Pitfalls and Risks When Your Client Owns Commercial Real Estate in an Irrevocable Trust

Long before he met you, your client bought his first piece of commercial real estate – that two-family house, apartment building, office building, or strip mall. At the time, he went to a real estate lawyer who advised him to take Trusts, wills, estate planningtitle to that real estate in an irrevocable trust so that it would be protected from creditors. That lawyer also told him that he could stay in control and be the trustee.

Now, decades later, the property is still in that trust, and after a visit to you and his new lawyer, the client now understands that this trust is included in his taxable estate in full.  After all, he made the down payment, he is the trustee, the primary beneficiary, and has been taking all of the income and deductions on his personal income tax returns.

For many business owners, the disposition of the real estate that houses the family-owned business, the apartment buildings, office buildings, or rental units the family has collected over the years is a troublesome issue. Planning is not as simple as it seems. In fact, planning for the future typically means going back to a hodgepodge of isolated transactions that occurred over a period of time.

How title is held and what type of vehicle it is held in – irrevocable trust, corporation, limited partnership, or limited liability company, is an issue that should be reviewed and examined from the viewpoint of income taxes, estate taxes, succession planning, and liability concerns and consequences.

When property is held in an irrevocable trust that was funded by the donor, and the donor retains the benefits of the property (the ability to receive income and/or principal distributions), and/or retains control over the property, it will probably be included in his taxable estate in full. If set up that way, it will also be treated as a grantor trust for income tax purposes and all income and deductions will flow to his individual income tax return.

When that donor dies, it will no longer be a grantor trust and will become a separate taxpaying entity. The trust probably contains what is known as a spendthrift provision, which protects the assets in the trust from creditors. However, in many states, spendthrift provisions do not necessarily mean the trust property is protected from the donor’s creditors while the donor is alive and a beneficiary of the trust.

Holding title to the real estate in an irrevocable trust presents another significant issue that may not be apparent from the document itself. The trustees of a trust have a fiduciary duty to not just the donor, but to all of the trust beneficiaries, including any other permissible beneficiaries during the donor’s lifetime and what is known as the remainder beneficiaries- those who will later take the benefical interest. The fiduciary duty of the trustees includes the duty to prudently invest and manage the trust assets. The concept of prudently investing and managing the trust assets is quite different from the concept of the business judgment rule, also known as the businessman’s risk.

In many states, the “prudent man” rule applies, and the trustee owes the beneficiary the fiduciary duties of skill, loyalty, diligence, and caution. Some fiduciary factors for the trustees to consider when managing investments include: (1) marketability of the trust property, (2) length of term of the investment, if a term is set, (3) duration of the trust, (4) probable condition of the market regarding the investment at trust termination, (5) probable market conditions for reinvestment of the proceeds if the investment is sold, (6) total value of all of the trust property and the nature of any other investments, (7) the needs of the beneficiaries, (8) other assets of the beneficiaries, and (9) the effect of any investment on the trust.

When operating under the businessman’s risk standard, trustees may choose investments that have a moderately high risk of losing value, but that also offer growth potential and capital gains, or sometimes tax advantages, rather than for the purpose of growing current income. Individuals can make riskier choices when they are dealing with their own investments rather than holding them in trust for the benefit of others.

When the business is owned by a trust, the prudent man rule for investments made by the trustees may conflict, in practice, with the business judgment rule that would control if the property were owned by a business entity, such as a corporation, limited partnership, or limited liability company. For example, when deciding whether to retain, mortgage, or sell one of its properties, the trustee must consider its fiduciary duty, rather than the lower standard that would apply to a businessman faced with those same choices.

Holding commercial real estate in an irrevocable trust also presents issues pertaining to income. For example, if the trust document requires all income to be distributed to the beneficiary (whether during the donor’s lifetime or after death), then the questions will be how to define income and what does the trustee have a duty to distribute?  Is it income for trust accounting purposes, for income tax purposes, or for cash purposes? If the trustee is to distribute all income each year, how can he hold an operating reserve? What happens with depreciation? What about reinvestment for repairs? How will the accounting be prepared?

From an estate tax point of view, if the value of the trust is fully included in the donor’s estate and he is married, does the trust say that his/her spouse is the lifetime beneficiary after the donor’s death? Does the trust qualify for the estate tax marital deduction so that there is the option to defer estate taxes until both spouses die?

