Friday, August 14, 2015

Durable (Financial) Powers of Attorney, “General”

Background.  You will want to consider a durable (financial) power of attorney when you engage in estate and disability planning.  You will be giving your agent the ability to do much that you, if personally present, could do.  You may appoint your agent under a “general power of attorney” – with lots and lots of authority -- or a “limited” or “special” power of  attorney; for example, a special power of attorney may authorize your agent to sell a car or your home only.  Do not ever appoint as an agent someone you do not trust.  Some people do appoint a relative who is not really trustworthy as agent – this is probably magical thinking: “If I become incapacitated, surely Johnny Boy, my son, will see the light and behave properly.”  Really?  Would you tell your best friend to do this?

Texas has adopted the Uniform Power of Attorney Act (set forth in the Estates Code), including a form (suggested) and the “short form” powers.  For example, the short form power “real property transactions” which is on the actual power of attorney is defined in the Estates Code as granting to the agent a great deal of authority, including the power to: “sell, exchange, convey with or without covenants, quitclaim, release, surrender, mortgage, encumber, partition or consent to partitioning, subdivide, apply for zoning, rezoning, or other governmental permits, plat or consent to platting, develop, grant options concerning, lease or sublet, or otherwise dispose of an estate or interest in real property or a right incident to real property”.

If you choose all of the short forms, you will have granted so much authority to your agent that, colloquially, you will be said to have a “general power of attorney”.  (Starting January 1, 2013, you must initial before each power you want or initial at the end if you want your agent to have all of the listed powers.) 

Unless you choose, using the statutory form or a variation, to make your agent’s authority last beyond your incapacity (effective when you sign it and good even if you are incapacitated – “durable”) or become effective on your incapacity (“springing”), your agent’s authority ends if and when you become incapacitated.  Your Power of Attorney is not effective after your death.

Discussion.  Co-Agents?  Living Revocable Trust?  If you do not have someone who is trustworthy who you can appoint as an agent, consider a revocable trust (also called as a “management trust” and a “living trust.”)  With a revocable trust, you can appoint Co-Trustees and require them to act jointly or allow each to act separately.

If you have someone you trust, you also may appoint one agent or more a Co-Agents and require the Co-Agents to act jointly or allow each to act separately.

BUT,  please note that banks and other financial institutions may not want to be responsible for making sure that Co-Trustees or Co-Agents actually act together.  Recently, two children of a client of our firm were required under the power of attorney he had done years ago to act jointly.  The bank refused to honor the direction that they act jointly (apparently, due to concerns about liability).  Instead, before the bank would allow them to act at all (even jointly), the bank required that each sign an indemnification agreement confirming that the bank was not responsible for making sure that each signed checks or jointly gave transfer and other instructions and also required each to indemnify the bank against any complaints one might have against the other as a Co-Agent.

What do you do to plan for your Co-Agents and/or Co-Trustees refusing to act jointly, especially when the bank is likely not to require joint actions?  Consider asking your attorney to draft in your Power of Attorney or Revocable Trust a plan to be triggered if this happens, like granting to the Agent or Trustee who is following the rule the right to go to  court without notice to the Agent or Trustee who is taking unilateral actions and get a temporary restraining order (“TRO”); authorize the Agent or Trustee who is following the rules to invoke a mandatory mediation or arbitration to be paid for from funds of the principal (who signed the power of attorney) or Trust; include a provision that if a Co-Agent or Co-Trustee who is required to act jointly acts unilaterally, that the Agent or Trustee will be treated as having resigned and an alternate treated as succeeding as Co-Agent or Co-Trustee; and look into whether a bank will allow the Co-Agents or Co-Trustees to pen a so-called safekeeping account (by court order or otherwise) where nothing will be released to pay bills unless both have signed. 

