January 9

When Do I Need An Estate Plan?

By Nicole R. Plottel, Attorney at Law
HARRIS & PLOTTEL, LLP

Many people think an estate plan is only for the wealthy. Not so. In order to know when you need an estate plan, you must first understand its purpose. People often think an estate plan is solely intended to distribute assets at death, perhaps avoid a probate or even minimize estate tax exposure – all good issues involving your wealth and your death.

Equally important, and often overlooked, a good estate plan authorizes someone to properly manage your affairs while you are living regardless of the size of your estate. Executing appropriate durable powers of attorney, both for health care and financial decisions, regardless of whether you are married, single, wealthy, or not, is the most important component of a comprehensive estate plan and should be implemented now. I emphasize the word “appropriate” because not all durable powers of attorney are the same and may cause unintended consequences if done incorrectly or without sound legal advice.

wealth is just one factor in estate planning

Wealth is just one factor to consider when beginning an estate plan.

 

In considering when to implement an estate plan, understand that wealth is only one factor that affects the type of estate planning tools used, i.e. whether to use a trust or a will, etc. Other nonfinancial aspects of an estate plan address the care of minor children or the treatment of a spouse at your death. The birth of a child, a marriage, a divorce, a death in the family, a special needs child, the purchase of a home, the receipt of an inheritance, or a diagnosis of an illness are all appropriate times to consider creating or amending an estate plan. Ultimately, the design of your estate plan will be dependent on the many factors unique to your situation.

Nicole R Plottel Certified Elder Law AttorneyNicole R. Plottel, Certified Elder Law Attorney is Managing Partner of the Firm. She is also a Certified Specialist in Estate Planning, Trust and Probate Law by The State Bar of California Board of Legal Specialization. Ms. Plottel is further accredited by the Department of Veterans Affairs to represent and present veterans’ claims and focuses her practice in the areas of Estate Planning, Medi-Cal/Veteran’s benefits, Probate and Trust Administration. She is a longstanding member of National Academy of Elder Law Attorneys (NAELA) and also volunteers on the Incapacity Subcommittee of the Executive Committee of the Trust & Estates (TEXCOM) Section of the State Bar of California. Ms. Plottel actively serves the local community as a Board Member for the Enloe Hospital Foundation and the Gateway Science Museum Community Advisory Board, and the Chico Community Scholarship Association. She is also a longtime advocate for the Alzheimer’s Association.

 

December 1

Use Of Durable Powers Of Attorney In A Long Term Care Planning

Many people often confuse Estate Planning and Long Term Care Planning. Although Long Term Care Planning may involve the same planning documents (Will, Trust, Durable Powers, etc.) as found in an Estate Plan, the powers and authorities provided and/or retained in those documents can be quite different.

For example, a Trust may be very effective in eliminating or reducing the need for a probate but that same Trust offers little or no protection of assets should the Settlor (owner of the Trust) require Medi-Cal assistance. Another common example of where an instrument created for Estate Planning purposes is insufficient when used as a Long Term Care Planning tool is the traditional Durable Power of Attorney. The usual Durable Power of Attorney for Financial Management used in an Estate Plan normally provides the agent with sufficient authority with which to conduct business on behalf of the principal. The agent is often authorized to deposit into and/or withdraw from the principal’s accounts, pay bills on behalf of the principal, sell or purchase assets on behalf of the principal and, in some cases, file and pay the principal’s taxes. The agent is the principal’s fiduciary and must act in the best interest of that principal. If, however, the principal winds up receiving Medi-Cal or Veteran’s assistance, the agent cannot, without the express consent of the principal, transfer assets out of the principal’s name. Such inaction could result in the loss of the principal’s residence at the principal’s death.

In this article, we will explore some of the basic tools used in Long Term Care Planning. Many of the instruments discussed may be familiar but we will examine particular uses and shortcomings of that instrument where long term care and/or Medi-Cal is involved.

