March 4

Durable General Power of Attorney: FAQS

The California Durable Power

of Attorney for Financial Purposes

What is it? A financial power of attorney allows an agent to conduct financial transactions for the principal (the person who signed the power of attorney.) These transactions might include depositing or withdrawing money from bank accounts, signing income tax returns, or transferring assets to a trust. This type of power of attorney can also be used for selling assets, such as real property, or making investments.

If you have a trust, should you also have a durable power of attorney? Yes. Although a successor trustee can manage the trust assets if the trustor becomes incompetent, there are many financial matters that take place outside of the trust. For example, although a successor trustee can file income tax returns on behalf of the trust, he or she cannot file a personal income tax return for the trustor. The successor trustee also cannot transfer assets to the trust, but the agent under the power of attorney may have the power to make the transfers.

What are the dangers involved? The powers given to the agent are often very broad and can give the agent complete control over the principal’s assets. For that reason anyone who signs this type of power of attorney should carefully review his or her choice of agents and consider limiting the power of attorney to certain transactions. A “springing” power of attorney can also be used. This type of power of attorney will not take effect until a person becomes incompetent, as certified by physicians.

Why is it called “durable?” Until 1979 in California, all powers of attorney became invalid if the signer of the power of attorney became mentally incompetent. In other words, when the power of attorney was needed the most, it was no longer valid. In 1979, the California Legislature enacted a new type of power of attorney that is known as “durable” because it does not become invalid if the signer becomes incompetent.

Will a power of attorney avoid the need for a conservatorship?  Conservatorships are usually required for anyone who has become mentally incompetent or who no longer has the ability to manage his or her financial affairs. There are two aspects to a conservatorship, the right to control the conservatee’s financial affairs, and the right to control the conservatee’s person, such as deciding where the conservatee will live. A durable power of attorney allows the agent to control someone’s financial affairs, but gives the agent no control over the conservatee’s person. In many cases the power of attorney may be all that is needed if the principal is immobile, bed-ridden, or in a coma, etc. But if the principal cannot be prevented from wandering the streets at night, or giving away his or her money to strangers, for example, a conservatorship will be needed.

March 3

Advanced Health Care Directives

California Advance Health Care Directive

What is it? The Advance Health Care Directive can be used to appoint a family member or friend to make health care decisions for you if you are physically or mentally unable to make those decisions yourself.  Similar documents are also called Durable Powers of Attorney for Health Care.  This document is more comprehensive than a living will or a directive to physicians. 

How does it work? The directive appoints an agent (and backup agents) who will carry out your wishes for health care. The directive also describes how much, or how little, medical care you want. For example, the directive might include details about use of pain-relieving drugs, when treatment should be halted, and whether nutrition and hydration should be provided to the patient.  The agent’s authority to take action is triggered only by a determination that the patient lacks mental capacity. Lack of capacity is determined by the patient’s primary physician and by the agent.

What is HIPAA?  It is the federal Health Insurance Portability and Accountability Act of 1996.  Although this law mainly affects the health insurance industry, it also has provisions concerning privacy rights for individuals. Among these provisions are regulations requiring written authorization from a patient before a health care provider can release certain health information.  All health care documents should include this authorization.  If you already have a health care document, you should have it updated to include an authorization that conforms to HIPAA regulations.

How does HIPAA affect other estate planning documents?  Many living trusts include a provision that allows the successor trustee to become the acting trustee if two physicians certify in writing that the original trustee is not mentally competent.  Trusts of this type should be amended to include language authorizing the successor trustee to obtain medical information about the original trustee.  Springing powers of attorney, which become effective only on the mental incapacity of the person who signed the power of attorney, should likewise be amended to include a HIPAA authorization.

What else should be done to help the successor trustee or agent obtain medical information?  The trustor should also contact all of his or her medical providers, including physicians, hospitals, clinics, etc., and sign authorizations that allow medical information to be given to successor trustees and agents.

What effect does the directive have on a person’s financial affairs? None. It is for health care purposes only.

What type of medical treatment can be requested in the directive? Usually the directive provides only general guidelines to an agent regarding the type of medical care that will be provided. However, the directive can also be very specific about “pulling the plug” and stopping life support, the type of medications and drugs that will be provided, and many other decisions. The directive can also specify whether food and water should be given to the patient, and whether pain relief should be provided.

Are Durable Powers of Attorney for Health Care still valid? Yes, and they do not need to be amended unless you would like to list new agents, or you want to change other details regarding the type of health care that will be provided. The intent of the new Health Care Decisions Law is not to invalidate these documents, but to clarify the law and expand the use of the directives.

What is not allowed under the new Advance Health Care Directive? Mercy killing, assisted suicides, and euthanasia are prohibited under California law.

What is a Living Will?  Living wills are informal documents that are used to inform medical personnel that the signer of the living will wants to die a natural death and does not want medical treatment in certain circumstances.  The term “living will” is sometimes used as a generic name for other types of health care documents, such as an advance health care directive.

The advantages of a living will are that it is simple to prepare, does not require a lawyer’s assistance, and does not follow any particular format.

However, the disadvantages are numerous: Lack of notarization or witnessing can cause questions about the document’s validity, the mental capacity of the signer, or whether the document has been signed under coercion or undue influence. Also, a living will does not have any statutory authority.

Instead of a living will, you should consider an advance health care directive. This document is notarized or witnessed, and its use and general format has been approved by the state.