Friday, July 24, 2015

Required Minimum Distributions in the Year Someone Dies

When a beloved family member and/or friend dies, there are many tasks that should be addressed to make sure that the decedent’s wishes for transfer of his or her assets are honored: those involving legal matters and the transfer of ownership of assets, (b) those involving clothing, furniture, and personal property, and the like for which there is no deed or title, (c)  those involving cars, motorcycles, boats, motor homes, and the like for which there is a title or certificate of ownership, (d) those involving property held by a living person and the decedent “as joint tenants with right of survivorship” or where the decedent has an account that is “payable on death” or “transfer on death” to a living person, and (e) those where you are named as a beneficiary (for example, life insurance, an IRA, a 401K).  In all of the flurry of activity, there is one aspect of IRAs that sometimes is not thought of until late in the year:  If the decedent was over 70 ½ and already receiving Required Minimum Distributions (RMDs) during life, you should check to see if an RMD was received before death.

If the decedent had not received an RMD before death, arrangements should be made for that distribution to occur, hopefully, prior to the end of the calendar year.  First, there needs to be someone who is authorized to give instructions to the custodian of the IRA.  If there is no beneficiary named to receive the IRA upon death, then the court-appointed executor (if there is a Will) or an administrator (if there is no Will or if there is no one named as executor who is able to serve) may authorize the delivery of the RMD.  (If the IRA is payable to a beneficiary other than the executor, that beneficiary may be able to give directions for distribution and will have to provide a death certificate to do so.)  The penalty for failure of the RMD to be distributed before the end of the calendar year in which the decedent died is 50% of the required RMD.  50%? 

Yes.  But, there may be an exception that applies.  Take a look at IRS Form 5329 “Additional Taxes on Qualified Retirement Plans (Including IRAs) and Other Tax-Favored Accounts”.  The IRS can grant an exemption from the 50% additional tax if the shortfall in the proper distribution is “due to reasonable error” and “reasonable steps to remedy the shortfall” are being taken.  For example, if no executor has been appointed in time to authorize an RMD before December 31 (of the year in which the decedent died) and an executor is appointed and able to request a distribution early in the next year, those circumstances are likely to be deemed to be both “due to reasonable error” and “reasonable steps” to make sure the RMD is made as quickly as possible.  In the past, the taxpayer was required to pay to the IRS the 50% penalty (additional taxes) and request both a waiver and refund.  Now, the taxpayer is not required to submit the additional taxes and request a refund.  However, until the IRS grants the waiver, the additional taxes may need to be paid and the taxpayer may want to keep on hand an amount to pay the IRS should the waiver not be granted. 

Kathleen Ford Bay

Friday, July 3, 2015

Texas Increases Allowances for Surviving Spouse and Children

Hooray for modern times! As part of the new Texas Estates Code, the Texas Legislature finally got around to increasing various exemptions and allowances for surviving family members.

Section 102.004 of the Texas Estates Code clarifies that the homestead of a decedent who is survived by a spouse or a minor child is not liable for the payment of any debts of the deceased’s estate, other than certain debts which may be secured by that homestead under the Texas Constitution – essentially, purchase money or home equity liens, ad valorem property taxes, certain materialmen’s liens, an owelty of partition, or a reverse mortgage.

Effective January 1, 2014, Chapter 353 of the Texas Estates Code sets new amounts for certain allowances that may be claimed by a surviving spouse or certain children of the deceased, prior to payment of any creditor’s claims.

Under Section 353.053, in place of a homestead under Section 102.004 (for persons who lease or otherwise do not have a suitable homestead), qualified survivors can request that the probate court set aside an allowance up to $45,000 – previously, the maximum allowance in place of the homestead was $15,000. 

In lieu of any exempt personal property, the survivors can also request the probate court set aside an allowance up to $30,000 – the previous cap on this allowance was $5,000. 

These two allowances are in addition to the “family allowance” that may be requested under Section 353.102 of the Texas Estates Code for the maintenance of the surviving spouse, minor children, and any adult incapacitated children for one year from the date of the decedent’s death. 

Effectively, the Texas Legislature now permits qualified survivors to set aside up to $75,000 (versus the previous $20,000), as well as a “family allowance” when necessary, to help provide for their care without the fear of such funds being seized by the deceased’s creditors. 