When faced with the issue of a client owning commercial real estate in an irrevocable trust that no longer makes sense, there are remedial options to consider. One is to proceed to court and ask that the trust be reformed as it does not accomplish the donor’s intent. Trust reformations are permissible in many states and I have seen trusts reformed to ensure the marital deduction option, to add improved language for managing the property, and to handle the question of how income is defined.

Another option is to transfer title to a limited liability company that the trust owns. This would make it easier for the entity to obtain financing, since few institutions that sell their mortgages in the secondary market will issue mortgages to trust-owned real estate. It is also cleaner from a liability point of view in that the liability should be limited solely to the LLC assets. The LLC would be subject to businessman’s risk and all of the business decisions would be made at that level by the managers of the LLC and the terms of the operating agreement. The trustee of the trust would be dealing with the trust assets and would not be in charge of, or responsible for, the business decisions.

The term irrevocable does not always mean that the plans set in place decades ago are set in stone – rather there are mechanisms available that provide flexibility to bring those plans into current times.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Gore Vidal, Harvard University and a Contested Will

Gore Vidal, willBack in November, the New York Times Sunday Style section featured the final plot twist for Gore Vidal who bequeathed his entire estimated $37milllion estate to Harvard University even though he did not attend Harvard.

His nephew claims that he was promised his entire estate, although in later years Vidal accused that nephew of becoming a CIA imposter and trying to kidnap him.

His family claims that alcoholism and dementia left Vidal incompetent, and is the grounds for his sister commencing a will contest based on that incompetence.

Some believe that this was his final plot twist- to do the unexpected and up as a master contrarian. Two court cases are pending and no doubt the final chapter will be a page turner.

 

Source:  http://www.nytimes.com/2013/11/10/fashion/In-a-final-plot-twist-Gore-Vidal-leaves-his-estate-to-Harvard-Universtity.html?pagewanted=all&_r=0

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently announced the release of an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com

Farrah Fawcett portrait by Andy Warhol at center of legal battle

The trial for the Farrah Fawcett Andy Warhol Painting started around November 20. When Farrah Fawcett died she leftFarrah Fawcett her artwork to the University of Texas.

She left nothing in her Will nor her revocable trust to Ryan O’Neal. He has possession of the $30 million Warhol and the University filed suit to recover it.

Ryan claim’s that the painting was jointly owned and it is hanging in his bedroom. He claims that he and Farrah also owned a Warhol painting called “Napkin” and on the back of that painting is an inscription to both of them from Warhol.

This certainly underscores that when the stakes are high and the dollar values significant it is important for art bequests to be made even more specific in estate planning documents.

I assume evidence such as how the property was insured while living, deeds of gift, intent, circumstances as to how Farrah acquired it and how it ended up in Ryan’s home will all be brought forward. This trial will also expose many private aspects of Farrah Fawcett’s life.

The star witness is a man whose identity had always been kept private and he is producing decades of love letters from Farrah to him, proving that Ryan O’Neal was not the sole man in her life.

Don’t let this happen to you.  Make sure you provide specific details of your wishes to your loved ones don’t end up in court!

Source:  LATimes.com

 

P.S. Click the link below for a trial update: http://bostonherald.com/inside_track/celebrity_news/2013/11/trial_over_disputed_fawcett_portrait_opens_in_la

 

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com

2013 Wall Street Journal Money Magazine Notes Unusual Bequests

I Leave My Fortune To…estate planning, wills

A Chinese restaurant? Some large and unusual bequests:

1. Roman Blum, U.S.

Worth about $40 million | Died: 2012

When the real-estate developer died childless and without a will, he left behind the largest unclaimed estate in New York state’s history. Experts say that in most of these cases, the money ends up in the state coffers.

2. Wellington Burt, U.S.

Worth about $100 million | Died: 1919

The lumber baron and former Michigan state senator took his own sweet time with his bequest. He wanted his fortune handed out 21 years after the death of the last grandchild, who was born while he was still alive. The money was finally distributed to 12 heirs in 2011.

3. Golda Bechal, U.K.

Worth more than $15 million | Died: 2004

The property magnate left her fortune to a couple running her favorite Chinese restaurant. The unusual friendship, which began over a dish of Chinese pickled leeks and bean sprouts, extended to shared Christmases and other holidays.

4. Nina Wang, Hong Kong

Worth about $10.7 billion | Died: 2007

A long-drawn battle over Wang’s will unfolded when it revealed she had left her money to her personal feng shui guru. The Hong Kong court later ruled the bequest to be a forgery by the geomancer, who recently appealed a prison sentence for fraud. The money has gone to charity.

