Just Say “No” to Financial Institution Intrusion into the Financial Power of Attorney Arena

I increasingly get calls from clients who are concerned when they run into the following situation.

The financial institution where the client maintains an account tells her she must use only that financial institution’s power of attorney form, rather than her own power of attorney.

Furthermore, if the client stands firm on using her own power of attorney, some financial institutions will thereafter attempt to mandate that she (or the agent named in her power of attorney) sign an additional institutional form that operates as an overlay for the client’s own power of attorney.  This overlay form is captioned along the line of “ABC Bank Attorney-in-Fact Agreement and Affidavit for Non-ABC Bank Power of Attorney.” This form gives the misdirected impression the client can now freely use her own power of attorney, without the institutional power of attorney form.

The above ostensible “must” also sometimes includes the institution telling the client that its legal department will have to review the client’s own power of attorney. This often is where I get the phone call from my client.  And the word “must” generally never sits well with me in many situations.

So, just say “no” to the above institutional power of attorney forms. “No” to all of the forms. Stand strong with a persistent “no” and inform the institution you will use your own power of attorney, without signing any additional institutional forms dealing with the power of attorney.

So, why do I strongly recommend against these institutional forms (including the above overlay “agreement and affidavit for non-ABC Bank power of attorney”)? Because these forms in most cases include features that are targeted to benefit the financial institution, not you.

Among the key institutional form features are:

  1. The agent must agree to indemnify the financial institution against a broad range of items;

  2. The institution’s form mandates what specific state law controls, which might be a state other than the principal’s home state.  Or, a state other than where the agent lives, etc.;

  3. The form requires an agreement to arbitration for issues that arise with the power of attorney.

Also, back to the above legal department mandate. Don’t be alarmed if the financial institution runs your power of attorney by their legal department. Just give them a pdf or photocopy for that purpose. I have had these run-thru-the-legal department situations occur numerous times with no negative consequences. And, with my clients not thereafter signing any of the institution’s forms.

And, quite frankly, if I am an agent acting for my principal under a power of attorney and my principal, if incapacitated, cannot weigh in on these institutional form requests, I (as the agent) likely do not have authority to agree to the institution’s mandate without some preexisting agreement or discussion with my principal. This is likely a reason financial institutions are now pushing these power of attorney forms on their customers as early as possible.

In order to help give you the strength to say “no”, I recommend you make sure you have an updated, comprehensive power of attorney in place that you can point to when you push-back against these financial institutions.

Also, as an important aside, in Georgia the statutory provisions for having a power of attorney under O.C.G.A. Section 10-6-140 state expressly that the Georgia statutory form power of attorney is not the exclusive method of creating the agency.

Therefore, Georgia law acknowledges use of either a Georgia statutory form power of attorney or your own format of a power of attorney. I have not seen the above financial institution mandate tested fully against the backdrop of Georgia law, but my view is an institution will be hard-pressed to succeed with its own-forms mandate against the existence of these Georgia statutes.

Finally, the New York Times had a good piece last year (May 6, 2016) about this same power of attorney push-back from financial institutions. Click here for the link.

Urgent Post re Beneficiary Designation for Inherited IRAs

This is urgent as it likely will require you immediately to revise your IRA beneficiary designation forms to name as part of the beneficiary designation form itself  a custodian (and successor custodian) for any account that may end up with a minor-age beneficiary. Such as an inherited IRA from grandmother, etc. This discussion also applies to adding a custodian designation to beneficiary forms for life insurance.

This is another preventive planning feature that can save you (and your family) the headache of wasted time and legal fees down the road.

Why?

Georgia law, by express statute under The Georgia Transfers to Minors Act, allows you, while you are alive, to name a custodian for a future property interest for a minor beneficiary. Such as your IRA account that later might end up as an inherited IRA in the hands of your minor child or grandchild. This statute is under Georgia O.C.G.A. Section 44-5-113.