By: Cynthia W. Veidt,

Monday, June 29, 2015

Impact of SCOTUS Ruling on Same-Sex Marriage in Texas Estate Planning and Disability Planning

On June 26, 2015, the Supreme Court of the United States (SCOTUS) in Obergefell v. Hodges ruled that all 50 states and the District of Columbia must issue marriage licenses and recognize marriages regardless of whether the spouses are both male or female.  In effect, this ruling guarantees equal protection under the law to same-sex couples concerning not only marriage, but the property rights and other legal presumptions arising from marriage.

As the majority of the Court’s justices have stated:

“No union is more profound than marriage, for it embodies the highest ideals of love, fidelity, devotion, sacrifice, and family. In forming a marital union, two people become something greater than once they were. As some of the petitioners in these cases demonstrate, marriage embodies a love that may endure even past death. It would misunderstand these men and women to say they disrespect the idea of marriage. Their plea is that they do respect it, respect it so deeply that they seek to find its fulfillment for themselves. Their hope is not to be condemned to live in loneliness, excluded from one of civilization’s oldest institutions.  They ask for equal dignity in the eyes of the law. The Constitution grants them that right.” – Justice Anthony Kennedy. (Please click on the name of the case above if you wish to read the entire opinion.)

LPV is ready to assist all couples in understanding their legal rights and obligations concerning estate planning – the method by which one passes one’s property to others upon death, through probate or non-probate means, as well as disability planning – the method by which one communicates one’s desires and instructions for addressing short-term or long-term inability to make legal or financial decisions for oneself. 

For example, you can choose to sign a written document designating who will make medical decisions for you and who can visit you in a hospital (Medical Power of Attorney); now, even if you have not done so, your spouse in a same-sex marriage will have statutory rights to do so.  You can also, by signing a Last Will and Testament or beneficiary designation, choose who will receive your property upon your death; now, your spouse in a same-sex marriage will have inheritance rights under state law.  Only spouses can “roll over” an IRA from the deceased spouse to their own IRA; now, your spouse in a same sex marriage can do so and avoid situations where required minimum distributions must start immediately, even if the surviving spouse has not reached 70 ½ years of age.

However, the universal recognition of same-sex marriage in Texas by various administrators and officials will likely be a rocky road, despite SCOTUS’ historic and unequivocal opinion.  Couples should review their estate planning and disability planning needs with an attorney so that they can take advantage of a variety of methods suited to their particular circumstances.

Attorneys and staff at LPV look forward to serving the needs of all married couples.

By: Cindy Veidt, 6/29/2015

Friday, June 12, 2015

Changes to the Texas Statutory Durable Power of Attorney Form

Effective January 1, 2014, Texas has adopted a new pre-approved form for its Statutory Durable Power of Attorney, a/k/a the power of attorney for your financial affairs. All forms must substantially comply with the new statute in order to remain effective.

Substantial compliance is always a tricky task. In order to avoid challenges that may be determined in a judge’s discretion, Texas residents should consider preparing a new statutory durable power of attorney that closely follows the specific statutory form now contained in Section 752.051 of the Texas Estates Code. We also recommend updating your estate and health care planning documents – including powers of attorney forms – whenever you have experienced a significant “life event,” such as the birth or adoption of a child, marriage, divorce, or the death of a relative or significant other.

Be sure to initial one or more of the options (marked A though N) on the new form; otherwise, you have not granted your agent any powers to act on your behalf. 

Additionally, if you want to be sure that you have granted your agent a “general power of attorney” – the ability to perform any and every type of legally permissible action in your place, as if he or she were you – you should include specific language to the effect that “this document shall be construed and interpreted as a general power of attorney and my agent (attorney-in-fact) shall have the power and authority to perform or undertake any action that I could perform or undertake as  if I were personally present.”

The former statutory durable power of attorney form (Section 490(a) of the now-replaced Texas Probate Code) contained this language; the new provision does not.

Because this financial power of attorney is a very powerful tool - and is also ripe for abuse by your agent under the wrong circumstances - we highly recommend that you consult with an attorney prior to signing this legal document, so that you are fully aware of the rights, responsibilities, and potential liabilities that can occur.

By: Cynthia W. Veidt,