Important South Carolina Legislative Decisions. Part 1: Durable Powers of Attorneys

South Carolina’s Legislature passed two key pieces of legislation regarding the area of Estate Planning. The first, which is the topic of this blog post, deals with the changes to the Probate Code surrounding Durable Powers of Attorney. The second, which will be discussed in another blog post, created the South Carolina Uniform Fiduciary Access to Digital Assets Act.

Effective January 1, 2017, the South Carolina Probate Code will include an eighth article, dedicated solely to Durable Powers of Attorney. While the new article reaffirms the majority of the already existing law, there are some key changes.

First, any power of attorney drafted after January 1, 2017, will be presumed to be durable.

As it stands today, for a power of attorney to be durable, the documents must specifically state something to the effect of, “this power of attorney is durable upon execution and is not effected by incapacity.” Barring that language, or language specifically identifying the power of attorney as “springing”, the document is ambiguous under the eyes of the law. The new statute’s presumption of durability means, unless otherwise stated, the power of attorney is effective upon execution and can be used immediately upon the Principal’s incompetency or incapacity.

Second, Co-Agents are presumed to have the ability to act independently, unless otherwise specified.

This change is significant because it automatically deems Co-Agents to have independent authority to act. Meaning, a single agent may act alone and without the signature or permission of the other agent appointed. Co-Agents might not always be able to handle the necessary affairs at the same time they arise, for an array of reasons. This change prevents a hindrance in having to wait to act until both named agents are available.

Third, the statute clarifies the recording requirements for a power of attorney.

Recording of a power of attorney is always been a grey area and interpreted differently by different attorneys. This change require that a power of attorney must be recorded in order to be effective after a person become incompetent or incapacitated.

Fourth, the statute specifically addresses the gifting power.

            The gifting power is one of the most important powers the Principal can grant to an Agent. It is also a power that is most easily abused. The current law does not specifically address this power, but the new statute requires specific reference in the power of attorney of this power in order to grant the power. The new statute also goes into detail about this power and how it is to be used.

Fifth, the statute addresses certain changes that will affect the way attorneys draft powers of attorneys.

The new statute will affect how attorneys are to draft powers of attorneys after January 1, 2017. Some of the changes are basic, i.e. using the term “agent” instead of “attorney in fact” or “incapacity” instead of “disability”. Other changes that effect drafting deals with how the durable power of attorney functions and changes the powers of the agent.

Please be aware that these changes will only effect powers of attorneys drafted after January 1, 2017. Any powers of attorney, legally drafted prior to this effective date, are not rendered invalid by the new statute. You do not have to have your powers of attorneys redone just because the statute changed.

However, if you power of attorney is more than five to ten years old, it might behoove you to have them reviewed by a competent attorney. Similarly, if you powers of attorneys were drafted in a state other than the one you current reside, it would not hurt to have a competent attorney review your powers of attorney as well.

Statutes are always changing. Without change, the laws would not be able to effectively govern in an ever changing world. This is why is vital when wanting to draft estate planning documents, you visit a licensed and qualified estate planning attorney.

I am _____ Years Old. What Estate Planning Documents Do I Need?

First off, as I’ve stated many times in previous blog, you do not NEED an estate plan. Every state has laws in place to handle situations arising from people with no estate documents. For example, in South Carolina, if you become incompetent or disabled and have no Financial or Healthcare Power of Attorneys, your parents, spouse, friend, partner, etc. can go to the Probate Court and petition the Court to be appointed as you Conservator (Finances) and/or your Guardian (healthcare/everything else). Similarly, if you die with no will or trust in place, South Carolina’s intestacy laws will control and dictate how your estate is distributed.

If you, like so many out there, find that leaving your care and estate up to the discretion of the State to be less than satisfactory, then you should speak with an Estate Planning Attorney and get your affairs in order.

Now with that being said, I am frequently asked by people “I am ____ years old. What do I Need?” Below is a breakdown, by age, of what estate planning documents you should consider based upon your age and current situation.

