In planning how to have your financial affairs managed by others if you become unable to manage your financial affairs, it’s not enough simply to have a revocable living trust because there are many financial transactions that legally cannot be handled by the trustee of your living trust. For example, if you become incompetent, your successor trustee cannot do any of the following (in the capacity as trustee):
- Prosecute or defend a personal injury lawsuit;
- Invest in or withdraw money from your IRA, 401(k), or pension plans;
- Sign your income tax returns or represent you in tax disputes;
- Engage in Medi-Cal planning;
- Gain possession of those of your assets not titled in the name of your trust; etc.
Hence, a durable general power of attorney is an essential part of a Californian’s estate plan. In a durable general power of attorney, you authorize another person to act as your agent (also known as your attorney-in-fact) in the event that you become substantially unable to manage your financial affairs or substantially unable to resist the fraud or undue influence of others.
Some additional examples of powers that can be specified in a durable general power of attorney include:
- The power to engage in gift giving in order to reduce possible estate taxes on your death (see prior posts on estate tax laws);
- The power to continue any pattern of charitable giving that you want to continue if you became ill;
- The power to engage in so-called Medi-Cal planning (which is discussed in prior posts);
- The power to amend the estate tax portions of your living trust (to give flexibility to your documents in the event that, while you were incompetent and unable to amend your trust yourself, Congress changes the estate tax provisions from what you anticipated in how your trust was written);
- The power to create a special needs trust in your living trust for any beneficiary who becomes disabled and in need of a special needs trust at a time when you were not competent to amend your trust;
- The power to transfer your assets to your living trust;
- The power to invest, manage, and make withdrawals from your IRA, 401(k), annuities, and pension plans; etc.
Similar to your living trust, your durable general power of attorney should make clear whom you wish to serve in role of managing your financial affairs, whom the alternates are, how (and under what circumstances) that person can be removed, and to whom that person must account, report, and consult.
Coordinating the terms of your durable general power of attorney and living trust protects yourself in the event you become seriously ill.
Copyright James J. Phillips 2014
It’s wise to review your insurance policies annually, especially the adequacy and coverage of the policies.
Confer with your insurance agent about your homeowner (or renter’s), landlord, auto, boat, business, umbrella, and liability policies to make sure that your assets are protected in the event of damage and that you are protected from the risks associated with your assets, including flood and earthquake coverage.
Check the replacement values on the policy and the liability limits and medical coverage. Also review your deductibles.
Also review your health insurance, life insurance, disability insurance, and the long term care/home health care policies that you may have.
Too often, people get hurt from their failure to review and modify their policies as their circumstances change.
Copyright 2014 James J. Phillips
Over the years, I’ve seen lots of people regret what they did with their inheritance. Regrets over how their inheritance was spent or how it was invested or how it was taxed. Regrets over who later will inherit it. And regrets about what happened to their inheritance in a divorce.
Often, people tend to do something that they “wanted to do” without first identifying all of their “wants” or without prioritizing all of their “wants.”
So my advice to clients is to create an “inheritance plan” of how to improve your life with your inheritance, following these four steps:
Step 1: IDENTIFY ALL OF YOUR WANTS: Without being critical or judgmental of yourself, write down all the things that you want do that involves money. Dream.
- Think of your present and your future.
- Include what wealth you want to leave on your death for others.
- Identify any health, family, or financial necessities (as opposed to wants or desires).
- Try to fill up at least one page. For example, consider:
- Your health wants or needs
- Paying off debt
- Your education
- Your career
- Your home or second home
- An emergency fund
- Helping your children (or grandchildren or others) with college
- Helping your children (or others) buy a home
- Increasing your income now
- Increasing your income upon retirement
- Reducing your income tax liabilities (or your estate tax liabilities)
- Financial security throughout the rest of your life, including your wants for home health care or independent living
- Cars and “toys”
- If you are married, keeping your inheritance your separate property or sharing it with your spouse
Step 2: RANK (PRIORITIZE) YOUR WANTS. Now be serious. Based on your values and your goals, rank the above wants from least important to most important. It’s a good idea to repeat this process until you find that your ranking of your wishes has not changed. When you are confident that your priorities are well informed and won’t change, then go to step 3.
