New Year’s Resolution: Create or Review Your Estate Plan

For many of us, the New Year means an opportunity to start fresh and make resolutions for improvements over the next twelve months.  You might resolve to drop those ten pounds that have crept on over the years or take more time to exercise, read, or cook.  Clients often find their way to our firm in the first few weeks of the year, having undertaken one of the most important resolutions you can make for your family: finally sitting down to write or review your estate plan.

Many people do not realize that, without a will or other estate planning in place, a combination of state law and titling or beneficiary designations controls where their assets pass at their death.  The statutory rules can result in unintended or undesirable consequences, particularly for people with blended families, unmarried couples who are in permanent, committed relationships, and people with estranged relatives. 

Assets that pass by title or beneficiary designation also create special challenges.  People often set up retirement accounts or life insurance on their first day of employment with a company and fail to update the beneficiary designations as their lives change.  Contrary to what you might hope, the sibling or parent you named as your primary beneficiary ten years ago may not be eager to surrender the proceeds to your spouse and children who have since entered your life.

Administration concerns are another reason to create a purposeful estate plan, especially if your beneficiaries are not well suited to take on important legal and financial responsibilities (see our Choosing The Right Fiduciary series for more detail).  And without an organized estate plan, beneficiaries and fiduciaries are often at a loss to compile information about your assets, a problem that has worsened with the advent of online banking and account management.

Even if you have a will or other estate planning in place, it may be time (or long past time) to give it a second look.  Changes in your finances, family, and state or federal law may have rendered your existing plan obsolete.  Now is an especially good time to review older estate plans because the recent tax act, which doubled the amount of estate tax exemption per individual, may warrant a simplification of the terms of your documents.  And the fact that you have documents in place may not mean that your estate planning work is done, since coordinating titling and beneficiary designations on your existing or recently acquired assets can be just as important as drafting estate documents.

Creating and maintaining a thoughtful estate plan is a wonderful gift to your beneficiaries.  A well-organized plan allows them to minimize time spent worrying (or outright panicking) and focus on processing their grief.  We often find that clients who complete their estate plans find a welcome peace of mind themselves, as well.  Taking action now, rather than carrying stress in the back of your mind about what will happen to your loved ones if you die, is the right course for you and them.  Contact Schooley Law Firm today to get started and check a resolution off your list.

Jennifer Schooley  |  Contact | Estate Planning

Choosing the Right Fiduciary

The importance of choosing the right people to fill fiduciary roles cannot be overstated.  The word “fiduciary” derives from the Latin verb fidere – to trust – and it is true that individuals named to these roles should have the highest level of trustworthiness.  Ideally, however, the people serving as fiduciaries should also possess the necessary skillset to successfully perform the tasks required.  Because the responsibilities in each role are somewhat different from the others, taking the time to think through whether a potential fiduciary’s skillset and personality are compatible with the role is well worth the effort.  Here is an overview of each role, which will be followed in subsequent posts with more detail about each particular one.

• An agent under a power of attorney may manage your finances on your behalf during your lifetime.  Agents are often granted nearly unlimited powers to carry out any action you might undertake for yourself.  Unfortunately, this broad power is sometimes abused, so trustworthiness is the absolute guiding star when choosing an agent.  Another important factor is attention to detail.  Investment, banking, bill payment, and other records of actions should be maintained.  This person may also be tasked with voting on (or otherwise controlling) your business affairs.  Thus, it may be easier for an agent who lives locally and has intimate knowledge of your affairs to act on your behalf.
• By contrast, an agent under a health care power of attorney is empowered to make decisions about your body.   If you are unable to make or communicate a decision about your own medical care, your agent is named to make those decisions.  Thus, this person becomes your advocate.  The person named should be familiar with your values and your wishes, and if necessary, be assertive enough to ask the right questions of medical professionals.  Finally, it is helpful (but not essential) to name someone with medical experience and who is local.  If you are in an assisted living or a nursing care facility, your agent is the facility’s main point of contact.
• An executor is appointed to wrap up your affairs after your death.  This begins by qualifying before the circuit court clerk and may include preparing an inventory of your assets at your death and an accounting showing payment of your debts, receipts by your estate, and distributions to your beneficiaries.  Your executor is also obligated to file your final income tax return.  Strong organizational skills are critical to this position because record-keeping, meeting probate deadlines, and making tax elections and filings are key aspects of the job.  Weeding through and selling, distributing, or donating household contents is also a major function of the job, and it’s no small task.  If the executor is not a resident of the state, this task is more cumbersome.  In addition, the court may require that the executor be bonded. 
• A trustee is put in place to manage money for the long-term benefit of the trust’s beneficiaries.  The person in this position must be prepared for a commitment and possess either a talent for asset management or the ability to assess information provided by a competent professional who is hired.   Consider naming someone who has a sense of your values and the beneficiaries’ needs, so that if the trustee is called upon to make discretionary distributions, he or she has a solid foundation from which to consider the issues.  Often the interests of beneficiaries conflict, so your trustee may be tasked with making difficult choices.

