Fiduciaries: Don’t forget your tax filing obligations

Every year, about this time, everyone in the country starts to sweat a little trying to get everything together to file personal income tax returns.  It can be a stressful experience, from tracking down those annoying forms that started arriving mid-January to scheduling time with an increasingly harried-looking accountant.  If you are serving in a fiduciary capacity, you may be obligated to file an additional income tax return.  The filing threshold for estates and trusts is only $600, meaning that if an estate or trust you administer generates more than $600 of income during a tax year, you, as executor or trustee, are required to file an income tax return for the estate or trust.  This is true even if no taxes are due.

If this news comes as a surprise and meeting the April 15 deadline will be a struggle, you can file for an extension with both the Virginia Department of Taxation and the Internal Revenue Service (but note that some estates elect a fiscal year and may have a different filing deadline).  If you’ve missed deadlines for past tax years, contact a tax professional to help you get back into compliance.  Interest and penalties continue to accrue on unpaid taxes whether the return has been filed or not, so the sooner you tackle the project, the better.  Under some circumstances, tax authorities will even waive penalties.  And if you are audited or otherwise contacted by the Department of Taxation or IRS, your ability to show that a good faith effort to correct any problems is already underway will be viewed favorably.

If you have questions about estate or trust administration, including tax obligations, Schooley Law Firm, P.C. is here to assist.  We know it can be challenging to meet both personal and fiduciary obligations and we are always happy to help point executors, administrators, and trustees in the right direction.

Jennifer Schooley  |  Contact | Estate Planning

Romantic And Practical Reasons To Consider A Premarital Agreement

Premarital agreements are not commonly considered romantic.  They get an especially negative treatment in the media - anyone who broaches the topic in a movie or TV show has nefarious intentions.  We are looking to restore the reputation of premarital agreements (just in time for Valentine’s Day) because we believe there are plenty of romantic and practical reasons to consider whether such an agreement makes sense for your future.

Similar to the discussion in our last blog post, default state laws control the division and disposition of a married person’s assets when the marriage ends.  The rules are different depending upon whether the marriage ended in divorce or death.  One often-overlooked aspect of marital planning is the latter; that is, what is your spouse entitled to inherit when you die?  This question often comes up in the context of second marriages.  Each spouse may enter the marriage with assets acquired long before the contemplated marriage and continue to earn and grow assets during the marriage.  When one or both parties have children, they often wish to pass part or all of those resources to their own children.  People entering into marriage under these circumstances might not realize that spouses have a right to inherit some of those assets, depending upon various factors including the source of the assets, the respective assets of each party, and the length of marriage.  Setting expectations about inheritance early can be a profound act of love, both for a spouse and children.  When surprises emerge after one spouse’s death, it frequently leads to estrangement, hurt feelings, and, unfortunately, litigation which depletes the estate and postpones the grieving process.

This is true outside the context of blended families, as well.  Money is cited again and again as a leading source of marital conflict in articles on the topic; and people have all kinds of reasons for raising the possibility of a premarital agreement.  Clients often seek advice about protecting inherited assets for the ultimate benefit of their future children, minimizing taxes, or changing state law presumptions to meet their specific situation.  

So often, the perception is that the purpose of premarital agreements is to “plan for divorce,” and agreements often include provisions requiring (or limiting) alimony and setting property division terms.  But is this really so unromantic?  An honest conversation with your future spouse about these topics is actually a good idea.  Good relationships are born and sustained by good communication.  Asking the question if a premarital agreement is right for your relationship is a way to clear the air about your concerns for the future.  Perhaps a high-earning spouse with equally high student loans fears adding alimony to her list of obligations.  Or, a spouse who leaves a career to move and be with the other spouse, fears losing earning capacity without adequate security.  These documents are highly flexible and can be tailored to have a very narrow focus or a quite expansive one to fit each couple’s situation and relieve anxiety about the future.

Finally, you might consider making a premarital agreement to be an act of love for the moment when you’re least likely to feel it.  Marital conflict, separation, and divorce are some of the most traumatizing events a person can experience.  Agreeing in advance about how to settle your financial affairs if things go wrong can create certainty during conflict so that you and your spouse can focus on the cause of that conflict and potentially resolve it without letting financial fear take the wheel.  It can even send the message, “I love you so much that I want to make it easier for both of us if we are someday going through the pain of breaking up.”  

