4 \”Must Ask\” Questions for Smallbiz Owners and Single Parents
This is the third of 4 articles in our 2013 Estate Planning Fundamentals Review series. We\’ve already covered, life insurance and healthcare powers of attorney. So moving on…to property powers of attorney. Property powers of attorney are important components of an estate plan because the documents help people plan for today as well as tomorrow. The instruments are even more important for single parents and small business owners because often the single parent or smallbiz owner is the sole keeper of the keys to the family’s or business’s financial kingdom. So if the key keeper becomes seriously ill or suffers a devastating injury, the financial kingdom could turn to ruin if a trustworthy substitute keeper isn’t ready to step in. A property power of attorney allows for designation of a substitute keeper. Consider the following: Karyn and Jonah are divorced. Karyn has sole custody of Little Caroline because Jonah was abusive; Karyn’s restraining order proved so. Karyn was an only child whose parents died a while back. She and Jonah moved to Illinois immediately following the birth of Little Caroline, who is 5 years old. By the time Little Caroline was 2, Jonah and Karyn’s relationship was over. After the divorce, Karyn bought a flower and wine boutique, which is thriving. She owns a modest home and lives well within her means. However, Karyn has recently learned that she must be undergo major surgery and will be in recovery for at least 6 weeks, 3 of which will include her being heavily medicated. Because she put so much time into her business, though she has a part-time employee, and spends all of her spare time caring for Little Caroline, she hasn’t had a lot of time to really nurture other friendships. Furthermore, Jonah not only has a violent temper but he also has an erratic employment history. So there is no way Karyn would let him near Little Caroline or her financial affairs. So some but not all of the questions Karyn should consider are: Who will care for Little Caroline while you’re in the hospital and during the first few weeks of your recovery? Do you have 6 months of emergency daily living expenses saved? If you pay your mortgage early, will you be penalized? While you are in the hospital and a bill becomes due, have you arranged for its payment and how? If a complication arises, requiring a longer hospital stay and, thus, a longer recovery period, who will tend to your personal and business affairs? If you conduct your affairs online, who will have access to your online accounts and how have you cleared this with the relevant institutions? Can your part-timer handle opening and closing the shop during your absence? How has this authority been provided and is there a back-up plan? Can the shop survive during your absence? If you have arranged for someone to manage your financial affairs, have you limited their authority and how? All parents and business owners owe a duty to their families and business stakeholders to plan. For single parents and small business owners, failing to plan creates dangerously and unnecessary high risks to family and stakeholders.
3 Reasons to Be Stingy
The primary problem with financial accounts held jointly is that one cannot predict the financial outlook of another person. These days, we can barely predict our own financial future, let alone anybody else’s, even if that person is a spouse. People still, however, assume that married couples are safe when they join finances, but let’s look at Keith and Richard. As newlyweds, Keith and Richard were head over heels in love. So when the CPA suggested that they keep their own separate accounts and establish a joint account for household expenditures, they smiled and told her she didn’t understand how they wanted to share everything. Ms. CPA just politely smiled back. Several months later, Keith phoned her to find out how to recover money from long overdue child support payments that were taken out of his and Richard’s joint account by Richard’s former partner who lived across country and was the mother of his child. The CPA recommended that Keith contact a lawyer who specialized in child support issues. However, the damage was done; even if the lawyer could recover what was withdrawn, Keith still had to pay the lawyer. So Keith also started thinking about calling another different kind of lawyer. Next: It\’s typical and, at first glance, reasonable for a senior loved one to place a younger family member on the senior’s account jointly. Grandma Adams may say to her granddaughter, “Liz, if I get sick, I want someone to be able to pay my bills and take care of me.” Liz says, “OK, Grandma.” Liz has the best intentions in the world because she has a nice job and doesn’t need Grandma’s money. However, what Grandma and Liz don’t know is that Liz is about to be laid off because her company just lost its best an only client and, as a result, must shut its doors. Liz has a car note, insurance, credit cards, and charge cards. Even if Liz doesn’t touch Grandma’s money, Liz’s creditors can if she stops making payments. Elderly parents, like grandparents and for the same reasons, also consider it a good idea to allow children to be on their account jointly, even if the parents have more than one child. Yet, what if the parent wanted the children to split everything equally upon the parent’s death? Do we really believe that Chloe isn’t going to keep all of the remaining money in the account to herself and not split it with her brother? The best way for an elder to manage this issue is to designate someone as an agent under a property power of attorney. That way, he or she must comply with a higher standard of legal ethics, must keep detailed records, and the agent\’s creditors cannot touch the principal’s funds.
