ESTATE PLANNING FOR THE ELDERLY, PART 1 & PART

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1 ESTATE PLANNING FOR THE ELDERLY, PART 1 & PART 2 First Run Broadcast: June 23 & 24, :00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes) Estate planning for the elderly involves far more than the tax planning of conventional estate planning. Elderly clients are often motivated by fears of outliving their assets, the need to make advance medical decisions about their health care, funding long-term care at home or in a nursing facility, and helping provide for the education of grandchildren. In addition, elderly clients divorce and remarry late in life, greatly complicating planning. There is also the increasingly pervasive challenge of working with clients with diminished capacity or finding a way to work at the direction of their heirs or fiduciaries. This program will provide you with a real-world guide to multi-faceted planning for the elderly, including planning with revocable living trusts, significant health care and maintenance issues, late-in-life divorces and remarriages, and working with clients with diminished capacity. Day 1 June 23, 2015: Estate and trust planning for the elderly Issues related to client competence, undue influence, and dependence Planning with revocable living trusts Late-in-life divorces, remarriages, and impact on inheritance Avoiding post-mortem disputes with family and other potential claimants Day 2 June 24, 2015: Drafting advanced medical directives and the use of health care surrogates Disability and planning for long-term care Role of public benefits SSI, Medicare, Medicaid and asset protection trusts Conservators, guardians, and property managers Planning for the tuition and educational expenses of grandchildren Speakers: Scott N. Alperin is a partner in the Virginia Beach, Virginia office of Midget Preti Alperin, PC, where he has an extensive estate planning, asset protection, and wealth management practice. He has a substantial specialty in advising elderly clients in planning for preservation and transfer of wealth, planning for long-term care, lifetime giving for the educational expenses of heirs, and the use of planning instruments to make advance health care decisions. Before entering private practice he served as a judicial clerk for Judge Glenn T. Harrell, Jr. of the Court of Appeals of Maryland. Mr. Alperin earned his B.A. from the University of Virginia and his J.D., magna cum laude, from the University of Baltimore School of Law. Missia H. Vaselaney is a partner in the Cleveland office of Taft, Stettinius & Hollister, LLP, where her practice focuses on estate planning for individuals and businesses. She also represents clients before federal and state taxing authorities. Ms. Vaselaney is a member of the American Institute of Certified Public Accountants and has been a member of the Steering Committee for

2 AICPA s National Advanced Estate Planning Conference since Ms. Vaselaney received her B.A. from the University of Dayton and her J.D. from the Cleveland-Marshall College of Law.

3 VT Bar Association Continuing Legal Education Registration Form Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT Fax: (802) PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name Middle Initial Last Name Firm/Organization Address City State ZIP Code Phone # Fax # Address Estate Planning for the Elderly, Part 1 Teleseminar June 23, :00PM 2:00PM 1.0 MCLE GENERAL CREDITS VBA Members $75 Non-VBA Members $115 NO REFUNDS AFTER June 16, 2015 PAYMENT METHOD: Check enclosed (made payable to Vermont Bar Association) Amount: Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # Exp. Date Cardholder:

4 VT Bar Association Continuing Legal Education Registration Form Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT Fax: (802) PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name Middle Initial Last Name Firm/Organization Address City State ZIP Code Phone # Fax # Address Estate Planning for the Elderly, Part 2 Teleseminar June 24, :00PM 2:00PM 1.0 MCLE GENERAL CREDITS VBA Members $75 Non-VBA Members $115 NO REFUNDS AFTER June 17, 2015 PAYMENT METHOD: Check enclosed (made payable to Vermont Bar Association) Amount: Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # Exp. Date Cardholder:

5 Vermont Bar Association CERTIFICATE OF ATTENDANCE Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: June 23, 2015 Seminar Title: Estate Planning for the Elderly, Part 1 Location: Credits: Program Minutes: Teleseminar - LIVE 1.0 MCLE General Credit 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

6 Vermont Bar Association CERTIFICATE OF ATTENDANCE Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: June 24, 2015 Seminar Title: Estate Planning for the Elderly, Part 2 Location: Credits: Program Minutes: Teleseminar - LIVE 1.0 MCLE General Credit 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

7 THE LAWYER'S ROLE WITH THE OLDER CLIENT Daniel J. Hoffheimer Taft Stettinius & Hollister LLP 425 Walnut Street, Suite 1800 Cincinnati, Ohio (513) EL 003 8/23/05 {W }

8 I. INTRODUCTION TO "ELDER LAW" The relationship between an older client and his or her lawyer is sometimes different from that in other legal fields. Recognizing these differences, the legal profession is adjusting its practices to meet the needs of the elderly client, but this process is new. This field of law is sometimes referred to as "elder law". For the present, at least, the uniqueness of the situation can only be appropriately handled by direct conversation between the attorney and the client. The following are some of the issues that the older client might want to discuss with his or her attorney (or the attorney may want to discuss with the client) to make the relationship more mutually satisfactory. II. THE ELDER LAW CLIENT'S RELATIONSHIP WITH HIS OR HER LAWYER A. The Client's Desire For Legal Help. Older people are often brought to an attorney by their family or friends. At times this makes it hard for the attorney to know who is actually asking for help. As the attorney has a duty to be loyal to his or her client, knowing who is the person asking for help is important in how problems will be addressed. As complicated as this may seem, because elder law attorneys are particularly interested in the welfare of the older individual and because most families share this interest, just how the problem is managed is not likely to lead to a different result. Most elder law attorneys, however, would rather work with the elderly parent as the client both because it better serves the older client and because it simplifies many ethical concerns. EL 003 {W } 2