Naming the wrong people to these fiduciary roles can cause even a well-constructed estate plan to fall apart.  Your attorney can help you identify individuals in your life who would be a good fit for each role, but your knowledge of both the character and judgment of the people you choose is paramount.  If you lack confidence that people in your life have the talent or character required of the job, choosing a professional trustee may be the better course.

Jennifer Schooley  |  Contact  |  Estate Planning

Power Of Attorney Pitfalls

In one sense, being named to act as someone’s agent under a power of attorney should be considered an honor – clients are encouraged by their lawyers to choose agents who are highly trustworthy and competent.  Even well-meaning agents, however, can make mistakes, either from simple human error or from a misunderstanding of an agent’s obligations and responsibilities under Virginia law.  Here are just a few of the issues we see giving agents trouble.

Record-Keeping

Agents are obligated by statute to keep records of every transaction they undertake in their principal’s name.  Depending on the individual situation, this could mean keeping many years of records of deposits, withdrawals, expenses paid, reimbursements made to the agent, purchases, and sales.  This can be a lot to undertake while also trying to run your own, busy life, and many agents therefore let their records slip.  The pitfall?  If these records are requested by certain individuals listed in the statute, the agent is obligated to hand them over within thirty days.  Recreating these records (up to five years’ worth) may be impossible at the point the request is received, so it is critically important to maintain the records from the start.

Unauthorized Actions

Although powers of attorney often grant agents broad powers to undertake any action the principal could take with regard to his or her finances, certain powers are considered special and require an express grant of authority to be stated in the document.  If those powers are not specifically listed, the agent is not authorized to exercise them.  These “special powers” include:

• Creating, revoking, or amending the principal’s revocable trust;

• Making gifts of the principal’s property;

• Creating or changing rights of survivorship or beneficiary designations;

• Delegating the agent’s authority to someone else;

• Waiving the principal’s right as a beneficiary of a joint and survivor annuity (including a survivor benefit under a retirement plan); and

• Exercising fiduciary powers that the principal has authority to delegate.

Agents should read the power of attorney granting them authority carefully to determine exactly which powers are granted to them and which are withheld.  In addition, certain powers, even if expressly granted, are further limited by statute depending on the agent’s familial relationship to the principal.

Conflicts of Interest and Good Faith

An agent is obligated to act on the principal’s behalf in accordance with the principal’s best interest, in good faith, and free from conflicts of interest.  Although these may seem like straightforward conditions, in practice they can be more complicated.  An agent can run afoul of these fiduciary responsibilities even when he or she has no intention to act against the principal’s best interest or otherwise cause harm to the principal. 

The bottom line? For violating these duties, agents can be held personally liable for any actual loss to the principal, as well as the attorneys’ fees and costs of a party who raises the issue.  Thus, the best practice is always to get legal advice before taking any action that raises the slightest question mark or causes you to hesitate for any reason.  If you are already acting as agent under a power of attorney and have questions about transactions you have already entered into, it may not be too late to “right the ship” and get back into compliance with your legal responsibilities.

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Estate Law  |  Jennifer Schooley