So, here is our Happy Valentine’s Day to you with a twist: Cupid’s love arrow may fly straight and strong, and when it sticks, it sinks even deeper if you can talk about money and security with love and care for one another.  To learn more about default state laws and analyze whether a premarital agreement is right for you and your intended, contact Schooley Law Firm.

Seeking Part-Time Legal Secretary And Office Manager

Schooley Law Firm, P.C. is actively seeking a part-time legal secretary and office manager to support two lawyers and fit well within our growing, vibrant practice.  We eschew the staid brass and mahogany veneers of many law firms, and pride ourselves on our lively culture, our ability to connect with our clients, and our elevated standard of ethics.

Qualified candidates must possess remarkable interpersonal and organizational skills, exercise attention to detail, and exhibit exceptional communication and listening skills.  Spelling, punctuation and use of grammar must be of high quality.  A fervent belief in orderliness, efficiency, and systems is absolutely necessary.

Core Functions:

·       Interfacing with new and existing clients

·       Manage new client intake process

·       Manage attorney meeting schedules

·       Paper and digital filing

·       Office supply management

·       Processing invoices and payments

·       General correspondence

·       Manage client database

·       Tracking client referrals

Experience: A minimum of three years in a legal environment is preferred, as is knowledge of Mac-based computing.  Ability to use Microsoft Office and Excel is expected, as is the ability to quickly learn Quickbooks accounting software and Lucidchart.

Please send resumes and a cover letter to admin@schooleyfirm.com.  The anticipated start date is March 1. 

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

Prepay 2018 Property Taxes: UPDATE for Richmond and the Surrounding Areas

Update: Since our last article was posted, the IRS has issued an advisory on prepaying real estate taxes for 2018.  The Service has taken the position that only real estate taxes paid and assessed in 2017 will be deductible on taxpayers’ 2017 income tax returns.  

Unfortunately for the Greater RVA Area, this means many of us are out of luck on taking this deduction.  Chesterfield County, Hanover County, and Henrico County will issue their 2018 assessments in January 2018, meaning that prepaying real estate taxes in those counties will not qualify for deduction on 2017 income tax returns.  According to the City Assessor’s office, the City of Richmond DOES issue its assessment for 2018 in 2017.  Therefore, prepaid property taxes in the City of Richmond should be deductible in 2017.

Click here for the full text of the IRS notice: https://www.irs.gov/newsroom/irs-advisory-prepaid-real-property-taxes-may-be-deductible-in-2017-if-assessed-and-paid-in-2017

Jennifer Schooley  |  Contact

Prepay taxes? This week it could make sense for RVA and surrounding areas.

UPDATE: As of 12/27/17 - The below article is now outdated for much of RVA. Please check out our post with IRS update.

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Here’s how the new tax bill plays out locally in Richmond, Henrico, Chesterfield, and Hanover.

As widely discussed, the final form of the tax bill passed in Congress caps total deductions for state and local taxes at $10,000 beginning in 2018.  For many of our clients who earn more than six figures, this change will be detrimental because their cumulative state income and local property taxes exceeds the cap.  The clock is ticking and there are just a few days left to decide whether or not to prepay, in 2017, those taxes owed for 2018.  While Congress specifically prohibited prepaying state income taxes for 2018 and taking the deduction on your 2017 federal income tax return, it did not prohibit prepaying local property taxes.  Are you interested?  Here's how you can take advantage of a full federal deduction for your local property taxes for one final year (until Congress changes the tax code yet again):

Locally, Henrico County, Chesterfield County, Hanover County, and the City of Richmond all allow prepayment of property taxes.  All four localities require that you clearly indicate that your check is for prepayment of the 2018 taxes.  Chesterfield and Hanover County request that residents notate "prepayment for 2018" and their account number in the memo line of the check.  The City of Richmond requires a "bill number," which is an invoice number.  If you do not have a bill number (and you would not, for the second half of 2018), you can call the Finance Department and provide your tax parcel ID number or address and they will generate a bill and provide the number to you.  You can find your tax parcel number online through your locality’s website.

Last, if your property is mortgaged, you may want to pay in person so you can get a receipt from your locality showing the 2018 taxes were paid.  You can use that receipt to prove to your lender that your monthly escrow for property taxes can be adjusted. Depending upon whether taxes are paid in advance or arrears, your lender may have already escrowed part of the payment for 2018 - so the next time they conduct an escrow assessment, you may stand to receive a refund.  For specifics, contact your lender to see how it will handle this issue and to determine when you might expect a refund.