March 3

Do I Need a Will?

Why do I need a will?
A will allows you, instead of state law, to decide who will receive your assets after you die. If you don’t have a will, your estate will be distributed as required by the California Probate Code. If there is no estate plan, usually your nearest relatives will inherit the estate. Perhaps you would have wanted it this way, but if you wanted to make a gift to other relatives, to someone outside of the family, or to a charity, it won’t happen unless you had an estate plan.  For a discussion of what happens if you die without a will, see this page:  Intestate Succession

Nomination of executors:
In addition to distributing your estate, a will can nominate an executor, who is the person who will be in charge of administering the estate. If you don’t have a will, state law will determine which person has the highest priority to become the executor.

Nomination of guardians:
A will also can nominate guardians for your children who are under age 18. This nomination provides valuable information to the court that will determine who the guardians will be. The probate of the will and the appointment of guardians are done in two separate court proceedings. If the will nominates a guardian, that nomination is one of many factors that a judge will consider during a guardianship proceeding. The nomination of a guardian in a will is important because it may be the only reliable evidence of who the decedent wanted as guardian.

Does a will have to go through probate?
If the decedent owned less than $150,000 in probate assets, the will probably will not have to be probated. California law provides for “summary probate,” which allows the executor to avoid going to court for most smaller estates. The executor submits affidavits to the institutions holding the assets, receives the assets, pays the estate expenses, and then distributes the balance of the estate to the heirs. Estates of less than $150,000 can be probated if necessary, such as in cases in which the estate is insolvent. Click here for more information about probate: Probate Click here for more information about avoiding probate: Avoid Probate

Is a will needed if I have a living trust?
Yes. The type of will used with a trust is called a “pourover will,” and its function is to “pour” assets into the trust if the assets were not transferred to the trust prior to the death of the decedent. The primary distribution of assets through a pourover will is to the living trust, not to the beneficiaries of the estate. The result is that the assets that should have been transferred to the trust before the decedent’s death will be transferred to the trust after the death and then distributed in accordance with the provisions of the living trust. The main drawback is that if those assets total more than $150,000, a probate will be required to make the transfer to the trust. Click here for more information about living trusts: Living Trusts

What is a codicil?
A codicil is an amendment to a will.  The codicil should be kept with the original will because both documents constitute the decedent’s will.  Because codicils can be misplaced, clients should consider signing a new will instead of amending their current will with a codicil.

March 3

Amending or Restating your Trust

A Trust Amendment is a legal document that changes specific provisions of a Revocable Living Trust but leaves all of the other provisions unchanged, while an Amendment and Restatement of Trust completely replaces and supercedes all of the provisions of the original Revocable Living Trust.

Understanding the Basics of Revocable Living Trusts

Before discussing when Trust Amendments or full Amendments and Restatements are required, you’ll need to understand what a Revocable Living Trust is – a legal contract between the Trustmaker and Trustee that can be changed at any time and requires the Trustee to oversee the management of property transferred into the trust by the Trustmaker for the benefit of the Beneficiary of the trust.

The key to a Revocable Living Trust is the fact that it’s revocable – meaning that at any time while the Trustmaker is alive and competent the Trustmaker can change, modify, update, or completely revoke the provisions of the trust agreement. Since this is the case, the name of the legal document that’s required to change, modify, or update the trust agreement is called a Trust Amendment and the legal document that’s required to revoke the trust agreement is called a Trust Revocation.

Contrast a Trust Amendment with a Trust Amendment and Restatement, which is a type of trust amendment that completely supercedes the terms of the original trust agreement. The name and date of your trust will stay the same (for more on this, see below), but each and every provision of the original agreement will be replaced by the terms of the restatement.

When Are Trust Amendments vs. Restatements Required?

While there aren’t really any written rules as to when an Amendment instead of a full Amendment and Restatement is required, the general rule is that if the changes that the Trustmaker wants to make are minimal – adding or deleting specific bequests, changing who will serve as Successor Trustee, updating a beneficiary’s or Successor Trustee’s legal name due to marriage or divorce – then a simple Trust Amendment will cover these types of changes. On the other hand, if the changes that the Trustmaker wants to make are significant – adding a new spouse as a beneficiary, completely cutting out a beneficiary, changing from distributions to family members to distributions to charity or vice versa – then a complete Amendment and Restatement should be considered.

What if you’ve made a series of three or four simple Trust Amendments over the past 10-15 years and you want to make another change? Then consider consolidating all of your changes into a complete Amendment and Restatement – this will prove to be helpful to your Successor Trustee who will have a single document to follow instead of piecing together the provisions of four or five separate documents.

The Legalities of Trust Amendments

If you’re considering making a change to your Revocable Living Trust, don’t simply mark up your trust agreement and stick it back in the drawer. Why? Because a Trust Amendment must be signed with the same formalities as the original trust agreement, so your hand written changes will, depending on applicable state law, either void the trust agreement or be ignored. Instead, ask your estate planning attorney to prepare the Trust Amendment for you so that it will be legally valid and binding on all of your beneficiaries.

Will the Name of Your Trust Change if You Amend or Restate It?

The answer is No – the nice thing about doing a Trust Amendment or an Amendment and Restatement is that the original name and date of your Revocable Living Trust will remain the same. That way, all of the hard work you put into funding your Revocable Living Trust under the original trust name and date won’t need to be undone.