3 Traps to Avoid Wrapped in \”No Charge\”
There I was, sitting in a seminar, as my colleague began lecturing on powers of attorney. I was actually interested in hearing the next presentation on a more complex matter but, of course, you never know what nuggets can be gleaned from a refresher on the basics. Plus, Illinois laws change all the time. So I sat and appeared interested while deciding what to cook for dinner when suddenly another panelist blurted out quite fervently, “I disagree! A durable power of attorney is not better than a springing power of attorney!” My ears perked up; no one loves a good shark fight better than a little guppy like me. Somewhere in the annals of The Shark Free Zone is an article or 2 explaining POAs. However, as a refresher, powers of attorney are authorizations to allow others to make important decisions on your behalf when you’re incapacitated. Property POAs allow agents to make financial decisions. Healthcare POAs allow agents to make healthcare decisions. Individuals think because these documents are free that they’re simple. Well…let’s return to the shark fight. A durable POA goes into effect upon signing and lasts through incapacity until death. A springing POA has a designated beginning and ending, even though the agent signs the document. For example, the Illinois Statutory Power of Attorney forms suggest one designates a springing term to begin or end upon the determination of incapacity by a court. This suggestion shows why such basic forms aren’t so basic, even though free, and why they should be carefully reviewed before making the designations and taking the suggestions. Trap 1: Waiting until a court determination of incapacity in order to act under a property POA may result in financial mayhem if a loved one is too ill to pay the bills. Occasionally, individuals will say, “I don’t need a property POA because my child is also on my bank account with me.\” Trap 2: When a person is a joint owner on your bank account, that person’s creditor or creditors can place a lien or liens on the whole account. People also sometimes ask, “I have a living will, so do I really need a healthcare POA?\” If I were the smart-ass sixteen year-old I once was, then my answer would be, “Well, if the only time you want your agent to act is if there is a question about when to pull the plug, then no.” However, I am very far from being 16, thank goodness, and so I answer accordingly: A healthcare POA can include living will language and more. You can give you agent the authority to talk with doctors about your medical allergies, your medical history, and more. Trap 3: A living will only applies to individuals with terminal illnesses or who are in a vegetative state. A lot more can happen to one between a cold and a coma, and it helps you and your loved ones if you’re prepared for that “in-between-time.” Free doesn’t necessarily mean easy and suggestions are not rules.
5 Reasons Why You\’re Not too Young to Save a Goldfish
It’s hard to believe that summer fun is nearly over and soon laser focus will target the school year, getting those year-end business deals done, and dare I say – holiday planning. Over the summer, my newsletter introduced topics on planning and I’ll end the summer with articles on estate planning for the various life stages. Also, joining me as a guest blogger this month will be a well-respected attorney and colleague, so stay tuned. Now, onto the first life stage where estate planning matters: Young adult working singles. Many people ask, “Why would a young person gainfully employed, but a young single adult nonetheless need estate planning?” The answer is for the same reason older adults need it – to protect themselves and their families, e.g., their parents. Christopher’s Yarn After college graduation, Christopher was offered an entry level position at the company for which he worked part-time while in college. His starting salary didn’t approach 6 figures, but was sufficient to afford him a nice apartment. So he moved out of his mom’s home after about 7 months of work and rented a place with a roommate, Alex. Since Chris telecommuted a couple of days a week, he also had a well-equipped home office. One day, the weather forecast was gloomy, so Chris decided to work from home. He was glad he did because early that afternoon a severe thunderstorm started raging. Chris was number crunching on a report that was due that evening when suddenly his computer froze; the cursor wouldn’t move; control-alt-delete wouldn’t work. Chris bent down and flipped the switch on the power strip and ZAP! That evening when his boss didn’t get the report, she e-mailed Chris and waited for a response. When there was no word from Chris the next morning and he didn’t show up for work, his boss phoned HR. HR tried phoning him but kept getting his voicemail. Later that afternoon, Alex returned home from spending the night at a friend’s. He unlocked the door and saw Chris sprawled across the floor of his home office. Chris’ mother was a single parent who worked 2 jobs