Long Term Care Planning

A primary purpose in designing a good Estate Plan is to insure that a person’s directions and instructions are carried out subsequent to that person’s death. A good Long Term Care Plan should, in addition to that same objective, insure that the person’s directions and instructions are carried out subsequent to that person’s incapacity but prior to his/her death.

old people couple together planning for the long term

Medical Decision Planning

Perhaps the most common tool used in Long Term Care Planning is a current and valid Advance Health Care Directive (formerly referred to as a Durable Power of Attorney for Health Care (DPAHC)). Advance Directives enable you to express and insure that your wishes concerning medical treatment and care are enforced should you become unable to act on your own. Under California’s Health Care Decisions Law, you can express your medical treatment instructions (referred to as an Individual Health Care Instruction) in writing or make those statements orally to your treating physician. In addition, you can use a written Durable Power of Attorney for Health Care to appoint an agent to make or enforce your health care decisions should you later become unable to act on your own.

As should be obvious, the use of an Advance Health Care Directive, whether in the form of a written Individual Health Care Instruction and/or a Durable Power of Attorney for Health Care is a must for any good Long Term Care Plan and for anyone over the age of majority.

Durable General Powers of Attorney

While many people are familiar with Durable Powers of Attorney for Health Care, most people do not know about or are unwilling to use a Durable General Power of Attorney.

A Durable General Power of Attorney (DPA) allows a person (the “Principal”) to appoint another (an “Agent” or “Attorney-in-Fact”) to act on behalf of the principal in matters related to finances and assets. Care must be exercised when creating and using a DPA.

First, not all Powers of Attorney are durable. Unless your Power of Attorney provides that the instrument shall not be affected by your incapacity, your agent’s authority is not durable and ends upon your inability to act. Simply stated, if your Power of Attorney does not expressly provide that the instrument is not affected by your incapacity, your agent cannot act if you become incapacitated.

Second, not all Powers of Attorney are general. A Power of Attorney can be used for nearly anything that a principal can do his/herself. The Power of Attorney can be restricted to one specific act or limited in time. Unless restricted, however, a Power of Attorney is considered general and the agent is authorized to perform all acts allowed under current law. There are, as we will examine later, limits to the authority of the agent.

Third, not all Powers of Attorney are immediately effective. Unless otherwise provided in your Durable Power of Attorney, your agent’s authority to act begins upon your signing of the document. If, however, you

want your agent to act on your behalf but only when you become unable to act yourself, you should consider a Springing Durable General Power of Attorney.

Springing Durable Power of Attorney

A Springing Durable Power of Attorney only “springs” into effect upon the occurrence of a predesignated event. In creating the Springing Durable, the principal defines the “springing” mechanism. The “spring” can be a date or event. For example, many people only want their Durable General Power of Attorney to become effective if and when they become incapacitated. In that case, the principal should include a provision in the Durable that the instrument shall only become effective upon the principal’s incapacity and remove the provision that the Power of Attorney shall not be affected by the principal’s incapacity.

springable powers of attorney

While establishing a Springing Durable Power of Attorney is not difficult, documenting that the “spring” has been sprung is more problematic. Since the purpose of all Durable Powers is to enable your agent to act on your behalf, it is critical that third persons know when your Durable is in effect. For that reason, most people use a “spring” that is easy to document. If you want your agent to act only when you are unable to act yourself, the “spring” can be a declaration from your physician stating that you are not able to manage your own financial affairs. That declaration must be attached to your Durable in order to be in effect. Some people use the statements of loved ones attached to the Durable to demonstrate that the “spring” has been sprung.

In determining whether to use a Durable General Power of Attorney that is immediately in effect or one that “springs” to life upon the occurrence of a stated event, you should consider your health, independence and reliance on others. If your health (physical or mental) is quickly failing, an immediately effective Durable Power of Attorney may be more practical. If you are still healthy and independent, the use of a Springing Durable Power of Attorney may give you future assistance and present peace of mind.

And finally, not all Powers of Attorney are the same. Many clients ask if a stationary store or online Durable Power of Attorney is adequate. The simple answer is, “it depends on what you want your agent to do.” If you expect your agent to pay your bills and conduct simple business on your behalf, a simple Durable General Power of Attorney may be sufficient. If you are concerned about protecting your Estate should you become incapacitated and require long term care, a simple Durable General Power of Attorney isn’t worth much.