*NOTE: This breakdown is just a guideline. Everybody has a different situation. Everybody should take this guideline as basic information to get you thinking about the different documents you should have at each age. Talking with a qualified Estate Planning Attorney is the best option because they will be able to give you specific advice based upon your specific situation

Twenty-Somethings:

After the age of 18, financial and healthcare decisions are no longer defaulted to your parents. Many people in this age group, especially those in their early twenties, feel like they do not need an estate plan because they do not have an “estate”.

Single, twenty-somethings, should at bare minimum have a Healthcare Power of Attorney and a Durable Power of Attorney (financial). These documents allow you to name specific agents to make healthcare decisions for you in the event you cannot and to handle your finances in the event you cannot. Barring these documents, if something happens to you, your parents, partner, friend, sibling, etc. are going to have a rough time trying to help make decisions for you.

Married, twenty-somethings, with no children, should have the above mentioned Power of Attorneys and a Will. A will clearly indicates who you wish to handle your estate and how you wish you estate to be distributed. Having the power of attorneys will negate any issues that could arise between  your spouse and your parents. Especially, if the two are not in agreement how to manage and handle your care. Similarly, having a will helps negate any issues over who should handle your estate and how should everything be distributed.

Married, twenty-somethings, with children. Again, all of the documents mentioned above are the bare minimums you should have at this point. Having a will when you have children is even more important because the will names Guardians for your children. If you and your spouse are both kill in a car crash, who is going to take care of your children? The will, naming guardians, will prevent the “battle of the in-laws”, over who should raise your children. A Living Trust is also a good document to consider.

 Thirty-Somethings:

Christina Lesher writes: Typically, this is the decade where you’ve purchased your first or second home, and may be well into starting a family. This is the age where you can begin to gather your financial information including assets, and even if you feel like you haven’t accumulated a large amount of assets, you still need to start planning your estate.

Bare Minimum: Wills, Healthcare Power of Attorneys, and Financial Powers of Attorneys.

At this stage in life, a thinking about a Trust is the best way to go.

Living trusts used by themselves or in conjunction with a will become really beneficial in safeguarding your family in the event you should become incapacitated. A trust is a legal device that states that your assets are transferred into the ownership of a designated trustee, who will manage those assets. You will have to determine a trustee and who will have the right to use the assets (beneficiary).  (Lesher).

Forties and Fifties:

Hopefully, by this stage in life you have some form of an estate plan. If not, then not only should you consider everything mentioned above, but you should also start considering long term care insurance and retirement planning.

Long Term Care Insurance is always something to look into and consider. If the situation arises where you or your spouse has to go into a nursing home, then long term care insurance can help with those hefty bills.

Planning for retirement is extremely important. You need to be able to plan on how to save for retirement and how those funds can be protected should something happen to you or your spouse. It is also important to constantly reevaluate who you have named as death beneficiaries on such policies. As life progresses, people change, and so do who they want their estate to go to.

 Sixties and Older:

At this stage in your life, you should just be focusing on how to refine and update your estate plan so that it suits your currents needs and wishes. Asset Protection planning to protect assets from nursing homes is also a good conversation to start having.

If you have no documents at this stage in your life, it is important to talk to an Estate Planning Attorney and get something together. Your family is going to grieve when you pass. Why make the process even harder because you did not plan well enough to handle your estate?

No matter your age, everyone needs an Estate Plan. Talk to an Attorney today.

 

 

Basic FYIs regarding a Special Needs Trust

The firm I work for frequently hosts what we call “Workshops”. They are seminars on various estate planning topics. Before each workshop we always ask the attendees, “What did you come here to learn more about?” The newest question asked at the last three or four workshops revolves around Special Needs Trusts.

So, what exactly is a Special Needs Trust (SNT)?

A Special Needs Trust is an estate planning tool that allows a parent, guardian, caregiver, or family member, to set aside funds and assets to be used for the care of a disabled person. These trusts are generally created so that the disabled person’s governmental benefits such as SSI or Medicaid are protected.

A lot of the time, having a Special Needs Trust established means the disabled person will still qualify for their government benefits, while having funds available to pay for things above basic care, like dental or eye care. It also could insure there is money in place to help pay for care if governmental benefits are cut back or extra services are needed.