It is always interesting to see how wealthy persons plan…or don’t.  So what’s your plan?

 

Source:  Wall Street Journal 2013 Money Magazine

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Reclusive Entrepreneur Wills Fortune to Hometown

philanthopy, David ElkhartThe Fall 2013 Wall Street Journal Money Magazine has a very interesting article, “The Elkhart County Miracle” describing how  David Gundlach, a reclusive entrepreneur willed his entire $150 million fortune to his hometown, Elkhart Indiana and how the town is dealing with that bequest.

Gundlach died suddenly at age 56 of a heart attack. He was not married and had no children. His 93 year old mother survived him. Elkhart’s population is about 50,000. When he left his entire fortune to the Elkhart County Community Foundation the bequest included an original Salvador Dali sculpture, a March Chagall painting, 11 homes and 15 cars, including a Rolls Royce, two Bentleys and a Ferrari.

His bequest to the foundation was unrestricted; the foundation can use it any way it wants to. The director of the community foundation has gone on a “listening tour” of the community to find out what its citizens think should be done with the money.  Prior to making this bequest in his will, his Elkhart lawyer said he felt Gundlach had felt taken advantage of by the charities he had tried to work with and had some bad experiences trusting people.

He spent more and more time in his hometown. There is a lot of discussion about why he may have done this. Some say he knew he had heart problems and wanted to settle his affairs; others say the bequest to the foundation was a placeholder until his other philanthropic plans became more certain. Regardless of the reason, this bequest is certainly a unique transformative gift which will leave a significant impact for generations of Elkhart citizens to come.

Read entire article:  http://online.wsj.com/news/articles/SB10001424127887324665604579079430351013394

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Hospital’s Fundraising Campaign Causes Donor to Cut Relatives From Will

non profit fundraisingThe accountability of the professionals in philanthropy is front and center in the case of the Estate of Hugette Clark (NYTimes May 30, 2013).

Mrs. Clark died in 2011 at age 104 with an estate of $300 million. Her relatives (including 20 grand half-nieces and grand half-nephews) have sued to overturn her 2005 will which cut out her relatives.

Mrs. Clark lived in New York’s Beth Israel Medical Center for the last 20 years of her life with shades drawn and doors closed. She played with dolls and watched cartoons (particularly the Smufs). The relatives allege that within months of her moving in, the hospital went after her with an all out fundraising campaign that involved the CEO, the CEO’s mother, physicians and development officers.

The relatives contend she did not need all the medical care she received and was primarily residing there for fundraising purposes. While living there (in addition to paying to live there) she gave the hospital $4 million and in addition $1 million in the will that the relatives are contesting.

The court appointed public administrator criticized the hospital’s behavior as well as the behavior of Mrs. Clark’s accountant, lawyer, admitting doctor and private nurse- all of whom ended up as beneficiaries in the contested will. The hospital’s position is that Mrs. Clark was smart as a whip and they provided top notch care for her.

The documents produced as part of the upcoming trial offer a real peek into the fundraising including the memos of the development office that detail the visits and efforts to obtain donations. These documents include Mrs. Clark giving the development officer a photographic tour of her dollhouses, taking pictures of each doll’s activity (drinking tea, walking in the garden) and created stories around the dolls. The dolls were Japanese which led the development officer to connect Mrs. Clark at a deeper level with the CEO who was married to a Japanese woman.

Another internal development office memo written seven years after Mrs. Clark was residing at the hospital include comments such as does legal know she is here? My concern is if we raise the issue with them they may push the question of whether she should even be living at the hospital. If we were forced to “evict” her we’d certainly have no hope of support.”

The trial is scheduled for this fall and its outcome will be interesting. To me the case shines the light on the donor/development line and brings into focus the accountability of the related professionals in the journey.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Widow Ordered to Pay Husband’s Mistress

wills and testamentI found this story astonishing.  I guess we need to consider what should be included or added to Wills when we look at couples that have been separated for a number of years without having gone through the divorce process.  In this particular case there doesn’t seem to have been any children born of this relationship, but it would be something that could need consideration as well.

Enjoy!

The widow of a Kiwi millionaire has been told to pay her late husband’s Australian mistress thousands of dollars from his estate.

Anthony Francis Bohm died in October 2010 from a heart attack, aged 71, leaving his wife of nearly 50 years, Winifred Bohm, as the sole beneficiary of his estate.