Durable General Powers of Attorney can contain pages upon pages of granted authorities or merely provide all powers allowed by law. Neither guarantees that your agent will have sufficient authority with which to preserve your Estate if you need Medi-Cal or other public benefits such as Veteran’s benefits.

Under California law, an agent is not automatically granted certain powers under a Power of Attorney. In order to act in those areas, the principal must provide written authorization within the Durable itself. Examples of actions that must be expressly provided for in a Durable Power of Attorney include, but are not

limited to: (1) Creating, modifying or revoking the principal’s trust; (2) Gifting or transferring the principal’s assets; (3) Disclaiming or refusing an inheritance of the principal; (4) Creating or changing a survivorship interest in the principal’s property; (5) Designating or changing a beneficiary to receive the principal’s property at the principal’s death; and, (6) Making a loan to the agent.

While these powers are not normally included in a typical Durable Power of Attorney, they are often necessary in cases where the principal is incapacitated and on Medi-Cal or Veteran’s benefits. Let’s explore how some of the above powers can be used in a Long Term Care Plan. Before beginning that discussion, however, the following information is important to know and understand.

First, if the Principal is competent and capable, s/he should be personally involved in the planning process. The Agent should only become the decision maker if and when the Principal is unable to participate.

Second, a DPA designed for use in Long-Term Care planning is usually an extremely powerful document and often authorizes the Agent to make decisions on behalf of the Principal that may have the effect of impoverishing the Principal. For that reason, the creation of a DPA with Long-Term Care planning provisions must not be taken lightly and should only be used where the Principal is comfortable with the possible transfer of all of the Principal’s assets to another person(s).

Third, the use of a DPA does not in any way alter existing Medi-Cal and VA law and, in fact, may even restrict certain actions available to the Principal acting alone. Simply stated, if the Principal is prohibited from acting in a certain manner, the Agent will be similarly restricted.

And finally, allowing the Agent to perform certain acts may be disadvantageous to the Agent. Where a Principal authorizes an Agent to act in the same manner as the Principal, that authorization may result in adverse tax consequences to the Agent should the Agent predecease the Principal. This issue will be discussed in greater detail under the gifting section below.

With the above said, we will explore some of the common uses of a DPA in Long-Term Care Planning including: (1) Gifting or Transferring the Principal’s Assets; and (2) Creating, modifying or revoking the Principal’s Trust. Due to space limits, I will not discuss in great detail various Medi-Cal restrictions concerning each of the above actions but it should be noted that Medi-Cal will penalize the transfer of a Medi-Cal non-exempt asset made within thirty (30) months of application.

 mountain road sunset the long term

Transferring/Gifting Principal’s Assets

In creating a Durable General Power of Attorney, most Principals expect their Agent to pay the Principal’s bills, deposit funds in the Principal’s accounts and, in general, conduct the Principal’s business. Unfortunately, if the Principal requires long-term care in a skilled nursing facility and/or requires Medi-Cal or VA assistance, conducting the Principal’s business will not protect or preserve the Principal’s assets. Simply put, in order to protect or preserve a Medi-Cal recipient’s assets, the

Medi-Cal recipient cannot own the assets. This applies to all assets of the Medi-Cal recipient including those classified as Medi-Cal exempt. For this reason, the Agent’s ability to gift or transfer the Principal’s assets should the Principal require Medi-Cal assistance and be unable to complete the transfers him/herself is critical.

Since an Agent cannot transfer or gift on behalf of the Principal unless expressly authorized in the DPA, the Principal, if s/he wishes to protect his/her assets once on Medi-Cal, must provide such authorization in the document. Such authorization, however, may expose both the Principal and Agent to potential problems.

If the Principal unrestrictedly allows the transfer of his/her assets by the Agent, the Agent may impoverish the Principal prematurely or unnecessarily, the Agent’s creditors could seek satisfaction from the Principal’s assets once in the hands of the Agent, the Agent may use the Principal’s assets to

November 17

Things To Consider When Estate Planning

Estate Planning Papers

What exactly is an Estate Plan? Isn’t it only for the wealthy?