Like other trusts, there are certain important details to be considered:

  1. What type of financial support would the disabled person need if I was no longer living?
  2. Where would the disabled person live if I was no longer living?
  3. Who would tend to the needs of disable child if I was no longer living?
  4. How can I protect the disabled person’s governmental benefits?
  5. Who would be in charge of the trust?
  6. What type of Special Needs Trust is best for the disabled person (ex. First party, third party, testamentary, etc.)
  7. What assets are going to pass to the disable person?

The list can go on and on.

A parent of a disabled child should meet with an experience estate planning attorney to assist with developing their estate plan. An experienced attorney will be able to evaluate your current plan, the goals for any share of your estate for the disabled child, best type of special needs trust, and other important factors.

DIY estate planning is never a good idea, but especially when dealing with a disable child.

For example, a disabled person receiving certain governmental benefits are required to meet a specific income level. If you DIY estate plan and leave a pay on death account to your disabled child, upon receiving that inheritance, they could be dropped from the governmental program because they no longer meet the income requirements.

Similarly, a common estate planning blunder many parents make is leaving their disabled child out of their estate plan altogether. They do this under the belief that by not including the disabled child, they are protecting the governmental benefits, and their other children will use their shares to continue to assist the disabled person. This is extremely flawed logic. Once a person receives an inheritance, it is theirs to dispose of however they please.

A Special Needs Trust alleviates all kinds of issues that could come up down the road. It grants the parents peace of mind to know that when they are no longer able to care for their child, there is a plan in place to care for them.

Each case is different. Each Special Needs Trust developed with be different. If you are the parent, guardian, caregiver, or relative of a disabled person, talk to an estate planning attorney today about a Special Needs Trust.

“Thieves in the Temple”: Prince dies Intestate

Music icon Prince died on April 21, 2016. Reports indicate his estate is worth between $100-$300 million dollars, and growing. A little more than a month has passed since Prince’s death and the hot topic is that Prince  had no estate plan.

No Trust, No Will, Nada. Therefore, his entire estate is going to be probated by the Minnesota probate court. And it could take years and possible millions to probate.

As mentioned several times, over in previous posts, when a person dies with no estate plan, they are considered to have died intestate. Each state has intestacy laws that allow the state’s probate court to probate and administer the estate. Intestacy laws are basically a state’s way of speculating who a person would have selected to inherit their estate.

Prince had no spouse nor children. Both of his parents are deceased. So, his heirs are his six (6) siblings. One (1) full sibling and five (5) half siblings. In Minnesota, half siblings are entitled an equal share of an estate, just like full siblings. Therefore, Prince’s estate could be split in six (6) equal parts.

Now, on the surface this does not seem like a major issue. Prince had six (6) siblings, surely he would have left them something in his will, right? Well, maybe. I have yet to see a report indicating he had intentions to disinherit any of this siblings. BUT, if he did intend to disinherit any of them, with no estate planning documents, those intentions are lost. Similarly, any intention to leave money to charities, churches, friends, etc. are also lost.

Recent articles have surfaced detailing that Prince was devout in his religion and would have wanted to leave something to his church. Others speculated there were several charities he would have wanted to share in his estate.

Moreover, Prince’s entire “musical catalog” is now under the control of the named estate administrator, including several unreleased songs. The lack of an estate plan means no one knows if those unreleased songs are supposed to stay private or be released. Furthermore, the fate of the rest of his music now rests with the estate administrator.

What is known is the Minnesota probate court is going to have a long and probably complicated road ahead trying to administer this estate.

What many fail to understand is estate planning is vital for anyone with assets. Only you know where you wish your estate to be distributed. Do you want to disinherit a child? You need to have it in writing. Do you want to leave money to a charity? You need to have it in writing. Do you want to have money set aside for a niece, nephew, grandchild, etc. in a trust? You need to have it in writing.

A lack of an estate plan means your estate is open to the public, anyone who believes they should inherit can make a claim, and it will cost your heirs time and money in court battles and attorneys fees.

