Wealth Planning News
Vol. IV, No. 6
Disability Planning Goals
1. Keep the dignity of control of your financial affairs.
2. Provide binding advance instructions about how your assets and income can be used if you become disabled. You can always change the instructions.
3. Avoid living probate proceedings if you become disabled. Keep your financial affairs private by avoiding any public record of your affairs.
4. Assure that any property you left out of your living trust, or property that comes to you outside of your living trust after your disability, can be placed into your revocable living trust.
5. Allow for gifts made by your designated agent or agents, after you become disabled, will qualify as valid gifts for tax purposes.
A Living Trust
You need full control of your assets before disability. But you also need to allow for private and inexpensive management of your assets if you become disabled, under instructions you give in advance. The best way to meet this goal is by using a fully funded revocable living trust.
A significant feature of disability planning focuses on who should handle your financial affairs under your advance instructions, if you become disabled. A primary advantage of a revocable living trust is that it allows you to name the person or persons who would manage your financial affairs if you become disabled. At the same time, it contains instructions for the person or persons you name.
The revocable living trust owns your assets, and allows your successor trustee to privately manage them. It has instructions for the trustee to provide for your needs, the needs of your spouse if you are married at the time, the needs of any of your dependents, and to pay your bills and obligations. The trustee would also have power to manage and control your investments. The trust document would contain extensive powers and instructions for your trustee to be able to do this.
Powers of Attorney
Most lawyers will prepare a durable general power of attorney for you to sign when you make your will. The reason they do this is so that you will have named someone to manage your money and your property if you become disabled.
A durable power of attorney is not a good way to plan for disability asset management. The intent of the power of attorney is to preserve your privacy, and avoid the expenses and delays that would occur incident to a conservatorship proceeding.
But a durable power of attorney is like a blank check, but worse because your agent is not limited to the funds in your bank account. The durable power of attorney lacks any instructions about how to manage your assets, and what to do with them. Because it appoints another person to handle all of your property and assets, without limitation or instructions, it can easily be abused. The distribution of durable powers of attorney diminishes your full control of your assets, and may diminish your own dignity of control.
In This Issue
1. Disability Planning Goals
2. A Living Trust
3. Powers of Attorney
After you have a revocable living trust, there may still be a need for someone to act for you regarding any assets you receive after disability, or which you failed to place into your living trust. This power of attorney is a special durable power of attorney. It gives your agent only limited powers. It only allows your agent to sign the documents necessary to transfer assets into your previously created revocable living trust.
This type of durable power of attorney is not a blank check. It does not allow your agent to transfer assets to himself, or to anyone other than your living trust, so it avoids the problems inherent in a general durable power of attorney.
Advantages Of A Trust
1. The revocable trust preserves the privacy of your financial affairs.
2. It avoids any need for the living probate proceeding called a conservatorship or a guardianship of the property.
3. It avoids delays in the management of your financial affairs.
4. It saves many expenses and lawyer fees that would have been paid out of your estate during the time you are disabled.
Despite the disadvantages of a general durable power of attorney, you still need one even after you create a living trust. If your estate is so large that gifts should be made to keep it within a non-taxed range, you will want to empower someone to make gifts from your estate if you become disabled. The circumstances of when gifts should be made, and to whom, and how, are specified in this document.
The trustee named in your revocable living trust usually lacks power to make gifts. The typical and normal general durable power of attorney is silent about gifts. If any gifting powers are included, the power to gift is too severely limited by state laws.
Your super POA will authorize your agent or agents to make gifts from your estate. It has to be carefully written to specify who can receive gifts. And it has to be carefully written to avoid some tax problems. But the document is helpful in allowing gifts to be made, and is essential if gifting should continue in the event of your disability. To remedy the possible abuse or misuse of this document, you may want to name several persons as your agent, with the requirement that they act together in exercising the power to make gifts.