The couple had purchased a news agency business in 1962, and in 1974 set up a business dealing in property, antiques and furnishings, where they both worked seven days a week until they retired in 2003.

Mr and Mrs Bohm separated in 1993, and Mr Bohm had lived with his girlfriend, Dee Morgan, in Dunedin from 1996 to 1999.

They too separated after Mr Bohm refused to divorce his wife, but their “sexual, intellectual and emotional relationship” continued until his death, and they continued to go on holiday together and socialise as a couple, the New South Wales Supreme Court found.

“Although the deceased at one stage told the plaintiff that the relationship was over, his conduct after that point in time led the plaintiff to believe that there was still a continuous relationship of a lesser intensity than that which existed before,” Associate Justice Richard Macready said.

He said Ms Morgan, 65, now lives a very frugal lifestyle, and has to supplement her pensions by drawing on her superannuation fund, which will likely run out in the next 15 years.

By comparison, Mrs Bohm, 73, has $A2.4 million ($NZ2.9m) of property in New Zealand, a $A1m Sydney property, $A227,000 in term deposits, plus her superannuation, the court said.

Justice Macready was only able to make orders on Mr Bohm’s Australian assets.

As Mrs Bohm wanted to keep the Sydney property, and spend six months there and six months in New Zealand each year, Justice Macready ordered her to pay a “legacy” of $A225,000 from her husband’s estate to Ms Morgan.

He also ordered that legal costs of more than $A250,000 be paid from Mr Bohm’s estate.

 

Source:  NZ Newswire and http://nz.news.yahoo.com/a/-/top-stories/16822702/widow-ordered-to-pay-husbands-mistress/ YahooNews

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

But Mom and Dad Promised Me Their Entire Estate…Or At Least Their Home: A discussion of quantum meruit claims by the caregiver child

caregiver for parents imageThe client in your office explains, “I gave up my job to take care of my parents, I moved in with them, and did everything that was expected – and more – for three entire years.  I took them to every doctor’s appointment, made sure that they had food, took their medicine on time, and ate three meals a day.  My brothers, however, called them about four times a year.  My parents promised me that I would be compensated at their death for what I did. They told me they did not want to use their current money because they were terrified that they would run out of money. I know their will says that my siblings and I will receive their equal shares, but I know that is not what they meant. I was promised the house for what I did.”

The legal theory behind whether or not this client should receive the house is called “quantum meruit” or unjust enrichment. There has been an increase in quantum meruit cases in this country precisely because of this type of fact pattern – the legal estate planning documents are not changed or updated yet the caregiver child believes that without this payment his parents would have been unjustly enriched and that what the caregiver child receives from the decedent’s assets through the estate is unfair.

Siblings may take the position that they were unaware of any contract or promise the parents made to the caretaker child, that they were unable to care for the parents themselves because of their own family commitments, that it was admirable what the caretaker child did, but that mom and dad loved all children equally, and if they had really wanted the caretaker child to receive more, they would have changed their estate plan.

Quantum meruit cases have been played out in this country’s courtrooms since the 1800s. They have been brought by family members (children, nieces, nephews, and siblings), by non-family caregivers, and by caregiving partners in non-traditional relationships.

The quantum meruit standard varies from state to state. In New York, for example, to state a claim for unjust enrichment the plaintiff must allege, 1) the defendant was enriched, 2) the enrichment was at the plaintiff’s expense, and 3) the circumstances were such that equity and good conscience require the defendants to make restitution.

Texas courts have ruled that to recover under the doctrine of quantum meruit a plaintiff must establish that, 1) valuable services and/or materials were furnished, 2) to a party sought to be charged, 3) which were accepted by the party sought to be charged, and 4) under such circumstances as reasonable notified the recipient that the plaintiff, in performing expected to be paid by the recipient. (Heidenfeis Bros. v City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992).

Quantum meruit cases have tax considerations too.  In 1994, Anthony Olivo, a New Jersey tax lawyer, left his law practice to care for his elderly parents in their home. His father died in 1995 and Olivo continued to care for his mother. In 1998, his sisters became upset with the care he was providing.  They claimed that all he did during the day was watch TV, he was not paying for room and board, and his mother had a full-time, paid live-in aide. He discussed this with his mother and she offered to pay him $1,000 a week for caregiving. Since he was concerned about her finances he agreed to be paid $400 a day and payment deferred until her death. This was an oral, not written agreement.