An Estate Plan is designed not only to pass assets at your death, but also to provide management of your personal and financial affairs while you are living. Wealth is only one factor when considering whether to do an estate plan. A properly devised estate plan is intended to avoid a probate at death, avoid the potential for a conservatorship during life, provide clear instructions on how to manage your affairs while living, how to distribute assets at death, and how to care for spouses, minors, or disabled heirs, all in a manner that minimizes expenses and tax implications to the greatest extent possible.

What exactly is “Probate?”

Probate is a court supervised administration of a deceased person’s estate. It is a lengthy public proceeding that follows strict procedural formalities as mandated by the California Probate Code. A typical probate lasts about a year, but could last longer. The expense of a Probate is broken down into attorney’s fees, executor’s fees, and costs (costs include court filing fees, publication fees, recording fees, etc.). Fees for the attorney and executor are statutorily based on a percentage of the gross value of the Probate Estate (“gross” meaning the value of the estate is not offset by any debts or mortgages owed). By way of example, the combined attorney’s and executor’s fees to probate a $300,000.00 home (even if the home is encumbered) would be $18,000.00 plus additional costs averaging $1,500.00. These fees and costs do not include any other expenses such as taxes.

What is some basic terminology I should know about Estate Planning documents?

A typical trust-centric estate plan includes a Revocable Living Trust, Pour-Over Will, Durable General Power of Attorney, and an Advanced Health Care Directive.

Revocable Living Trust: This document is a legally binding contract wherein the creator of the trust (called the Settlor/Grantor/Trustor) enters into an agreement with the Trustee (or manager of the assets) to manage the Settlor’s assets according to the terms of the contract for the benefit of the Beneficiary (the person receiving the benefit of the assets). Typically, the Settlor may also be the initial Trustee and initial Beneficiary of the Trust.

PourOver Will: If you have a trust-based estate plan, then your Last Will and Testament will be used to transfer certain assets into your trust at the time of your death. It will “pour over” certain assets into the Trust that you did not transfer into your Trust prior to your death. The creator of the Will is called the Testator. The Testator nominates an Executor to administer the Will, however, only the Probate Court appoints the Executor to administer the Will.

Durable General Power of Attorney: This document, also known as a Financial Power of Attorney, allows the Principal (the person creating the document) to appoint an Agent or Attorney-in-Fact to manage assets held in the Principal’s individual name such as retirement accounts, vehicles, or life insurance policies. It typically does not allow the agent to manage or access assets held in the Revocable Living Trust (only the Trustee of the Trust can manage Trust accounts). A Springing Durable General Power of Attorney only goes into effect once the Principal becomes incapacitated, whereas an Immediate Durable General Power of Attorney becomes immediately effective once the Principal signs it.

Advance Health Care Directive/Power of Attorney for Health Care: This document allows the Principal to designate an Agent to make health care decisions on the Principal’s behalf if he or she is unable. It also contains a written set of instructions or guidelines about the Principal’s wishes regarding life-sustaining treatment.

filing trust papers

What information should be included in my Trust?

As stated above, a Trust is a legally binding contract and is therefore unique. A Revocable Living Trust should contain detailed instructions covering three important periods of your life:

  1. What happens while you are alive and well;
  2. What happens if you become mentally incapacitated; and
  3. What happens after your death

It should define all the players of the Trust (Settlor/Trustee/Beneficiary); it should nominate successor Trustees; it should clearly define how a Trustee can resign or be removed and what authorities a Trustee has; it should state who gets the Trust’s income and principal and in what manner; it should provide clear instructions on what happens at the death of the first spouse (i.e. does the Trust require a division into two or more sub-trusts at the spouse’s death); it should provide clear instructions on where the assets go at the Settlor’s death and in what manner. Finally, the Trust must be properly funded with assets (this requires formal retitling of certain assets, transfer deeds, etc).

What should I do to prepare for my Estate Planning appointment?