Jennifer Schooley  |  Contact

December Is A Time For Making Lists

December is a time for making lists – grocery lists for big family gatherings, shopping lists for gifts, and to-do lists as you try to get everything ready for the holidays.  So, in keeping with the spirit of the season, here are three lists you should create that will really help your family, if instead you decide to just hit the eject button from Santa’s flying sleigh … or, if Grandma gets run-over by a reindeer. Ho ho ho! 

1. Contact lists for professionals and advisors:  Agents under powers of attorney, executors, and trustees need access to information about your assets, your estate plan, and your end-of-life wishes.  Therefore, keep a list with contact information for your financial/investment advisor, accountant, insurance agents, estate planning attorney and other relevant legal advisors, doctors, and any other important people who might have information your fiduciaries need.

2. Assets:  Simply put, your fiduciaries need to know where your stuff is and what it is.  Talking to the professionals listed above and reviewing past income tax returns can help with that, but it’s a good idea to keep a list of your assets so that, when the time comes for your fiduciaries to step in and start managing assets, they aren’t flying blind or scrambling to understand your situation.  This can also trigger your fiduciaries to think about what payments need to be made during your incapacity to ensure policies do not lapse, real estate taxes are paid, etc.  Consider listing the following:

· insurance policies – including life insurance, disability insurance, medical insurance, long term care insurance, homeowner’s and auto policies, and any others.

· real estate – your fiduciaries may not be aware of investment or vacation property, or that lot you inherited in another state and haven’t decided whether to keep.

· securities – especially if you own certificated stock or other securities that are not managed by an investment advisor.

· cash – list your checking and savings accounts, CDs, and any safe deposit box in your name, making sure to identify the branch where the box is located.

3. Digital assets and accounts:  This is extremely important because you may have accounts and assets that you only manage online.  Your fiduciary does not have easy or automatic access to your email account, thus will not see your statements and notices.  In addition, state law on a fiduciary’s ability to access to digital assets is new and evolving, and it varies state by state. Without knowledge that these assets exist and access to those accounts, your fiduciaries have no way to gain control over them (or even realize they exist).  In addition, there is the concern that hiring a hacker to get into a computer to find this information violates the federal Computer Fraud and Abuse Act and similar acts under various state laws. We’ve known some people who keep detailed lists of each account and password; however, how do they keep up when so many institutions require frequent password changes?  At a minimum, you should make sure these assets are listed (with the assets in #2 above) or print statements from each such account.   If you think your fiduciary can just go onto the web and click the “Forgot Password” button to solve the problem, you’re wrong.  They don’t have access to the email account where that “Forgot Password?” email is sent.

We recommend that you keep these lists with your estate planning documents, but don’t forget to let your fiduciaries know where you keep them!  You should also update them as your situation changes – we recommend checking them twice (!) a year.  The more organized your records are, the easier time your fiduciaries will have implementing your estate plan.

As for digital assets, a thorough discussion would require a series of blog posts.  Perhaps we will put that on our 2018 New Year’s Resolution list.

Jennifer Schooley  |  Contact  |  Estate Planning

Jennifer Schooley Awarded Legal Elite 2017

Jennifer Schooley has been nominated by her legal peers in the commonwealth and awarded as a member of the Legal Elite 2017 by Virginia Business Magazine, in association with the Virginia Bar Association, for her work in the category of Taxes/Estates/Trusts/Elder Law.  

She is appreciative of the recognition and remains dedicated to understanding the legal industry in today's every-changing times, as well as passionate for helping people develop comprehensive plans and advice that supports their unique life needs.

As we look towards 2018, Schooley Law Firm can help you address changes in your circumstances — whether that be due to changes in the tax laws, new or deceased family members, or increases in the value of your estate.

Jennifer Schooley  |  Contact

Choosing the Right Fiduciary: Trustees

This the fifth and final segment of our Choosing the Right Fiduciary series where we cover trustees. 

Trustees are best saved for last because their duties often overlap with the duties of agents under powers of attorney and health care powers of attorney, as well as executors.  Yet, naming a trustee is unlike these other positions because a trust is an incredibly flexible document.  Before diving into the substance of this post, a few key terms to note:

            Grantor/Settlor:  The person who creates the trust.

            Beneficiary:  The person whom the trust assets are meant to serve.

Revocable vs. Irrevocable:  Trusts can be either revocable or irrevocable.  In a revocable trust, the grantor has full power to amend or revoke the trust during his or her lifetime.  An irrevocable trust, on the other hand, cannot be revoked or amended by the grantor once executed.  This distinction is important because the tax treatment of these two types of trusts can differ and, in some cases, only certain people can be named as trustee.