Keep the “thieves out of the temple” by creating an estate plan.

 

Benefits of Separate Share Trusts

In the past month and a half I have noticed an increase in prospective clients wanting to know more about protecting assets for a child/beneficiary who has one or combination of the following issues: financial, medical, addiction, or spousal.

When developing an estate plan, it is paramount you understand how distributions work and what that means for your potential beneficiaries.

For example, a married couple has two children. One child is capable of managing their assets, has a job, no financial issues, and supports their family. The other child, however, is an alcoholic or an addict, cannot keep a steady job, and is in financial trouble. The first child would have no issues receiving a sum of money from an estate, whereas, the second child would have some major issues.

For instance, if the second child was an alcoholic and received a sum of $10,000.00, how long would it take the second child to drink up the entire inheritance? Would they survive having that much money to spend on their addiction?

Or what if the second child had a judgment against them or owed creditors money? The inheritance would be gone as soon as they received it in order to settle the debts.

Is that really what the clients would want for their estate? For it to be spent enabling their child’s addiction or to be used completely to pay for creditors? For most, the answer is no. The intention is for any inheritance to be used for the benefit of the child, not to settle debts or feed an addiction.

One prospective client made the comment, “I never expected to have to worry about my adult child inheriting my estate.”

One sure fire way to guarantee an inheritance is used for the benefit of the child/beneficiary is through a separate share trust. A separate share trust can be included in any revocable living trust plan or be drafted into your will.

If the separate share trusts are included in a revocable trust, they come into being after the grantor(s) have passed. Instead of the trust being distributed outright to the named beneficiaries, any designated share would be moved to the specified separate share trust and managed for the beneficiary.

Similarly, a separate trust included in a will comes into existence after the estate and will have been probated. Instead of an heir receiving a distribution, the separate share trusts are created and managed for the beneficiary.

Separate share trusts mean the assets are never transferred into the name of the beneficiary. By the assets remaining in trust, creditors cannot reach the assets to settle the beneficiaries debts. If the beneficiary were to go through a divorce, the inheritance would not be a part of the marital estate. If the beneficiary was struggling with addiction, the separate trust could specify the amount the beneficiary was allowed to receive per month, specify the beneficiary could use any amount necessary for  rehabilitation, specify upon proof of sobriety for a certain period of time would allow an increase in the distribution, etc.

The beauty of a separate share trust is they can be tailored to the specific issues and needs of the beneficiary. Whereas, if the beneficiary were to receive an outright distribution, there is no control over how the inheritance is used.

This is the number one reason why it is important to update your estate plan and talk to an experience estate planning attorney. Life happens. People’s situations change as years go by and it is vital that you make sure your estate plan is equipped to handle the circumstances of your children/beneficiaries.

Separate share trusts are an extremely useful tool to have in your estate planning toolbox. Talk to an estate planning attorney today to learn more about separate share trusts and whether or not they are right for you and your estate.

 

 

 

Blended Families: Simple Wills

Recently, I have had an increase in recently widowed clients of a blended marriage, wanting their estate plans reviewed and updated. The document that dominates the conversation is their Last Will and Testament. Every one of them so far as asked, “Can I change my will and not include my spouse’s children?”

Most married couples have what are referred to as “I love you” wills. Generally, they leave the entire estate to each other, and then to both sets of children from a previous marriage. The wills are executed based upon the idea that, should I die first, my spouse has promised to share my estate with my children.

Ideally, Spouse A dies first. Everything goes to Spouse B. When spouse B dies, everything is split equally between the surviving children of both spouses. The reality is, the surviving spouse has no legal obligation to leave your children anything upon his/her death.

Yes, the wills were executed with the intent the estate would go to both sets of children. But, these promises to give the estate to both sets of children is really more morally binding than legal.

When Spouse A passed away and Spouse B inherited the estate, the estate became wholly Spouse B’s. Once the estate is wholly Spouse B, he/she is free to dispose of their estate in any manner they choose.

So, when these clients ask me the questions “Can I change my will?” I tell them, “Yes you can.” Because legally, YES THEY CAN.