Here are some tips to help you get organized and prepared for your first meeting with an Estate Planning Attorney:

  1. Make a list of all of your assets and approximate values of those assets. You may wish to locate your real property deeds, property tax bills, life insurance policies, bank and investment accounts, etc.
  2. Decide who will be in charge of your financial and personal affairs if you are unable to do so yourself. Think about alternates or successor decision makers as well.
  3. Decide who will inherit your estate, how they will inherit, and when they will inherit. Consider their ages and any disabilities they may have as well.

What does an Estate Plan normally cost?

To help put this question into perspective, you should also ask yourself “what would it cost me not to have an Estate Plan?” The cost to prepare an Estate Plan depends on many factors, such as the client’s needs/wants (i.e., does the Trust divide into multiple sub-trusts for the beneficiaries), types of assets (i.e. are there several pieces of real property), the sophistication of the estate plan (are there business interests to address), tax implications, etc. In our area, most attorneys charge hourly for the initial consultation ($275-$375 per hour) and may charge a flat rate for the preparation of the Estate Plan ($1,500.00-$3,500.00+). Some may charge hourly for the preparation of the Estate Plan. You should ask the attorney what their billing practices are prior to retaining their services.

Nicole R. Plottel Certified Elder Law AttorneyNicole R. Plottel, Certified Elder Law Attorney is Managing Partner of the Firm. She is also a Certified Specialist in Estate Planning, Trust and Probate Law by The State Bar of California Board of Legal Specialization. Ms. Plottel is further accredited by the Department of Veterans Affairs to represent and present veterans’ claims and focuses her practice in the areas of Estate Planning, Medi-Cal/Veteran’s benefits, Probate and Trust Administration. She is a longstanding member of National Academy of Elder Law Attorneys (NAELA) and also volunteers on the Incapacity Subcommittee of the Executive Committee of the Trust & Estates (TEXCOM) Section of the State Bar of California. Ms. Plottel actively serves the local community as a Board Member for the Enloe Hospital Foundation and the Gateway Science Museum Community Advisory Board, and the Chico Community Scholarship Association. She is also a longtime advocate for the Alzheimer’s Association.

 

May 11

Veteran’s Pension Benefits: Aid & Attendance

Veterans saluting flag at VA Aid & Attendance meeting

What is the Aid and Attendance Pension Benefit?

The Veteran’s Administration (VA) Aid & Attendance (A&A) Pension provides benefits for eligible veterans and/or their surviving spouses who require the regular attendance of another person to assist in eating, bathing, dressing and undressing or taking care of the needs of nature.  Individuals who are blind or are in an Assisted Living Facility may also qualify.  This is a non-service connected program, meaning the veteran does not need to be disabled as a result of his/her wartime service.  The Aid & Attendance Pension can provide up to:

  • $25,525 per year ($2,127/month) to a qualified married veteran
  • $21,531 per year ($1,794/month) to a qualified single veteran
  • $13,836 per year ($1,153/month) to a qualified surviving spouse

Basic Eligibility Criteria:

  1. Active Duty: ninety days of active service, one day of which must have been during wartime
  2. Wartime:  WWI, WWII, Korean War, Vietnam War and Gulf War
  3. Discharged:  Other than dishonorable
  4. Medical Evaluation:  Physician’s evaluation of medical issues
  5. Financial Limitations:  Limited income and assets available; Demonstration of unreimbursed medical expenses

Qualifying for the Aid & Attendance Pension:

The growing popularity of the Aid & Attendance program has created an unfortunate opportunity for individuals and organizations to prey on our elderly veterans and provide misinformation. Exercise caution in the counsel you receive. Rely on accredited Veteran’s Service Officers, accredited attorneys, and legitimate Veteran’s Affairs websites. Check credentials and accreditations prior to divulging private information. Qualifying for this program should be part of a comprehensive long term care plan. Understand that you DO NOT need to purchase an annuity in order to qualify. Repositioning assets or purchasing an annuity to qualify for A&A, without proper advice from a qualified elder law attorney, may create severe tax implications and/or other penalties, may adversely affect your existing estate plan, and may disqualify you for other public benefits such as Medi-Cal.