to help Chris through college. After he moved out, she quit one job and took a long vacation with a friend in Mexico. Alex had her phone number but couldn’t get through. The only other relative Chris mentioned was an older brother who Chris said couldn’t be trusted to watch a goldfish. Alex called the medics but was stunned. Chris had no healthcare powers of attorney, no property powers of attorney, no life insurance, no will, and an irresponsible brother. He and Alex only met a few months ago, so Alex didn’t know his medical history. Whether Chris survived or not, I can’t say for sure, but upon his employment for 6 months, I would have given Chris the following 5 tips: You can authorize a successor agent under a healthcare power of attorney, who can make healthcare decisions on your behalf if you become incapacitated. Renter’s insurance is very helpful if you telecommute; perhaps not against lightning strikes, but definitely against thieves. A property power of attorney can authorize someone other than an irresponsible brother to manage your bank account and bills while you’re hospitalized. Life insurance will help your mom pay for your services so she won’t have to struggle financially. A will allows you to ensure that your irresponsible brother doesn’t get the goldfish. If you think you’re too young for an estate plan, think again before it storms.
Debunking Estate Planning Myths & Developing Wealth, Pt 1
Recently, I spoke at Chicago State University and this is the first of 3 key points I made during our lively and enjoyable discussion. Let\’s start with some MYTH BUSTING! Estate planning isn\’t just about planning for death; it is also about planning for today and retirement. Estate planning isn’t just for the uber rich; it’s about protecting your personal and financial interests, whatever it is you value personally above money and however much money you have. So how exactly does basic estate planning protect you and your loved ones today and in the future? Basic estate planning tools are powers of attorney, wills, and life insurance. A power of attorney is a legal document that authorizes you (the \”agent\”) to step into the shoes of someone else (the \”principal\”) and make decisions on their behalf. These authorizations typically last until the principal\’s death, but can be used temporarily, for example, if the principal is going on a lengthy sabbatical. Illinois provides two types of statutory powers of attorney: property power of attorney and healthcare power of attorney. A property power of attorney provides the agent with the necessary authority to make financial decisions on the principal\’s behalf and, similarly, a healthcare power of attorney provides the agent with the necessary authority to make healthcare decisions on the principal\’s behalf. You should also know that the principal can design these powers to be as broad or as narrow as possible. For example, an agent with a property power of attorney may have authority to pay the mortgage but not to sell the house. Powers of attorney are critical documents for single and retiring individuals, especially healthcare powers of attorney because normally doctors assume the spouse has a power of attorney. However, if you have no spouse and you have not delegated anyone with the authority to make healthcare decisions for you whether the decisions involve the need for life-threatening or routine procedures, you will have to make the decision while in the medical treatment facility or hospital or, if you are incapacitated, a family member or hospital staff member will make the decision for you, and that’s not the time for one to be making such decisions! We’ve all heard the stories about fights between family members at the bank or in the intensive care unit when their loved one hasn’t made arrangements for illnesses and hospital stays, however temporary or long-term. By simply by taking the time to think of a few trusted people, you can create a sense of family accord in your family and allow you and them to focus on well-being and not who’s in charge of what. And remember, powers of attorney only last until death, which means they protect you and yours today. Question: My wife and I are legally separated. Should I wait until the divorce is finalized before I change my healthcare power of attorney? Answer: Do you want your soon to be ex-spouse making healthcare decisions on your behalf before your divorce is final? Part 1 | 2 | 3 | 4 | 5
JD, CPA, CFP – What\’s with the Estate Planning Alphabet Soup