Trusts may be created to achieve many different goals.  One of the most common trust arrangements is a revocable trust created by the grantor to serve as a will substitute.  The grantor serves as the trustee of his or her revocable trust during the grantor’s lifetime.  He or she may title assets in the name of the revocable trust and may name the revocable trust as the beneficiary of insurance policies or retirement assets.  If the grantor becomes mentally incapacitated, the successor trustee is authorized to step in and manage assets on behalf of the grantor.  Therefore it is desirable to name a trustee who will coordinate well with the agent named under the grantor’s power of attorney and the grantor’s health care agent.  Clients often name the same person to serve in all three roles, which creates efficiency.  However, be aware that the more “hats” a fiduciary is wearing, the less oversight there is over his or her actions.  As has been stated throughout the series, absolute confidence in the named trustee’s abilities and integrity is paramount.

At the grantor’s death, the trust becomes irrevocable and functions like a will – it directs assets to the grantor’s desired beneficiaries, often outright.  In this scenario, the clients frequently name the same person to serve as executor and trustee because the primary purpose of the trust is to direct assets at the grantor’s death.  The trustee’s responsibilities – locating heirs, distributing assets, etc. – are often very similar to the duties of an executor, but without the government oversight and reporting requirements. 

If assets are directed to be held in continued trust, the trustee’s role more closely resembles that of a guardian of property.  The trustee manages assets for the beneficiary, according to prescribed terms in the trust about how the assets should be used and when distributions should be made or withheld.  In this case, the right person to serve as trustee would be familiar with the beneficiary’s potential needs and obstacles.  Clients often name a guardian or other close relative to serve in this role because he or she is in a strong position to observe and interact with the beneficiary.  A trustee who is named to serve for a trust with multiple beneficiaries has the special challenge of weighing each beneficiary’s needs and avoiding preferential treatment of current beneficiaries over remainder beneficiaries (unless the trustee is specifically directed otherwise by the terms of the trust).  Trustees should also be strong decision makers, because beneficiaries may have opinions about the desired frequency and amount of distributions that the trustee considers inappropriate or ill-advised.  Many clients also prefer to name trustees who share the clients’ values (particularly if assets are held in trust for their children) so that those values may be passed on in the clients’ absence.

Though great consideration must be given to a trustee’s relationship with beneficiaries and ability to understand the grantor’s intent while also weighing the beneficiaries’ needs, the trustee role also requires proficiency in managing assets.  Beneficiaries are entitled to annual accountings of trust activity, so it is best to name trustees who are reasonably savvy when it comes to finances and record-keeping.  One way to accomplish both goals is to name co-trustees with different strengths who can work together, including professionals or individuals with a financial background.  The trustee is responsible for filing tax returns on behalf of the trust, which can be complicated and time consuming depending on the nature and purpose of the trust itself.  Finally, keep in mind that for some types of irrevocable trusts the class of people who may serve as trustee is limited if the desired tax result is to be achieved.

When the right person is serving as trustee, trusts are incredibly useful tools that can accomplish a wide variety of objectives.  The best choice of trustee will depend upon the goals of the grantor, the potential needs of the beneficiaries, the assets to be managed, and other circumstances particular to each trust.

We hope you have enjoyed the Choosing the Right Fiduciary Series.  Contact us today to learn more about creating an estate plan and selecting the best people to manage it.

Below are links to the four earlier articles in our Choosing The Right Fiduciary Series, if you missed them:

1. CHOOSING THE RIGHT FIDUCIARY

2. CHOOSING THE RIGHT FIDUCIARY: FINANCIAL POWERS OF ATTORNEY

3. CHOOSING THE RIGHT FIDUCIARY: HEALTH CARE POWERS OF ATTORNEY

4. Choosing The Right Fiduciary: Executors

Jennifer Schooley  |  Contact  |  Estate Planning

Choosing the Right Fiduciary: Executors

Pick me! Pick me? Pick…ugh, her?

This is the fourth installment in our blog series on Choosing the Right Fiduciary, discussing how to select the best executors for your will and asset distribution, among other things.