9 Therefore, when first seeing an elder law attorney, it is wise for the older client to indicate to the attorney what he or she want done, or what others want the attorney to do for you. If what the client wants done is the same as what others are suggesting, it may not be as important, but if the client does not totally agree with what others want, the attorney should be told. B. The Client's Desire For Confidentiality. Many older people feel free discussing their problems with or in front of their immediate family, but some do not. Frequently, this is out of a desire to spare worry or out of a desire not to burden their family, but at other times it arises from a fear, justified or not, that others do not share their best interests. Because the older client is often dependent on others for transportation and implementation of proposed actions, members of the family are often present when discussions occur with the attorney. As a result, important information may be withheld, hampering the attorney's ability properly to represent the older client. Therefore, when first consulted, the elder law attorney will, if possible, arrange to talk with the older client alone so he or she can express his or her desires about confidentiality and what the client wants said to the family. If the opportunity does not arise and the client is concerned about what is said to the family, it is wise for the client to telephone the lawyer in order to make this clear. C. The Client's Relationship With His Or Her Family. In some legal situations, one person ends up arguing against the position of another party. In this situation, the lawyer's role is to advise his or her client how to "win" in the contest. When representing an elderly client, however, this approach is often inappropriate, because even though actions most beneficial to the client may go EL 003 {W } 3

10 against the financial interests of the family unit, most families are more concerned with the parents' well-being than their own financial interests. At the same time, many parents are equally concerned with the best interests of the other family members. When consulting an elder law attorney, it is therefore important to let the attorney know how one client compares benefit to the family with the client's own benefit. This is particularly true relating to property which would normally pass to the family after death. Assets accumulated during one's life should be used primarily for the benefit of the individual, not just preserved as an inheritance for others, but the client's personal beliefs on this subject should control what is done. D. The Client's Feeling About Dual Representation. People who have dealt with attorneys throughout their lives learn to live with the adversarial system in which one attorney represents one person in a dispute and another attorney represents the other person. This system, however, has not proven to be the best for handling the problems which frequently face the elderly. Instead, lawyers are often asked to represent more than one person at the same time, the husband and wife, or the parent and child being the usual combinations. Unfortunately, because most laws of legal ethics have only been worked out related to a single client, the proper role of the attorney in such "dual representations" is uncertain, representing both sides in the same matter normally is still considered unethical as a co-called "conflict-of-interest." When asking an attorney to represent both a husband and wife or a parent and child, both must be aware and must accept the idea that sometimes decisions will have to be made that benefit one at the other's expense. If they are not comfortable EL 003 {W } 4

11 with this give and take and do not trust the attorney to try to work things out in everyone's overall best interest, dual representation is not appropriate. It is important for the client to discuss this question with the attorney early in the relationship, because it is not uncommon for an elder law attorney to find that he or she has to end a dual representation because of a genuine conflict-of-interest. If there is love, trust and harmony between the parties and faith in the attorney, dual representation is likely to be simpler, cheaper, and much less upsetting. In the absence of love, trust and harmony, however, the opposite is likely to be the result. Incapacity is a major area of the elder law practice. Mental incapacity leads to loss of income and often requires expenditure of increased family finances. Incapacity of one family member is likely to limit the others' quality of life, and frequently produces conflicts between equally loving children who have strong but different ideas regarding appropriate care for their parents. In addition, loss of mental capacity is often associated with personality changes that are upsetting not only to the family but to the individual as well. Legally, the problem of incapacity is greatest when capacity is neither totally present nor totally absent. When a client is totally capable of making decisions, be they personal or financial, these decisions must be followed. When an individual is clearly demented with no ability to make meaningful decisions, if they have executed a durable power of attorney, the agent named in the document makes decisions for the incapacitated person. Otherwise, there is usually a state specific hierarchy which helps the professional determine who should be given the responsibility for decision-making. EL 003 {W } 5

12 It is the area between the extremes, however, that the attorney dreads, especially when the true desires of the client can no longer be ascertained by direct questioning. When the individual is partially incapacitated and gives directions in conflict with that of the family, the attorney is placed in the position of having to decide which of the two conflicting directives will be followed. If the family choice is viewed as better than the client's choice, does considering the client incapable amount to a breach of the attorney's duty of loyalty to the client? Should loyalty persuade the attorney to find the client capable of decision-making even when it is not in the client's best interests? Luckily, experience tells us that the conflicts that arise are almost always the result of everyone not knowing what the now incapacitated person would truly want done both medically and financially. That is why elder law attorneys are so likely to stress the execution of a durable power of attorney to name the person the client trusts most to make decisions and putting the client's desires about finances and medical care into words so everyone will know what the client wants done if they can no longer speak for themselves. III. ETHICAL PROBLEMS IN ELDER LAW RELATIONSHIPS Although many aspects of elder law are similar to the general practice of law and should be treated in an "age blind" manner, others make it difficult to apply the Code of Professional Responsibility to the practice. The attorney/client relationship generally presumes that the client is capable of identifying a legal problem, approaching the attorney on his or her own, defining the desired relationship with the attorney, entering into an agreement with the attorney, and EL 003 {W } 6

13 maintaining responsibility for the payment of bills. The role of the attorney is typically as a provider of guidance in a controversy with another adversarial party. In elder law practice, the issues often fail to take this form. The client may not be the one to perceive the problem or to wish legal intervention. The benefits of any solution may run not as much to the client as to another party who the client wants to benefit and/or on whom the client is dependent. Often the client's legal capacity or competence are in question, and the party who is responsible for the lawyer's bill may, in fact, be the person who is hurt if the attorney serves the client's best interests. Furthermore, the attorney may find himself or herself believing that what is best for the client is other than as the client directs. Dependency on others is likely to lead to undue influence, even in the absence of outright coercion. What is the attorney's role when this appears to be the basis of a client's decision? Should this influence the attorney's determination of decision-making capacity? Does failure to follow the directives of a client with borderline capacity constitute a breach of loyalty? Initial contact frequently comes from family other than the prospective client, especially if capacity is a major issue and a change of residency is to be considered. In this situation is the attorney truly an agent of the client or of the family? Is there a conflict of interest when it is the family on whom the attorney will rely to pay the legal bills? Even more conflicted is the situation in which the family suggests that a parent undertake estate planning aimed at minimizing taxes for the benefit of heirs, or when assets are to be distributed early to enhance Medicaid qualification. How strongly EL 003 {W } 7