When designing an estate plan for a new client, I usually ask if the client has a financial “team.” “A team?” you may wonder or say to yourself, “I don’t need a team because I don’t even have an estate! I just need a will, if that.” On the contrary, as mentioned in a previous post, you probably do have an estate and it’s likely larger than you think. So yes, you probably need a team. Consider this analogy: To maintain overall good physical health, you need a primary doctor, a dentist, and, if you’re female, a gynecologist. Now these providers may only consult with each other once, if then, but they are certainly aware of the other\’s existence because your good health requires it. An estate planning team works in a similar way, albeit a little closer, and is essential, especially if you have loved ones you want to protect. So here\’s the line-up: Estate planning attorney: Does more than draw up a will or a trust, and while online DIY services offer estate planning, if you use one, be sure there\’s a review by an attorney who understands the probate, trust, and tax laws in your state. In addition to the many laws, an estate planning attorney must also have a good command of the various, related documents needed to protect you and your family now and in the future. He or she should also possess, at least, a basic understanding of the federal and state tax implications of the distributions and powers designated within the documents, near-term financial planning, and retirement planning. Certified Public Accountant (CPA): Must take a licensing exam, work for as an accountant for about 5 years, and take continuing education courses to retain certification. Accordingly, a CPA’s knowledge base is deeper than a non-certified accountant. A CPA whose specialty is estate and income taxation typically consults with your estate planning attorney to ensure that the tax implications for you and your beneficiaries are minimized. Certified Financial Planner (CFP): While not required for CFAs, a CFP must take extensive exams in financial planning, taxes, insurance, estate planning, and retirement. He or she must also take continual financial planning courses to maintain their certification. A CFP performs the research needed to help determine how best to allocate funds to reach your personal goals and the goals of your family and consults with the estate planning attorney to ensure beneficiary designations are accurate and that allocations and distributions are aligned with your goals and unique investment style. In a nutshell, your estate planning team is a group of capable and highly qualified individuals who, together, help to ensure that: The intentions underlying your financial and personal interests are legal and accomplished during and after your lifetime; The tax implications of those interests are minimized; and The financial interests are secured and grown if possible. *Note: Different states have different rules on fee-splitting arrangements, but typically attorneys cannot accept fees from non-attorneys, at least in Illinois, which is a healthy check-and-balance on your team.
Heading to the Mall for a Gift and a … Will
An interesting concept that has already been established abroad is the ability to purchase testamentary documents at malls. Capitalizing on the concept and holiday traffic, during this past festive season, a couple of attorneys in Florida set up a legal services kiosk offering various legal services including \”basic estate planning.\” This set up involves dynamics that are both troubling and admirable. Estate planning is a complex practice, especially if you\’re approaching it from the perspective where your main focus is individuals with relatively large estates who want to protect their families but also seek to minimize taxes. Plus, considering the newer comprehensive approach, which incorporates using other financial professionals, estate planning is a relatively complex practice. This approach requires a more than basic familiarity with a number of disciplines because this approach uses a \”team\” of advisors, with the attorney at the top of a pyramid, with a financial planner and an independent CPA at the base. Finally, needless to say but I\’ll say it anyway – the tax laws are always changing. Still, it\’s doubtful that individuals with large estates who are mindful about the fees they pay will consider a kiosk; that\’s just not how they do business. On the other hand, a demographic does exist that needs testamentary documents to just protect family members in the event of a death or incapacity. The \”basic\” will and power of attorney would likely be applicable in this situation. Yet, I am troubled by lawyers who don\’t use these documents regularly and understand how they intersect with other law and regulations, especially powers of attorney and health care directives but offer them with a little counseling as a holiday special. If a gay or cohabiting couple approach these attorneys for wills or estate planning, there\’s no 15 minute answer. Finally, the middle class is struggling as it is; it cannot afford planning mistakes with the small amount of resources it has managed to maintain during the financial crisis. I absolutely agree that trying to help the middle class is admirable, but this setup may cause more harm than good. If the motive is helping the middle class, they could offer documents and a free review without the 15-minute time constraint? But the question then becomes do the attorneys have the requisite experience to know what to look for during the review.
