scenario 1: you die; your spouse survives. Since everything is joint, it all passes immediately to your spouse, and the IRA pays out to her. Great (other, of course, than you being gone). Scenario 2: you and your spouse die at the same time (in a plane crash). Since everything has a form of POD, it all goes to your brother, and the IRA pays out to him as the 100% contingent beneficiary. Great, again.

What about all your “stuff”?

But there are also some not so great scenarios and issues. If your brother predeceases you, and you and your wife both pass, your property is distributed according to the intestacy (that is, without a will) laws of Indiana, which might place your property in the hands of people you never intended. In Scenario 2 above, your personal property is technically not accounted for. There’s no form of POD for personal property, which means that it also would pass according to intestacy laws. And even if you are very careful about getting everything that you can titled jointly and everything that you can titled with a POD provision, it’s possible that you will miss something. Perhaps you forgot about a bank account or forgot about some stock that you own.

Will as “safety net”

A will can remedy all of these issues. You can name who will take your personal property. You can name who will take in the event your brother predeceases you. And you can name who will take the “residue” of your estate (that is, everything that you own, including things you may have forgotten about). While there are possible scenarios in which not having a will might be okay, having a will is almost always preferable. It can and does act as a safety net. Let me help you make sure that all contingencies are accounted for.

–Joel Dendiu

Survive/Predecease Provision

The provision

One of the provisions that I generally place in the wills of married couples is a “survive/predecease” provision. It reads something like, “If my said spouse dies under circumstances that render it difficult or impossible to determine which of us died first, then I shall be presumed to have survived my said spouse.” This provision doesn’t often come into play, but it can make a difference.

An example

Suppose I leave everything first to my wife and then to our three children in equal shares, and my wife does the same. We both die in a house fire. First of all, without the survive/predecease provision, two estates would most likely have to be opened simultaneously (one for me, and one for my wife), and that just creates extra cost, time, and confusion. With the survive/predecease provision in place, if most everything we have is titled jointly (e.g. house, cars, bank accounts), then all of my wife’s property immediately passes to me, which then gets placed into my estate and passed to my children. This is a lot simpler than two estates.

How do we choose?

Second of all, it may be the case that I have more Payable on Death accounts with contingent beneficiaries than my wife does, which is the real reason that we chose me as the “survivor.” I might have an IRA (which cannot be titled jointly) that names my spouse as the 100% beneficiary and my children as 33% contingent beneficiaries, while my wife has no such IRA. If it’s presumed that I pass first, then the IRA pays out to my wife, and then that money is placed into her estate (since she died in the fire, too). There’s technically nothing wrong with this, but money in an estate does not go to the heirs immediately; it takes time. Our kids will still get the money in the IRA, like we wanted, but the process is delayed. If, instead, it’s presumed that my wife passes first, then our kids will get the IRA payout without the money going through the estate. When I pass, the IRA will “see” that my wife has already passed and move on to the contingent beneficiaries (our children). The end result is that our kids will get the money much faster.

Flipping a coin

If neither spouse has a larger number of Payable on Death accounts, then we’ll generally flip a coin for the “survive/predecease” provision (or you can decide between the two of you who you think is better able to survive a catastrophic event; I know my wife is tougher than me). But it’s important to have such a provision no matter what in order to avoid potentially having two simultaneous estates.

–Joel Dendiu