Many people have the impression that being chosen as the executor is being chosen as the anointed one, rather than viewing it as the job that it actually is.  According to Webster’s, an executor is “a person or institution appointed by a testator [that is, the person making the will] to execute a will.”  This sounds pretty straightforward.  In reality, an executor’s duties can be complicated.  The actions of executors are governed by extensive state law and are overseen by various government authorities.  Below are just a few of their obligations:

• qualifying before the circuit court probate division
• gathering assets of the deceased person, including tangible personal property (things you can touch or move) and intangible property (accounts, etc.)
• locating and notifying heirs and/or beneficiaries
• filing an inventory with the Commissioner of Accounts detailing every asset of the deceased person’s estate
• keeping detailed records of income and expenses of the estate (including paying final debts and taxes)
• filing accountings with the Commissioner of Accounts showing income received, expenses paid, and distributions made to beneficiaries
• filing the decedent’s final tax return (and any prior years the decedent failed to file)
• filing the estate’s tax return

Executors can be exposed to personal liability if they make mistakes during the course of estate administration, and can even be sent to jail for failing to fulfill their responsibilities.  It is not a task to be assigned or undertaken lightly. Many people who have experience as executors are less than eager to go through it again, so it is extremely important to use care in choosing the best person for the job.  However, with proper planning, it is possible to create a smooth process for your executor and even minimize his or her obligations.

The best choice for an executor will be scrupulous, organized, and tactful in moderating potential conflict between heirs.  Many executors struggle with the reporting requirements to the Commissioner of Accounts, so it can also be helpful to name someone with financial experience and/or familiarity with your assets.  Your executor will have complete control over your “probate” estate (some assets pass outside probate by beneficiary designation, deed, or title – these assets are not subject to your executor’s control).  This creates an opportunity for theft and can also create tension between your named executor and any beneficiaries of your estate who are not serving as co-executors.  Another challenge is that out-of-state executors are often required to post a bond with the Circuit Court, an expense that must be paid out of pocket by the executor (although he or she can be reimbursed once the estate is open).  In order to qualify for a bond, the executor must have good credit and a clean financial record.  It is possible to name more than one person to serve together as co-executors, so naming a professional and/or Virginia resident to serve as a co-executor is one way to mitigate these concerns.

Making a strong choice of executor is a major step toward a smooth administration process, but you should also provide clear instructions for your executor about where to find your will and assets, particularly when you no longer have paper statements.  Remember that your named executor is under no obligation to accept, so the more orderly your affairs are, the more likely it is that your desired executor will take on the responsibility.  If chosen correctly, the executor will understand exactly what they are getting into, with no illusions of glory or prestige, leading to a greater likelihood of acceptance and a smoother administration process.  Contact us for more information about wills, executors, and creating an orderly estate plan.

October is for pumpkins, ghosts and IRS estate + gift tax updates

It's that time of year again...

Not for ghosts and pumpkins (well, those too) - this month, the IRS published the new estate and gift tax exclusion amounts, along with various other tax rate tables.  These numbers may or may not vary from year to year, but estate and tax planners are always interested.  Minimizing estate and gift taxes can be an important component of a complete estate plan and clients who may make large gifts or whose net worth approaches the estate tax exclusion amount should stay abreast of these changes.

The highlights:

The unified credit against estate tax increases to $5,600,000 per individual in 2018 ($11,200,000 for a married couple utilizing portability).  This is a notably steeper climb than in recent years – in 2017, the unified credit was $5,490,000, in 2016, the amount was $5,450,000, and in 2015, the amount was $5,430,000.

The gift tax annual exclusion increases to $15,000 in 2018.  This is even more noteworthy because the annual exclusion amount has not changed in recent years – it has stayed at $14,000 since 2013.

Other values of interest include:

For gifts to a non-US citizen spouse, the first $152,000 given in each tax year is non-taxable.

Beginning in 2018, gifts received by US citizens from certain foreign persons must be reported if the aggregate value received in the tax year exceeds $16,111.

Irrevocable trusts and estates reach the top income tax rate of 39.6% on income exceeding $12,700.

The official IRS update documentation can be found here, if you want some light bedtime reading. 

But if you are concerned about reducing estate taxes or making annual gifts greater in value than $15,000, contact our firm today.  We can help create an estate plan or gifting strategy to achieve your goals without the headache.

Jennifer Schooley  |  Contact  |  Estate Planning

Choosing the Right Fiduciary: Health Care Powers of Attorney

This is the third installment in our blog series on Choosing the Right Fiduciary, discussing how to select the best agents under a health care power of attorney.

The people you name to act as your agent under a health care power of attorney are responsible for making your medical decisions if you are incapacitated and unable to do so for yourself.  In the absence of a health care power of attorney, Virginia law identifies the people who are authorized to make those choices; however, clients generally prefer to be more specific about who will manage their health care and treatment.