Estate Planning Tools to Keep Lex-the-Ex Away
Outside of food and clothing, 2 of the most critical matters parents manage for their children are education and housing. Single parents are typically even more concerned with managing these issues because ultimately the responsibility falls on the primary custodial parent. Divorcees may breathe a little easier because of settlement and child custody agreements, but not necessarily. Family courts around the country are filled with defendants and plaintiffs arguing over alleged breaches of such agreements. Consequently, as a single parent, the burden is heavier. Managing housing and educational issues can be made easier with proper estate planning tools. An earlier blog post addresses basic estate planning instruments parents should have in place. This post discusses some of those instruments in more detail. Property Power of Attorney. As mentioned here, this authority, which you to give to another person, allows that person to make and carry out financial decisions for you when you are physically incapacitated. Thus, if you’re ill for a long time and need someone to pay the rent, mortgage or any other expenses associated with your family’s home, you should designate a trusted agent under a property power of attorney. Guardian of the Estate. A will allows parents to designate who should care for their children in the event of a parent’s death – a guardian. This is critical to single parents. However, in Illinois, there are 2 types of guardians: a “guardian of the estate” and a “guardian of the person.” A guardian of the estate status allows the guardian to manage the financial affairs of the minor, e.g., gifts received under a will or trust. This makes sense because sometimes the person you would trust to raise your children may not be as financially well informed as needed to manage large sums of money. So I typically advise clients to consider guardianship from both “personal values” and “financial expertise” perspectives. Trustee. In a vein similar to a guardian of the estate, a trustee is the person, or entity, you authorize to administer, preserve, protect, and grow trust assets. Note: Many people think they’re not personally wealthy enough to require a trust; many are mistaken in this thinking. Example: Sharon is the single mom of a 14 year-old daughter and has a home valued at $150,000 with a mortgage balance of $30,000. She has about $100,000 in a retirement account, and $500,000 in life insurance. Additionally, Sharon keeps approximately $1,000 in her checking account and $2,000 in her savings. She doesn’t feel like she’s wealthy, but if Sharon were to pass away today, her estate would be valued at $723,000. She would have died almost a millionaire! An important and related consideration is that unless other designations are made, life insurance and retirement account proceeds may be paid out to a very young adult, e.g., an 18 year old. How many 18 year olds do you know who are mature enough to manage receiving a lump sum of $600,000? Returning to Sharon’s scenario, where her daughter is a minor: If Sharon didn’t designate a guardian or trustee, but Sharon’s ex-husband, Lex, is lurking around, guess who would likely obtain control over the $600,000 – yep, Lex the ex. Life Insurance. Typically, life insurance is a death benefit and can be used to pay off mortgages and for other housing expenses. An Irrevocable Life Insurance Trust (“ILIT”) is a time-honored estate planning tool and excellent for providing for education and housing costs, especially if one does not intend to benefit from a policy otherwise. Transfer the policy in a trust where someone other than yourself is trustee and your child’s education is relatively secure. Securing the hearth and educational future of children is critical, so review your policies and plans today and get a good night’s sleep going into the New Year. Well…after midnight anyway. Your comments are welcomed as always!
2 Lessons for Families on a Tight Budget
The Great Recession was enough to make most people try to pinch pennies where they can. However, the fact is that planning for the protection of your family costs money; it may not cost tens of thousands of dollars, but it still costs. Basic instruments that help protect the family are generally available for little or no charge at the courthouse – or on most state governments\’ websites. Still, to ensure that your instruments are correct, which means your family is appropriately protected, a legal consultation, even if brief, may be worth it. And for goodness sake don\’t try to prepare the instruments yourself. Document preparation services and low-cost collectives are in what is referred to as a \”race to the bottom.