Step 3: INVEST (OR SPEND) YOUR INHERITANCE ACCORDING TO YOUR PRIORTIES. Don’t be swayed by the first “want” that hits you or by pressure from others. Be intentional. Be thoughtful. Understand any potential investment (and the tax implications) before you make the investment. Ask your legal, tax, and investment advisors for their objective input. Spend or use your inheritance according to your most important, most valued, most long lasting “wants.” Doing this, I believe, gives you the best opportunity (a) to improve your life with the inheritance and (b) to avoid regret.
Step 4: Create or update your estate planning documents to reflect your wishes as to (a) how these investments are to be handled if you become ill and (b) who inherits these investments on your death. Seek the counsel of your accountant, investment advisor, and estate attorney. While you go through this process, keep your inheritance safe.
Copyright James J. Phillips 2014
California law states who has priority to serve as administrator of your probate estate if you died without a will and with a California estate large enough to require a California probate. Specifically, a person in the following relation to the decedent is entitled to appointment as the California administrator in the following order of priority:
- Surviving spouse or registered domestic partner
- Other descendants
- Brothers and sisters
- Descendants of brothers and sisters
- Descendants of grandparents
- Children of a predeceased spouse or domestic partner
- Other descendants of a predeceased spouse or domestic partner
- Other next of kin
- Parents of a predeceased spouse or domestic partner
- Descendants of parents of a predeceased spouse or domestic partner
- Conservator or guardian of the decedent
- Public administrator
- Any other person (i.e. friends)
See California Probate Code Section 8461 and the exceptions at 8462-8469.
Of course, these statutory rules do not apply if the decedent had a will that nominated an executor who was willing and able to act. Nor should these rules apply if the decedent’s assets were titled properly in a living trust and with proper beneficiary designation.
Copyright 2014 James J. Phillips
If you have pets, consider including them in your estate plan. In doing so, your documents can address:
- Who will take your pets if you die or become incompetent?
- Who will find them a good home?
- How will the costs of your pets be handled?
Regarding who will take your pets or who will find them a good home, options include:
- Your estate documents can give your pets outright to someone you know, ideally a responsible, trustworthy person. You can designate alternate choices to take your pets. If you wish, funds can be given to the caregiver for each pet. You may wish to provide detailed care and feeding instructions; or
- For California residents, you can use a trust to provide for your pets. This provides a flexible method for managing the funds to care for your pets. Funds remaining in the trust can be distributed in the manner directed by you. With a pet trust, you should nominate a trustworthy and suitable caretaker (and alternates) or instruct the trustee regarding the trustee’s responsibility for finding a suitable home for your pets. The pet trust can pay for all expenses related to the proper care of your pets; or
- When you have no suitable person to take your pets, you can leave your pets to an organization. A number of California animal protection organizations have programs that provide permanent care or guarantee placement of companion animals when their owners die or become incompetent. Here are some examples:
- San Francisco Society of Prevention of Cruelty of Animals-Sido Service
- Animal Rescue Foundation-Guardian Program
- Berkeley East Bay Humane Society
- California Cat Center, Inc-Lifecare Program
- East Bay SPCA-Pet Survivor Placement Program
- Friends of Cats, Inc-Lifetime Care
- Helen Woodward Animal Center
- Hopalong Animal Rescue Pet SurvivorHumane Society of Marin County
- National Cat Protection Society-Retirement
- North County Humane Society-Friends of Life
- Pet Pride (Los Angeles)
- Pets in Life-Guardian Program
- SPCA of Monterey-Guardian Angel Future Care Program
- Tony La Russa’s Animal Rescue Foundation (ARF)-Guardian Program
- Valley Animal Center-No Kill Shelter (Fresno)
Your durable general power of attorney, will, and living trust can include provisions as to who will be responsible for implementing your pet plan.
Your documents can also provide that a sum of money be given to each person (or organization) who takes each pet.
In the end, your estate documents can reflect your wishes as to who will take your pets, how they will be carried for, and what financial assistance is to be provided.
copyright James J. Phillips 2014