It can be helpful to name a friend or family member with a medical background.  Clients with a nurse or doctor in the family often name that person as their health care agent because he or she will have a better understanding of the client’s condition and the decisions that should be made.  Your health care agent should also be familiar with your personal values – for example, knowing your end of life wishes and whether your religious beliefs would affect your treatment plan. 

Personality can be a major factor as well.  Look for someone who stays calm in emergencies, is able to make quick decisions, and can communicate those decisions clearly to the rest of your loved ones.  Situations where you are abruptly incapacitated because of a medical problem can be very high stress for the people who care about you.  Another factor to consider is that a person’s incapacity may not be temporary, or short-lived.  Health care agents can become overwhelmed when they become responsible for the long-term care of someone who is incapacitated, so it can be a good idea to choose someone who is conveniently located and has a flexible lifestyle.  Complex family dynamics can add to that stress for the person you have entrusted with this responsibility. Naming a strong decision-maker whose choices will be trusted by others can help minimize disagreements surrounding your medical care.

Another way to reduce conflict about your health care is to include an advance directive (sometimes called a “living will”) with your health care power of attorney.  This is your declaration to your doctor that you wish to be removed from artificial life support if your doctor has determined you are terminally ill or in a persistent coma and unlikely to recover.  This can be a powerful tool to effectuate your wishes and to release your loved ones from the burden of making that final decision.

Keep in mind that you can name anyone to act as your health care agent, whether that is a family member, a friend, or a trusted employee or neighbor.  We can help you identify your options, but ultimately you are in the best position to determine who should be named to act in this capacity.

Jennifer Schooley  |  Contact  |  Estate Planning

Choosing the Right Fiduciary: Financial Powers of Attorney

This is the second installment in our blog series on Choosing the Right Fiduciary.  This week, we discuss how to select the best agents under a power of attorney.

An agent under a durable general power of attorney is empowered to carry out almost any action you (called the ‘principal’) could take for yourself with regard to your assets and finances.  Many clients choose to name their spouse as their agent, which can make sense because a spouse is often well-positioned to be familiar with financial affairs and can be one of the most trusted individuals in a person’s life.

Clients who are unmarried or for whom it is not desirable to name a spouse sometimes struggle with this decision, however, and married clients can have similar trouble choosing back-up agents to serve if their spouse is unable to act.  Your choice may be guided by several factors, but the most paramount is trust.  The power granted under these documents makes abuse relatively easy and difficult to detect.  Consider naming family members or close friends who merit a high level of trust and do not have financial, addiction, or other troubles in their past that might render them vulnerable to temptation. 

Another factor to consider when choosing your agent is the relative complexity of your financial situation.  Agents under a power of attorney are typically called upon to pay your obligations and manage your affairs.  If your major assets are cash accounts, retirement assets, and a primary residence, the skills required for your agent to effectively handle your finances are substantially different from someone with interests in small business entities, investment real estate, or securities that are not professionally-managed.

Finally, consider naming someone you believe can be ‘neutral’ in exercising the authority granted under a power of attorney.  Agents have fiduciary duties to avoid conflicts of interest when acting on your behalf, but when family issues between siblings or step-relations arise, it can be difficult for someone who is emotionally invested to remain objective.  One might question how often an agent under a power of attorney could become entangled in such disagreements, but consider a child approaching the agent for an extension of an existing loan, or a second spouse requesting the agent’s cooperation in purchasing a marital residence or funding the spouse's long term care using the principal’s separate assets.  An emotionally-invested agent might even reconfigure beneficiary designations and transfer on death arrangements made by the principal to secure an estate outcome which he or she considers more just.  Another problem might arise if an agent (intentionally or otherwise) sells property that is given by specific bequest to a beneficiary under the principal’s estate planning documents to provide for the principal's support, rather than choosing a different asset to sell.  Naming agents who are suitably loyal to your own interests and values reduces the likelihood of these kinds of conflicts producing undesirable results.

Depending on the level of complexity your agent will be dealing with (whether that means financial or family complexity), it can be worthwhile to name a professional such as an accountant, attorney, or someone else with special skills that will increase the agent’s effectiveness.  Although this option can be more expensive, it might make sense if there is substantial risk in naming a family member or friend who may not be up to the task.  Agents who are already acting under a power of attorney can also benefit from engaging professional services to supplement the agents’ own knowledge and skill.

In case you missed the first part, Choosing the Right Fiduciary. And look for next week’s installment in our blog series on Choosing the Right Fiduciary – Health Care Powers of Attorney.

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