Reason for changing their documents range from “I never see his/her kids”, “They stopped calling and visiting”, etc.

How do I protect against this scenario? How can I ensure my children receive part of my estate if I should pass first?

Simple. A Trust.

A trust developed with specific language addressing can ensure that upon your death, your estate shall go to your children and you spouse cannot change the distributions.

For more information, contact an estate planning attorney today!

 

The After Born Child Problem: Phillip Seymour Hoffman & Heath Ledger Blunders

One common estate planning mistake that could have disastrous consequences is not updating your documents to include additional children. Continuing with the “celebrity blunders” theme, let’s examine two celebrity cases dealing with this mistake: Phillip Seymour Hoffman and Heath Ledger.

Phillip Seymour Hoffman

Hoffman died from a drug overdose in 2014, leaving behind three children with his common law wife. His estate was valued at about $35 million dollars. Thankfully, Hoffman left behind a valid will. The issue is the will was executed in 2004 when he only had one child, his son. The will was never updated to include his two young daughters.

Now, ideally, that should not matter because the will left everything to the three children’s mother, Hoffman’s common law wife. Which should have meant she would inherit and use the inheritance to take care of the couple’s three children, then pass it on after she dies.

In reality, it caused some major setbacks.

The first setback was the issue of the common law marriage. Since Hoffman and his spouse were only common law married, anything she inherited is subject to federal and estate tax laws. Common law spouses are not afforded the ability to leave an unlimited amount to their surviving spouse. Any inheritance will be taxed according the particular state’s estate tax laws and if the estate meets the federal limit, possibly federal estate taxes.

Meaning that out of the $35 million dollar estate, Hoffman’s estate would have to pay estate taxes of over $15 million dollars, according to an article written by FORBES.

Now, to avoid the estate tax issue, Hoffman’s wife could have disclaimed her share, and had the estate follow the contingency plan in Hoffman’s will. This is where the second setback comes into play.

If she disclaimed her portion of the estate, Hoffman’s will instructed the estate assets be placed in a trust for his son and it outlined at what age he could receive distributions from the trust. Since the will does not mention his daughter or reference any language like “to my son, and any other children born hereafter,” his son technically inherits it all.

Thankfully, most states address the “after born child” problem and have provisions in place to handle these situation so a child born after a will can inherit. The provisions do not mean the estate is automatically going to the split estate three ways, however. Each state’s provisions are different and usually require the appointment of a guardian ad litem for the excluded child or children to handle the estate process on their behalf.

The lesson here: (1) Know what your estate planning documents say and how they work in regard to estate taxes and how heirs inherit. (2) Ensure the documents have language in them that deal with the “what ifs” like “what if I have more children”, “what if my primary beneficiaries pre-decease me”, etc. (3) Updated your estate plan regularly. A good rule of thumb is at every big event (births, deaths, weddings, divorces, etc.) update your estate plan to reflect your wishes.

Heath Ledger

Heath Ledger passed in 2008 and his heirs were left in a similar situation as Hoffman’s. His will was outdated did not include his young daughter. Instead, the will left his approximately $20 million dollar estate to his parents and siblings.

Now, in this situation, the issue of if his daughter could petition to be included as an “after born child” would depend on where Ledger was deemed to be domiciled. A person’s estate is probated in the state they are a resident. Ledger was an Australia native with an Australian will, but died in his New York apartment. Thus, there could have been some debate as to which place had jurisdiction to probate his estate.

Thankfully, in this situation, Ledger’s family did not dispute or fight about the estate, but simply agreed to allow his daughter to inherit.

The lesson here: (1) Again, update your estate plan after big life events. (2) Do not rely on family members to be willing to equally share your estate if issues arise.

Having an estate plan is just the first step in ensuring your wishes after death are met. The second step is to be aware that as life goes on, your estate plan should be amended to reflect those changes.

Most estate planning attorneys are willing to review existing estate planning documents and discuss how the documents work in regards to your stated wishes. If you have an existing estate plan that could be out of date, talk to a licensed estate planning attorney and see if it is time to update your plan.