14 should the attorney point out to the older client that these legal manipulations are likely to be contrary to the best interests of the client unless one accepts a theory that providing more to the family after death is a legitimate interest of the parent? Further complicating the representation is the fact that as the client loses capacity, it becomes ever harder for the attorney to step out of the conflicted situation, for he or she knows the legal desires of the increasingly incapacitated client better than any other attorney every will. When the attorney truly believes the family is right in a conflict and wishes to support their approach, how can the older client be asked to find other representation? What, too, of the question of confidentiality? If the client brings family members along to an initial consultation, does that imply freedom to discuss issues with these individuals later? With other family members? What if it was truly the family that initiated the consultation? What if keeping information confidential could lead to the client's death? There are few answers to these elder law legal issues. Among the ethical obligations of the attorney to the elderly client are those requiring competent representation, acceptance of the client as the ultimate decision-maker, diligence in pursuing the client's desires, meaningful communication of information to the client, reasonableness of fees, confidentiality, and avoidance of conflicts of interests between those of the client and the interests of the attorney, former clients, or third parties with whom the attorney also has a relationship. Add to these the problems of dual representation and the questions regarding capacity and one could wonder if any dual representation is possible. EL 003 {W } 8

15 Fortunately, most families are keenly interested in the welfare of the elderly, and conflicts do not become important, but the elder law attorney must be alert to signs of discord between family members to avoid problems in the future. IV. THE QUESTION OF CAPACITY The issue of decision-making capacity is often critical in the establishing of the relationship between a client and an elder law attorney. When elderly people asking for representation are mentally clear or when they are obviously demented, there is little problem. But most often mental capacity lies somewhere between the extremes, putting the attorney in the position of having to decide who is the true client and when the elderly person's expressed wishes should be followed. When decision-making involves legal issues, it is the attorney's proper role to participate in deciding the presence or absence of capacity. Although obtaining input from physicians, family, associates and friends is appropriate, because capacity is a legal issue and is time and situation specific, if the attorney is the person most knowledgeable about the situation as it exists, the attorney should be the ultimate determiner of capacity. This is not an easy or pleasant task, raising both ethical and personal issues, especially when an established client begins to act in ways that the attorney believes are against the client's best interests and explained by diminished capacity. Little guidance will be found in the law. The attorney will have to rely on personal judgment. Although unexpressed, many clients first entering a relationship with an elder law attorney know that they are putting more than their immediate legal problems in his or her hands. That is why they are so likely to be more interested in factors other than EL 003 {W } 9

16 legal competency when choosing someone to represent them. That is also why they are likely to relate positively to an attorney and an office which strives to know them as people as well as a client with immediate problems. V. SUMMARY The client always remains in charge of the attorney-client relationship, at least while competent. The elder law lawyer's role is to implement the lawful goals of the elderly client. Advancing age, however, sometimes places unusual problems in the midst of the relationship through which both the client and attorney must work their ways. EL 003 {W } 10

17 LAWYER S PROTOCOL IN CASE OF CLIENT S INCAPACITY Daniel J. Hoffheimer Taft Stettinius & Hollister LLP 425 Walnut Street, Suite 1800 Cincinnati, Ohio (513) hoffheimer@taftlaw.com EP 120 5/

18 LAWYER S PROTOCOL IN CASE OF CLIENT S INCAPACITY As your lawyers who may have prepared or may have custody of some or all of your estate planning documents, or who otherwise may have acted as your lawyers, my firm and I would have special responsibilities if you become incapacitated. Your basic estate planning documents may be used for your personal care and protection in case you become disabled or incompetent before you die. With longer life expectancies, it is increasingly common for a person to become incapacitated because of physical or mental disabilities. Your revocable Living Trust may own and manage your property for you during such disability, and your trustee would have the power and duty to use your Trust property for your benefit. Your attorney in fact under your Durable Financial General Power of Attorney can transfer property to your Trust and act on your behalf if you cannot handle your own affairs. Your agent under your Durable Power of Attorney for Health Care can make medical decisions for you if you are not able to do so. Taken together, these documents may avoid the need for a probate court guardianship, with its attendant expense, publicity, unpleasantness, and inconvenience. If your disability were such as to warrant the use of your estate planning documents during your lifetime for your care and protection, it is possible that a conflict of interest would arise between you and your trustee, attorney in fact or agent, or others. For example, they might believe you have become incompetent, and you might disagree with them. As your lawyer, even as your former lawyer, I could not represent your chosen fiduciaries or others, such as EP 120

19 your family members, in a manner adverse to you unless you were to consent, but you may not at some point in the future even have the capacity to consent. Therefore, I am proposing the following protocol to govern your lawyer s, future lawyer s, or former lawyer s, representation, unless you direct otherwise at a time when you are able to do so, now or in the future. If concerns develop regarding your capacity or mental competence, unless you direct otherwise, my firm and I will not be disqualified from being retained to represent you or to represent other persons to protect your interests to the extent consistent with the rules of legal ethics and other applicable law. This might include my taking appropriate action in assessing your capacity and mental competence and taking protective action for your benefit, if I conclude in my professional judgment that you are unable to act in your own best interest. If I would undertake to act on your behalf, I would take only those actions that I believe to be in your best interest and not inconsistent with your estate planning documents or with any of your wishes previously expressed to me. For example, unless you were to direct me otherwise, you authorize me (1) to communicate with your family, your physicians, and your other advisors and to disclose to them such pertinent confidential information as I believe is appropriate under the circumstances; (2) to represent one or more members of your family, your friends, or other persons who are acting in a fiduciary or similar capacity for you and your property; and (3) to advise and represent any person in seeking action by the probate court in a guardianship for your protection or in enforcing your power of attorney, if such actions ever become necessary EP 120