\” Allow me to illustrate this point: Once, I was in court for a hearing, so I decided to make it a 2-fer and get another client’s instruments filed with the court after my appearance. Waiting for the clerk, I overheard another clerk speaking with a woman who was trying to decide how to handle a guardianship matter in the least expensive, most efficient way she could. The woman told the clerk that she had the appropriate Power of Attorney (“POA”) and had possessed this document for a long time. The clerk then responded that the woman was “fine.” As a lawyer and, more importantly, as a human being, I find it necessary to step in when someone may be unwittingly jumping off a cliff. So I gently injected myself in the conversation just to inform these ladies that Illinois had changed both its powers of attorney a few months earlier. Eyes became saucers … oops. Lesson #1: Good advice isn’t typically free, BUT bad advice is typically very, very expensive. Even if an individual believes that they can’t afford a lawyer, instruments and the requisite advice for basic family protection is available for much less than the cost of really bad advice: Healthcare Power of Attorney, authorizes another individual to make decisions regarding your medical care and treatment while you are incapacitated. This POA is available in many places and is relatively self-explanatory. However, if you seek to have an attorney review your form, depending on your health, it should not take an unreasonable amount of time amounting to an unreasonable fee. Caution: If the form is driven by an online document preparation service, be sure an attorney licensed to practice in your state with a focus on estate planning performs the review. Laws change and automated document preparation services can’t modify their forms as quickly as an independent lawyer. HIPAA release forms, instruct medical institutions to release your medical records to the individual you designate on the form. The forms are universal because they’re governed by federal law and are available almost everywhere. They should supplement your Healthcare Power of Attorney. Property Power of Attorney, like a healthcare POA, authorizes an individual to step into your shoes and make decisions about your financial affairs. Also, like the healthcare POA, the document is readily available and should be reviewed by an appropriate attorney. Lesson #2: VIP documents, providing basic family protection, before death, cost a lot less than bad advice, even with proper attorney review. Today, most families are on tight budgets, but that shouldn\’t prevent you from being able to protect your family like families whose budgets are more flexible. However, to not protect properly…well…see Lesson #1.
Who Takes the Eggs? ART and Estate Planning Considerations
As technology’s digits crawl through the nooks and crannies of our physical world and cyberspace, the legal consequences and questions emerging keep even us non-IP lawyers quite busy. Considering assisted reproductive technology (\”ART\”), family law was the premier practice area for getting caught in ART\’s web. Few lawyers realized the effects ART would have on estate planning and, even as the effects became clear, only a fraction of states passed laws providing legal guidance. Fortunately, Illinois is a state that considered ART in its laws and included laws for in vitro fertilization in the Parentage Act. Additionally, the Probate Act states that children born after a parent’s death (“posthumous” children) are to be considered having been born during the parent’s lifetime. So, what does all this technolegalese mean? Well, in terms of inheritance and/or estate planning laws, it means conversations should be had between Illinois spouses if conception is a challenge or an impossibility for one or both spouses.* The conversations are necessary because of 2 vital estate planning tools often used by couples, Health Care Powers of Attorney (“HCPOA”) and Property Powers of Attorney (“PPOA”), which can also provide instruction for ART cases. Yes, lawyers love acronyms. In Illinois, a posthumous child born via ART typically emerges in 1 of 3 ways: Use of frozen sperm; Use of a frozen embryo; or Use of a frozen egg. Furthermore, obtaining frozen sperm or eggs may not only occur after incapacity but also may occur after death, which is when estate planning mechanisms are triggered. When creating an estate plan, couples usually consider a bunch of “what ifs,” e.g., “what if I become disabled while we’re still in the “prime” of our lives and haven’t had kids yet?” A HCPOA is a tool that requires making those decisions but, consequently, eases the fears associated with the “what ifs.” Accordingly, when considering ART, a HCPOA could, for example, authorize the implantation of frozen sperm or eggs. Of course, other considerations would naturally follow, such as, how one abled-parent and one disabled parent would raise a child. Still, ART combined with the law creates a reasonable and protected possibility for having a family, when that likelihood, outside of adoption, didn’t exist before. Another equally interesting issue relates to the PPOA. But, you say, “That’s about property.” Yes, it is. In a 1993 California decision, Hecht v. Superior Court, which is used by several states, the Court determined that frozen genetic reproductive material, such as sperm and eggs, is property for the purpose of leaving a gift in a will (aka “devise”). Here, you might think the conversation would be easy – women can leave their eggs to their partners; but, not so fast. What if the eggs are frozen, then the relationship is legally dissolved, the donor spouse remarries, and then passes away? Who gets the eggs if the second spouse doesn’t want any (more) kids? She could disclaim them and pass them to her descendants or siblings; that would be interesting. The future brothers and sisters of the former partner? Should the reproductive material be destroyed? Who do you think should get the eggs? * The term “spouses” and \”partners\” are interchanged in this context because the terms are synonymous in Illinois law.