When his mother died in 2003, he was named administrator of her estate. On the estate tax return he claimed $44,200 for his services in that capacity, $50,000 for his services as lawyer for the estate, $5,000 for accountant’s fees, and $1,240,000 as a debt owed to him for the care he provided his mother pursuant to their 1998 verbal agreement. The Internal Revenue Service denied these deductions. At the 2011 trial in New Jersey Tax Court, Olivo testified that he “could have and should have” memorialized the agreement in writing, but was too distracted by his caregiving duties to think like a lawyer at the time.” The court held that because there were no witnesses or corroborating evidence, the estate failed to establish the existence of a legal debt. The court rejected Olivo’s quantum meruit claim, stating that under New Jersey law, services to a family member living in the same household are presumed to be gratuitous, unless shown otherwise by a preponderance of the evidence. The court noted “children do provide gratuitous care for their aging parents.”

In cases like these, it is important to make the expectations clear as early possible in the caregiving arrangement and consider the following:

  1. Put any caregiving agreement in writing.
  2. Tell other family members that this agreement exists.
  3. Keep a written record or log of the hours and tasks the caregiver is putting in.
  4. Establish an hourly or daily rate that is reasonable –it may be prudent to compare that compensation to what the marketplace bears.
  5. Execute a personal care agreement that will set forth the expectations of the engagement and the payment – even if this is within the family.
  6. Adjust the estate planning documents to take the caregiving into account or as a mechanism to ask that the court honor any such personal care agreement. Many families may prefer the personal care agreement to the estate planning adjustment, as it is unclear how long the services will last and the agreement can set forth the method of pay and allow for termination of the services by either party.
  7. Coordinate the income tax consequences. If it is compensation, then to be deductible it should also be included as gross income for the caregiver.
  8. If a child or other family member is paying bills for the parent or taking care of expenses from his or her own assets, then both the state Medicaid laws and the courts will presume that these are gifts from the child to the parents. If that is not the intention then formal legal promissory notes should be entered into and kept current.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

New Risks to Family Cohesiveness Continued!

airplane oxygen imageImpact to individual goals and life plans by the increasing lifespan of baby-boomer generation. Take the Steps Now to Put the Oxygen Over Your Own Face First and Decide Who Will Make Your Health and Financial Decisions If You Are Unable To Do So.

Another risk to family cohesiveness is the impact increased lifespan has on individual goals and life plans. Traditional risks include the illness, death or incapacity of a key family figure. In the family business and in the co-ownership of investment and commercial assets, the new risk is the increased work lifespan of the older generation, which results in the delayed succession of the middle generation. In essence, with the older generation in good physical and mental health and working far longer, the middle generation may, in effect, be knocked out of position and never get its day in the sun. By the time the older generation decides to move along, the individual goals and life plans of the middle generation may have been passed by, and the baton may be passed to the next generation. This new risk can be mitigated by intentional strategic planning and clear communication among all generations as to what the expectations are for the working lifespan and when the baton should/will pass.

Strategies to Mitigate the Risk of Increased Lifespan to the Ability to Control Your Own Health and Affairs and the Risk to Next Generation’s Life Plans:

1. Understand that estate planning is much more than what happens when you die; in an increasingly aging population that is living longer, disability or incapacity planning is essential. Make sure you have in place the legal mechanisms so that you can be taken care of in the way you desire. It is important that we all remember what the flight attendant says every time you board a plane – if the cabin pressure changes and the oxygen mask falls down, put that mask over your own face first – it is only when you put the mask over your own face that you will have the strength to protect others. In other words, protect yourself first.

2. Make sure the documents that will protect you if you are unable to care for yourself (Health Care Proxy and Durable Power of Attorney) are up to date and accurately reflect your wishes.

A Health Care Proxy is a document in which you give the authority to an agent to make medical care decisions if you become unable to make them. The document can authorize everything, including minor and routine medical involvement, and can give the agent access to all your medical records. It can authorize someone to supervise your care if you are incapacitated, to consent to having you undergo certain types of treatment or to withdraw from treatment; to make hospital or nursing care arrangements; and to employ or discharge caregivers.   A Health Care Proxy can also empower the agent to make such major decisions as whether or not to terminate your life.

Under federal law, only one person at a time can be named as health care agent, but a Health Care Proxy can name a succession of people as alternatives.  This is done so that someone else can take over if, for instance, both spouses are in the same car crash, and neither one of them is in a condition to make medical decisions.  A copy of the Health Care Proxy should be given to your primary care physician and becomes part of the medical record.