20 Notwithstanding your consent, in case of your incapacity or incompetence, that I may represent others who are seeking to carry out your estate planning documents or otherwise to protect your interests, I would be free to decline to advise or represent anyone claiming to carry out your estate planning documents or to be protecting your interests, but rather I would be free to oppose their actions if, in my professional judgment, I believe that they are not carrying out your wishes as expressed in your estate planning documents or are not acting in what I believe to be your best interests. In such a conflict, the probate court could decide contested issues involving your capacity, competence, estate planning documents, expressed wishes, property, and best interests EP 120

21 POWERS OF ATTORNEY WHY EVERYONE SHOULD HAVE ONE Daniel J. Hoffheimer Taft Stettinius & Hollister LLP 425 Walnut Street, Suite 1800 Cincinnati, Ohio (513) EP 067 {W }

22 POWERS OF ATTORNEY: WHY EVERYONE SHOULD HAVE ONE I. INTRODUCTION Among the important documents that comprise an estate plan is a durable power of attorney. So essential and so simple is it that most lawyers routinely prepare a power of attorney as part of even the simplest estate plan. A durable power of attorney is a document by which anyone can appoint a trusted person (such as a spouse, grown child, relative, friend or a lawyer) to handle the person's financial, business, legal and personal affairs if the person becomes incompetent or indisposed. The person who makes and gives the power is usually called the "principal", and the person to whom the power is given is usually called the "attorney in fact", which is a special kind of agent. A power of attorney is "durable" if it is written so that it will not be invalidated by the principal's disability or mental incompetence. II. WHY IS IT ADVISABLE TO HAVE ONE? If no power of attorney exists, complicated and expensive court proceedings for a guardianship may be necessary. Those court proceedings may include a petition to establish a guardianship estate for the management of the property of the incompetent and a guardianship for the physical care and protection of the incompetent person. Sometimes a limited guardianship or conservatorship may be possible, but a durable power of attorney would still be preferable in most cases. If court action is required, expenses increase dramatically, privacy is lost, and repeated court papers and appearances will be required to handle the incompetent ward's affairs. EP 067 {W } 2

23 III. HOW DOES ONE CREATE A DURABLE POWER OF ATTORNEY? The power of attorney must be in writing, and must contain language indicating that the power is not to be affected or invalidated by the subsequent disability or incompetency of the principal. All 50 states, and the District of Columbia, have legislation recognizing durable powers of attorney. The individual granting this power must have adequate mental capacity at the time he or she grants the power of attorney. Most powers are prepared as durable powers of attorney in order for the power to continue even in the event of the grantor s disability. An express statement (in compliance with applicable state law) to this effect must be included in the document in order for the power of attorney to be durable. A common use of a durable power of attorney is to facilitate continuation of the grantor s gifting program in the event of disability. Such powers must include a provision permitting gifts that are excluded from taxable gifts under Internal Revenue Code 2503(b) and 2503(e), or any successor statute effective as of the date of any gift. The annual gift amount is presently limited to $13,000 ($26,000 for gifts split with grantor s spouse), as indexed for inflation, and to amounts paid for educational or medical expenses (as defined under Code 2503(e)). Many power of attorney forms do not include the right to make gifts for tuition and medical expenses, thereby inadvertently prohibiting this gift-making capacity. IV. GENERAL OR SPECIAL POWER OF ATTORNEY A general power enables the agent to take care of any matter that the power of attorney document or state law permits an agent to do. This is usually a long and broad list of legal, financial, and other matters. A general power can be made durable by adding the requisite language discussed above. This is the most common approach because it provides the most flexible protection in the event of a future disability. EP 067 {W } 3

24 A special power of attorney is one that is limited in scope. It allows the agent to handle only one particular transaction or perhaps one type of transaction, such as a house closing when the grantor is on vacation. Another practical use of a special power is to grant rights to a business advisor or colleague. This would allow a close colleague to perform certain functions relating to a grantor s business during a period of illness. Such a power of attorney may even provide for compensation to the agent. This type of special power may be coordinated with another general power of attorney granting a spouse the right to handle all other, personal financial matters. V. WHEN SHOULD YOU USE A SPRINGING (OR CONDITIONAL) POWER OF ATTORNEY INSTEAD OF A DURABLE ONE? The principal may not wish to delegate authority until he or she actually becomes incompetent to handle his or her affairs. Accordingly, the power of attorney document may be prepared on the basis that the power does not become effective unless and until the principal actually becomes mentally incapacitated or is disabled. Under such circumstances, the principal would act exclusively on his own behalf until the time of incompetency, when the attorney in fact takes over responsibility. However, third parties may require substantial proof of the principal's incompetence before they will respect the power of attorney. A better way to arrange for these unknown future contingencies is to use a durable power but to place it for safekeeping with a lawyer to be released by the lawyer to the attorney in fact only upon written proof of the principal's incapacity. The most effective yet still cautious approach in utilizing a durable power of attorney is to establish a clear procedure for the power to take effect. This procedure might include a requirement that written certification of incapacity be provided by one or EP 067 {W } 4

25 more medical doctors to the lawyer who has possession of the document. Such a certification of incapacity may also include a determination by a designated and trusted family member (or members), rather than by a medical doctor. However, some states may require a judicial determination of incapacity before allowing a springing power to become operative. For that reason, a durable power is preferable, but with the following usual protection. EP 067 The principal places the durable power with his lawyer with written instructions not to release the document to the attorney in fact until the lawyer receives a written letter from either the principal or the principal's agent and physician that the principal is incapacitated. Then, and only then, the lawyer may release the power of attorney to the attorney in fact. A sample letter is attached. In this manner, the proof of incompetence in a probate court guardianship may be avoided. VI. WHAT KIND OF POWERS CAN BE EXERCISED UNDER A DURABLE POWER OF ATTORNEY? In addition to any powers enumerated by statute, the durable power of attorney can authorize the agent to do almost anything the principal could do. These powers typically include (or they may exclude) the following: The power to sell, exchange, and invest assets; The power to make certain gifts consistent with past practice or for estate planning reasons; The power to execute, amend, and fund inter vivos trusts, particularly revocable or living trusts; The power to make charitable contributions consistent with past practice or for estate planning reasons; The power to make statutory elections and disclaimers; The power to file tax returns and to settle tax disputes; {W } 5

26 The power to forgive, collect, and pay debts; The power of access to safe deposit boxes; The power to act with respect to bank accounts, promissory notes insurance policies, and the like; The power to hire and pay salaries of employees and independent contractors, such as attorneys, accountants, and investment advisors; The power to compensate the attorney-in-fact; The power to vote in person or by proxy stocks, bonds, or other securities; The power to represent the principal before the Social Security Administration; The power to qualify the principal for various government benefits such as Medicaid; The power to change an incompetent principal's domicile; The power to deal with the principal's retirement plans; The power to enter into buy-sell agreements; and The power to revoke or amend the durable power of attorney. In addition to such broad, general authorities given in a power of attorney, the principal might customize the document to meet particular family needs. Here are examples: The power to make gifts or to provide support for the benefit of my children and grandchildren or for the educational expenses (including tuition, room and board, books, and travel expenses to and from school) of any, one or more of my grandchildren, at any accredited private or public primary, secondary, or boarding school, or at any accredified private or public college, university, or graduate school, provided that such school, college, university or graduate school is approved by my child, is living, who is the parent of such grandchild, or, if such child is deceased, by the surviving spouse of my deceased child. The power to establish and to make gifts to Qualified State Tuition Plans under Section 529 of the Internal Revenue Code for the benefit of any one or more of my children and my grandchildren. EP 067 {W } 6

27 The power to make annual exclusion gifts and to enter into split gifts with my spouse in order to use the annual gift for exclusions under applicable tax law and to make gifts using my applicable exclusion and unified credit exemptions under applicable tax law to any one or more of my children and my grandchildren. VII. REVOKING THE POWER The power can be revoked by the principal, while competent, through a revocation document or by personally informing those parties relying on that power that it has been revoked or by destroying the document. A properly written, dated, signed and notarized revocation notice is recommended. Third parties may rely upon a power of attorney until they receive notice of revocation. VIII. WHAT, IF ANY, ARE THE PROBLEMS WITH GIFT-GIVING POWERS? Several problems can arise when gifts are made under a durable power of attorney. First, the attorney in fact may be held to be operating "ultra vires" (beyond his authority) when making a gift to third persons or to him- or herself, in the absence of specific authorization in the power to that effect. The effect of this rule is to preclude the agent from resorting to the legal doctrine of substitution of judgment, which may be available to court-appointed guardians pursuant to court order. The value of gifts made by an attorney-in-fact who has no power to make such gifts on behalf of the principal may be included in the principal's taxable estate under Internal Revenue Code ("Code") section 2038 because the principal could later revoke these "gifts". Even when the principal is incompetent and cannot actually revoke, there is a tax problem--because the potential to revoke gives rise to the includability of the transferred property in the estate of the principal under federal tax law even if the gift is not invalid under state gift law. EP 067 {W } 7

28 Gifts made by the attorney in fact also may be includable in the agent's estate for estate tax purposes if the power is drafted so broadly as to create a general power of appointment under Internal Revenue Code Section Finally, the validity of the gifts might be challenged if the agent receives a gift and the power does not specifically confer such authority on the agent. A careful lawyer can draft the language of the power of attorney so as to eliminate or at least minimize the risk of these and other tax problems. IX. ARE THERE ANY OTHER PROBLEMS WITH THE DURABLE POWER OF ATTORNEY? In addition to the gift issues, several other issues relating to validity of the power and the control of the agent's actions may arise: The durable power of attorney may have to be valid under the laws of more than one state. For example, the principal may reside in one jurisdiction and have real estate in another jurisdiction, in which case the durable power may have to be valid under the law of both jurisdictions. Where there are multistate transactions, the lawyer and client must consider which laws will govern. The general rule is that the validity of the power of attorney instrument, as a contract, is determined by the law of the state where the instrument is executed. However, authority exists that the validity of a power affecting real estate is determined by the law of the jurisdiction where the realty is situated. A choice of law provision can be inserted into the power which specifically provides that the power should be interpreted according to the law of a particular state. The conflict of law principles in some jurisdictions will often defer to the law of the jurisdiction of residence in determining the validity of such a power of attorney. EP 067 {W } 8