As with a financial Durable Power of Attorney, in the health care area, couples usually designate each other to make medical care decisions and list their children as successor agents.  The health care agent must be someone you trust, who shares your value system, who is willing to perform the task, and who has a clear understanding of what your preferences are.

It is prudent to update this document regularly, and, when it is updated, to make sure that the contact information is completely up to date for those who have been designated to make health care decisions (including all telephone numbers and cell phone numbers). If the Health Care Proxy was executed prior to The Health Insurance Portability and Accountability Act of 1996 (known as HIPPA), then the document must be updated. Under HIPPA, if you do not expressly waive your right to privacy in writing, hospitals and physicians do not have the legal right to speak with the health care agent or to release medical information to that person.

Choose a Health Care Agent. This important person may have different titles in different states (such as “health care agent,” “health proxy,” “patient advocate,”  “attorney-in-fact,” “health care representative,” or “health surrogate”), but the responsibilities are the same.  The official requirements for health care agents also vary from state to state, but most states simply specify that the person must be an adult (over 18) and must be someone who does not work for your health care provider or for an adult care facility in which you are residing.

It is good to designate both a health care agent and a successor agent (choice #1 and choice # 2), in case you need help at a time when the agent you have chosen is not available.  You should decide which child to choose, and if you have no spouse or children, which friend or relative to choose.

In order for you to choose a health care agent wisely, it is helpful to establish a basis for evaluating potential candidates. That evaluation should include the following criteria:

1) Religious beliefs:  Since the concept of withholding artificial life supports runs contrary to the teachings of several religions – most notably the Catholic Church – it is helpful to find a health care agent who shares your religious beliefs and your position on right-to-die issues.

2) Willingness to take on this task.

3)  Strength to act on your wishes and speak out on your behalf (even if faced with doctors, institutions, or family members who disagree).

4) Communication:  The agent is comfortable talking to you about sensitive issues and capable of listening to and absorbing what it is that you want.

5)  Separation:  This is a person who can differentiate between his/her feelings and yours and be able to do what you want done.

6)  Proximity: This is someone who either lives close or could travel quickly to be there when needed.

7)  Availability:  This person is likely to be accessible and capable of performing tasks well into the future.

8)  Personal understanding:  He/she knows you well enough to intuit what is important to you.

9)  Negotiation skills:  He/she can mediate conflicts between family members, friends, and medical personnel.


Patricia Annino
is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Women And Money: 9 Strategies For Unmarried Partners

image of a familyMany times I’ve had unmarried partners (usually of the same sex) tell me that they were concerned that when a partner died his or her family would “come out of the woodwork” and challenge the estate to claim benefits.

On those occasions it is very important to avoid probate. It may also be advisable to include what is now known as a “Sinatra” clause, after Frank Sinatra who included one in his will. The Sinatra Clause specifies that anyone who challenges the provisions of the will, any trust that the decedent established or the administration of the estate forfeits any benefits that person would have otherwise received.

Frequently a will or trust will mandate that a bequest will be given to a child and if the child is not living then to that child’s children. When the Sinatra clause is included I think it is important to also make sure that the challenging child beneficiary and his children are excluded too. Otherwise the child beneficiary may launch a fight, be dropped from the benefits list because of the Sinatra clause, only to have his children receive the benefits (getting in “the back door”).

I have also decided – from years of experience – that if a decision is made to employ the Sinatra clause, it’s a good idea to leave the person who is going to be disinherited something that they consider worthwhile so that the decision to fight or not to fight is made after deliberation – not because of spite.

If there is something you can offer that the person would regret losing, they will usually think twice before a fight.

 

  1. Have you executed a health care proxy? Is a successor named?
  2. Have you executed a durable power of attorney? Is a successor named?
  3. Have you thought about drafting a “living together” agreement?
  4. Have you executed a Will? And, if appropriate a living trust?
  5. Have you reviewed with your advisors the tax consequences of leaving your assets to your partner? Have you reviewed with your advisors the tax consequences of your receipt of assets your partner intends to leave you?
  6. Have you explored long term care insurance?
  7. Do you know what assets you will be able to access if your significant other becomes disabled or incapacitated?
  8. What about your debt – have you both reviewed how that will be handled at the first death?
  9. Have you both made funeral and burial arrangements and put them in writing?

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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