29 The attorney-in-fact's actions are not subject to court supervision or scrutiny, unless a lawsuit is filed. Some of the potential for abuse can be addressed by a provision requiring the agent to account to another party during the principal's incapacity, such as to another member of the family. Not all third parties are willing to deal with the attorney-in-fact under a durable power of attorney. Of course, one can seek relief in court, but this is not desirable. Some banks require the use of their own forms. Some title insurance companies may require that any real estate that is to be sold be specifically identified in the power of attorney. Many third parties will not accept the durable power of attorney after a period of time. These rules of "staleness" negate the power if it is too old. A possible solution to this problem is to rewrite the power with a new effective date every few years. In some states, including Ohio, a durable power of attorney for property does not authorize the agent to make healthcare decisions for the principal unless there is compliance with the state's separate legal requirements governing advance directives. For this reason, separate documents for health care directives (living will declarations and durable powers of attorney for health care) are advisable, even necessary. Notwithstanding these potential problems, proper drafting and handling of the power of attorney can reduce or eliminate most problems. X. COMMON PROBLEMS 1. Clients tend to view powers of attorney as boilerplate forms. However, the risks of this view are substantial. The abuse of powers of attorney is not uncommon. There should be explanation and supervision over signing powers and EP 067 {W } 9

30 execution with the legal formalities. To avoid abuse of the gift provision, the gift power might be limited to the annual exclusion and, possibly, use of the unified credit. 2. Divorce is possible in today s society and presents additional issues for powers of attorney. It is essential for clients to revoke all originals of the power of attorney, including bank power of attorney forms, as soon as a marital conflict arises. The termination should be published and a letter sent to the agent stating that the power has been revoked. If a divorce proceeding is pending, an application may be made to the court for issuance of an order revoking the power or restraining its use. If the agent subsequently uses the power, the agent is then in violation of court order. 3. One of the frustrations cited by lawyers is the difficulty of getting a bank or other institution to respect a binding and valid power of attorney. Many banks require that the clients execute a separate power prepared by the bank on its own form. Although many states have statutes compelling third parties to honor statutory powers of attorney, these statutes do not have teeth. This is why it is important to consider alternative planning techniques, such as a funded revocable living trust, a power of attorney on a bank or brokerage company standard form, limited joint accounts, and other, careful planning. 4. With an aging population, Medicaid or elder law planning is increasingly common. In the event a client may become disabled prior to the implementation of the planning, a durable power with a broad gift power is essential to facilitate the transfer of assets. Such a broad gift power is tantamount to a will substitute, but without the formalities of a will. In some states, the power need only to EP 067 {W } 10

31 be signed in the presence of a notary to be legally binding, rather than in the presence of witnesses. 5. Generally, persons wishing to use a springing power of attorney do not have an individual they can trust to act as their agent, and it is difficult for the third party to decide whether the springing trigger has been met. Another option for the mistrusting client is a funded revocable living trust, perhaps with an institutional cotrustee to work with the insufficiently trustworthy child or other person. 6. Beneficiary change provisions are often deliberately drafted to be broad. Often much of a person s wealth is in beneficiary designation accounts (e.g., life insurance, IRAs and other retirement accounts); thus, these clauses can yield tremendous power to change a dispositive scheme. 7. It is important for the principal to consider carefully the implications of the gift power, particularly whether equalization among the donees is required. If the grantor has children with very different size families, the economic consequences of annual gifts to all can create a huge disparity. Some people do not fully utilize their annual exclusion, while others have used their lifetime exclusion in order to equalize. Another approach might be to make joint agents for gift purposes. 8. A power could include express provisions authorizing the agent to deal with the IRS in the event of a tax audit. However, whenever circumstances permit, it may also be advisable to have the client also execute IRS Form 2848, Power of Attorney and Declaration of Representative. EP 067 {W } 11

32 9. Consider recording the power in the appropriate local clerk s office in order to obtain certified copies to facilitate the use of the power for transferring real estate and obviate the problem of having enough originals. 10. Powers can be used for more than just financial matters and gift making. For example, if the client owns rental real estate, the agent could use the power to transfer the real estate into a limited liability company (LLC) to minimize the client s liability exposure. 11. When using a power to plan for disability, one should not overlook coordination of appropriate business documents. If the client has a business corporation, it may be appropriate to prepare minutes to assure at least a second signatory on business bank accounts. Shareholder, partnership, and operating agreements should address disability planning to assure that successor officers, directors, and managers can serve. Even a one-member LLC can create some succession planning through a one-member operating agreement. 12. It is often prudent to execute multiple originals. For example, banks sometimes request and want to retain the original power of attorney before it will act upon the agent s instructions. The use of multiple originals, however, creates a risk -- all originals must be destroyed in the event of a divorce or other problem in order to revoke the power. 13. If the agent is going to serve as investment counsel to the client, the general power clauses should assure that the agent can hire his or her firm or himself or herself to continue such work. EP 067 {W } 12

33 14. Many power of attorney forms taken from books or downloaded from self-help internet sites are poorly prepared, non-customized, and could eventually lead to litigation. 15. For clients with extensive real estate holdings, additional steps may be warranted. The title company involved might be consulted in advance for suggested language to include in the power, or, to review the attorney-prepared power. Alternatively, the property can be placed in trust because title companies usually will accept the trust instrument. If the client has a disability, a revocable living trust may be a better alternative to a mere power of attorney. 16. A common planning problem arises when a disabled client has a power of attorney that does not permit gifts. What can be done to make gifts to reduce a potential estate tax? The IRS has successfully argued that gifts made under a power of attorney that does not give explicit authority to the agent to make gifts are invalid under state law and are, therefore, revocable by the grantor/decedent or guardian appointed for the grantor. Since the gifts are revocable, they are includible in the decedent s gross estate for estate tax purposes under Code 2038(a)(1). See PLR XI. SUMMARY A durable power of attorney, when properly drafted and arranged, is an inexpensive, and very useful legal device and should give everyone who has one the peace of mind that his or her affairs will be well-managed should he or she become incapacitated, incompetent, or disabled. EP 067 {W } 13

34 APPENDIX A 123 Any Street Cincinnati, Ohio Date:, 20 Taft Stettinius & Hollister, LLP 425 Walnut Street, Suite 1800 Cincinnati, Ohio Dear Sir or Madam: I wish to leave the Powers of Attorney that I will sign today with the Taft Stettinius & Hollister law firm for safekeeping. I instruct you to deliver the Powers of Attorney to me at any time upon my written request. In the event that I should become incapacitated, you are to deliver the Powers of Attorney to my husband,, upon his notifying you in writing that I am incapacitated and obtaining my doctor's written statement to that effect. Sincerely, [Name of Client-wife] EP 067 {W }

35 Capacity Issues in Working with Clients John T. Midgett Midgett & Preti PC Virginia Beach, Virginia (757) Our Society is Aging a. Over 79 million Baby Boomers b. By 2030 it is estimated that there will be over 70 million persons over age 65, twice the number in 2000 c. Segment of population deemed very old (85+) will double to over 9 million 2. Why deal with Issue of Capacity a. Lawyers must determine capacity to execute legal documents b. In many states, the testimony of the drafting attorney is given great weight in assessing the testamentary capacity of individuals in will contests c. According to one commentator, the failure to determine capacity is one of the most common triggers for malpractice actions 1 3. Signs of Diminished Capacity a. Cognitive i. Short term memory loss repeating questions or statements ii. Communication Problems using incorrect words or failure to know or recall common information iii. Comprehension difficulty repeating simple concepts iv. Mental Inflexibility inability to consider alternatives v. Calculation difficulty with math problems; trouble in paying bills vi. Disorientation confusion about time, space or location b. Emotional i. Inappropriate Distress anxious, excited or tearful without reason ii. Inappropriate Emotions inconsistent with situation or rapidly changing c. Behavioral i. Delusions ii. Hallucinations iii. Poor Hygiene 1 Kevin S. Rosen, Avoiding Malpractice Claims Against Estate Planning Counsel: How Your Actions Can Exacerbate, Mitigate or Eliminate Your Exposure, 2007 University of Miami Heckerling Institute on Estate Planning

36 4. Dealing with Age related Changes in Capacity a. Determine or eliminate Mitigating Factors in Assessment of Capacity i. Stress, grief or depress ii. Medical factors (multiple prescriptions, etc) iii. Hearing or vision impairment iv. Individual differences b. Reduce or eliminate detriments of hearing loss i. Minimize background noise ii. Face client when speaking iii. Speak slowly and distinctly iv. Use lower pitch if possible v. Use written outlines or summaries c. Reduce or eliminate detriments of vision loss i. Increase lighting ii. Reduce glare iii. Do not use glossy paper iv. Use larger type v. Allow longer time to read documents vi. Reading glasses or magnifying glasses d. Reduce or mitigate slowing mental acuity due to aging i. Begin with simple concepts and build up ii. Slower pace iii. Allow extra time for questions iv. Discuss only one issue at a time v. Repeat, paraphrase and summarize often vi. Check for accurate understanding vii. Provide corrected feedback viii. Meet in familiar surroundings (house calls) 5. Ethical Rules See Rule 1.14 of the Model Rules of Professional Conduct of the American Bar Association

37 Powers Of Attorney: A Look At The Basics There are many legal documents and techniques that can be used to assist in the management of assets and health care decisions in the event of incapacity. One of these techniques is the Revocable Living Trust. Much has been written about the Revocable Living Trust, and its many advantages have been discussed in previous articles. Other important techniques that most people overlook are the powers of attorney for property and the powers of attorney for health care. This article will discuss the basics of these essential planning tools. A property power of attorney (PPOA) is a document that allows you, the "principal", to designate another person, your "agent", to make and sign legal documents for you, or make financial decisions on your behalf. A general PPOA allows your agent to do anything that you could do as if you were acting personally. A specific PPOA restricts your agent and allows him, or her, only to do those things that are set out in the written power of attorney document. A PPOA can be as broad or as limited as you wish, simply by designating which duties you want your agent to perform. It is generally a good idea to be as clear as possible when setting forth these duties, such as selling your real estate, or writing checks. If you wish your agent to have the authority to make gifts of your property to your family, to take advantage of the annual gift tax exclusion ($12,000 per year per donee), it is essential that this authority be included in the PPOA. It should also be set out whether the agent may make gifts to himself, otherwise the law prohibits acts of self-dealing. A power of attorney, whether general or specific, can also be "durable". This means that the power of attorney will be effective when you are disabled or incompetent, precisely when you will need someone to act on your behalf. A power of attorney is made durable by incorporating language, set out in the Code of Virginia, or the laws of the state of your residence, that evidences your intent that an agent act for you while you are incompetent. Without this special language, your PPOA will not be effective upon your incompetence. Anyone over the age of 18 and mentally competent may execute a PPOA. If there is a question about a principal's possible incompetence, it is usually wise to obtain a letter or opinion from a medical doctor regarding the principal's competence at the date of signing the PPOA. Any person over the age of 18 can serve as your agent. This can be any trusted person, including your spouse, a child, a friend, or relative. Despite its name, a licensed attorney does not have to be your agent for your power of attorney. It is always a good idea to name at least one alternate agent in the Midgett & Preti PC Page 1 Copyright All rights reserved.

38 event your first choice is unable to act on your behalf, such as when they too become disabled, or die. Since your agent will have broad authority to act for you, the selection of a trustworthy agent is critical. The PPOA becomes effective on the day that you sign the power of attorney document in the presence of a notary public. Your agent is immediately vested with the authority to act for you from that date on. Many people have heard of a power of attorney called a "springing" power. This is not a new type of power of attorney, but merely one that becomes effective on a later date, such as the day that you might be declared incompetent. The danger with "springing" powers is that any person who may rely on the agent's authority to act (banks, stock brokers, and others) may require your agent to prove that you are incapacitated. This could delay your agent from acting, and gives an opportunity for your PPOA to be legally challenged. There are many advantages to the PPOA. First, by designating an agent to act for you in the event of your incapacity, you can avoid the need for the court to appoint a conservator to manage your assets. Conservatorship can be an expensive and frustrating way to manage your finances and property. Unlike joint accounts, a power of attorney does not give your agent the ability to use your money or property for his or her own use. Under the law of agency, these assets must be preserved and used for your benefit. A power of attorney also allows your agent to manage these funds during your life, but at your death those funds pass to the persons whom you have designated in your will. With joint accounts, the asset could pass to the survivor, with no obligation to share these amounts with your family. The PPOA also has its disadvantages. Because a PPOA is not under court supervision, there is always the possibility of abuse by the agent. If the agent acts improperly, your assets could be diminished. Although state law allows a court to intervene and order your agent to replace the lost funds, in many cases this may be too late, or your agent does not have the ability to replace your lost savings. This is why the selection of a trustworthy agent is so important. A PPOA can be revoked or changed at any time while you are competent. You maintain control over who can act for you by retaining the ability to remove your agent, or restrict his or her actions on your behalf. A health care power of attorney (HCPOA) is another type of power of attorney. A HCPOA allows you, the principal, to select an agent to make health care decisions for you. As long as you are competent and can communicate your health care desires you have the right to make all decisions, even if you have executed a valid HCPOA. The HCPOA is effective only in the event you are incompetent or unable to communicate your wishes to your doctors. A HCPOA has become increasingly important as our life expectancies increase through medical advances. Courts and the state legislatures have recognized the right of each of us to control our health care and quality of life. A HCPOA allows us to decide whether or not we will be forced to take Midgett & Preti PC Page 2 Copyright All rights reserved.

39 medicines, medical procedures, or other life sustaining measures. The HCPOA does not presume that you want someone to "pull the plug" or that you want to hang on to life as long as possible. The HCPOA is the way you tell the world what your wishes are regarding your care. The United States Supreme Court in 1990 ruled that if we make our health care wishes known, preferably in writing, the state could not intervene to protect life. This is why a written HCPOA is so important. A HCPOA is a written document, like the PPOA, which designates an agent to make health care decisions for you. The agent can be given broad powers, including making funeral arrangements, or donating organs. The HCPOA can be restricted, allowing you to customize the document to fit your particular needs and desires. The HCPOA sets out what you want to do for your health care. The agent's job is to follow your expressed directions and communicate these instructions to your heath care providers. Your agent should be someone you can trust to communicate your wishes. A spouse, child, friend or relative can serve as your agent. As with the PPOA, it is always a good idea to name at least one alternate or successor agent who can act for you if the first agent is incompetent or dies. If you wish, you can even appoint two or more people to serve as co-agents who will each be entitled to serve. However, the potential for disagreements among your agents makes it important to choose your agents wisely. A HCPOA, like a PPOA, can be revoked or changed at any time, as long as you are competent. You maintain complete control over this document. A HCPOA differs from a living will in that a HCPOA allows an agent to speak for you when you cannot communicate your wishes. A living will speaks for you only if you are terminal, and directs the doctors not to do certain things, such as putting you on respirators. A terminal condition is one that will probably result in your death within one year, regardless of the type of treatment you receive. Because of this definition, a living will is of limited use in directing your care. A HCPOA is broader because it allows your agent to communicate for you when you are incompetent, such as when Alzheimer's disease or other conditions exist that are not necessarily terminal conditions. A HCPOA will prevent the need for the courts to appoint a guardian for your heath care needs if you ever become incompetent. A guardian would not have the benefit of your written directions for your care, and you could be faced with medical care that is unwanted and expensive, simply because there is no guidance available to the guardian. In order for you to maintain control over your property and health care decisions, it is essential that powers of attorney for your property and health care be executed now, before it is too late. This article was prepared by Midgett & Preti PC and is intended to provide general advice only. For answers relating to a specific situation, you should consult a competent estate-planning lawyer. Midgett & Preti PC Page 3 Copyright All rights reserved.

40 When To Use A Will Much has been written about the advantages and disadvantages of Revocable Living Trusts over Wills. The purpose of this article is to provide some general guidelines as to when a Trust may (or may not) be a preferred estate planning document over a Will. This article is meant to supplement and not replace competent legal advice. There are many kinds of Trusts. The Trust referred to in this article is a fully-funded Revocable Living Trust under which you would serve as the Trustee and to which you would transfer your assets. You may, but do NOT have to have a bank as a Trustee. Having a bank serve as Trustee can be attractive to some people, and a requirement for some family situations, but most people prefer to have themselves (and then family members upon their death) serve as Trustee. There are two basic steps in establishing a Revocable Living Trust. First, you meet with an experienced and competent estate-planning attorney who will draft your Trust and other related documents. After signing your Trust, you transfer all or most of your assets to your Trust or name your Trust as beneficiary on insurance policies and the like. Because you are the Trustee, you haven't lost any control over your property and no new tax returns are required. You continue to report the income from the Trust property on your Form 1040 just like you always have done. Your home is still eligible for the exclusion on capital gains in the amount of $250,000 ($500,000 for married couples), as well as other tax breaks available to homeowners. It may be helpful to think of a Revocable Living Trust as your own private company in which you (or you and your spouse) are the president, chairman of the board, sole shareholder, and sole employee. You are the only one involved. Your company (the Trust) owns your assets. So when you die or become incapacitated, you don't own any assets, your Trust owns them. Your Trust has specific instructions of how to manage and distribute your assets in the event of your disability or death. Thus, assets owned by your Trust avoid the need for a conservatorship (if you are disabled) and for probate (upon your death). Probate is the process of winding up the affairs of one who has died and transferring the decedent's property to the proper persons. Probate may involve having to prove a Will, notifying all potential Midgett & Preti PC Page 1 Copyright All rights reserved.