If you don’t name the custodian while you are alive, then at your death two hurdles surface:  One.  A guardian has to be appointed for the minor-child; Two. The guardian has to petition the court for the court’s approval of a custodian under The Transfers to Minors Act provisions.  At the end of this post is Georgia O.C.G.A. Section 44-5-117(c) for this burdensome procedure.

How to avoid these two hurdles?

My suggestion here is not legal or tax advice you can rely on as advice from me for any particular situation. It is only my general response for how to add the custodian reference while you are alive to the beneficiary designation form.

  1. Many financial institution IRA beneficiary designation forms do not include an option or space to add the names of custodians. You have to adapt the form as follows:

  2. First, hand-mark on the form itself an asterisk next to the minor-beneficiary’s name.

  3. Then, in the margin of the beneficiary form add a legend for the asterisk: “See the attached Exhibit A , dated May __, 2017, that I incorporate herein by reference.”

  4. Then, prepare a separate Exhibit A that includes your naming of the custodian (and successor custodians if desired) and attach it as an exhibit to the beneficiary designation form. Sign and date the Exhibit A.

Finally, below is the burdensome Georgia statute I referred to above:

Georgia O.C.G.A. Section 44-5-117(c) [bolding added;  note in particular the “if a guardian .  .  .” reference]:

(c) If no custodian has been nominated under Code Section 44-5-113, or all persons so nominated as custodian die before the transfer or are unable, decline, or are ineligible to serve, a transfer under this Code section may be made to an adult member of the minor’s family or to a trust company as custodian for the benefit of the minor if a guardian appointed for such minor considers the transfer to be in the best interest of the minor and, on petition brought by the minor’s guardian, the transfer is authorized by the court as in the best interest of the minor.

Why Are Divorces Expensive?

There is an well-worn reply among lawyers to the line:  “Why are divorces so expensive?” The reply is “Because they’re worth it.” Of course, this reply, no doubt, has multiple layers of meaning for every person. Especially depending on where one stands after a divorce.

But, on one level the reply makes a great deal of sense. I am a strong believer that clients benefit from having an experienced, knowledgeable lawyer. Obtaining good legal and tax counsel is a cost-benefit investment that in most cases produces benefits well beyond the expense and time. Lawyers can also help give their clients a comforting degree of repose and peace of mind.

Now, applying the above notion to asset protection and estate planning, unfortunately this planning often appears to clients, on the surface, to be nothing more than a transactional expense and time-consuming burden.  Very easy to put off until later. There typically, and understandably, is no strong emotional motivation for this planning, compared to the threat of divorce.

But, I also believe most people are aware of the thousands of reported court cases and anecdotes among friends and family illustrating the vast number of costly problems arising from the absence of asset protection and estate planning.  But, then again, we all tend to think these problems only happen to others. Not to our family.

So, a universal question most families need to ponder is the possible surfacing of a divorce by a son-in-law or daughter-in-law with war-like efforts to grab the other spouse’s inheritance. This question touches directly on asset protection and estate planning. In addition, and more subtle, are increased taxes (including income tax) that result from inadequate and inflexible estate planning.

Another universal point on this subject of preventive planning, that I repeat constantly, is: Don’t help line your lawyers’ pockets by getting caught in costly, and otherwise, preventable legal and tax issues. Seek out a lawyer’s preventive review of your situation ASAP. It is an investment, not simply an expense.
 

 

 

Inter-Vivos QTIP Trusts; Almost Perfect

For many years I have been, and remain, a fan of the inter-vivos QTIP trust.  There is no perfect estate planning, but this QTIP is almost perfect.   BTW, this is a brief, technical post primarily for advisors and practitioners who might find this topic useful for their clients.

This inter-vivos QTIP trust is a marital trust for a married couple designed under the QTIP tax laws.  QTIP, in tax law jargon, is “qualified terminable interest property.”

Essentially, one spouse creates and funds this inter-vivos QTIP trust while alive. The other spouse is the beneficiary of the QTIP trust. “Inter-vivos” is an old legal term meaning essentially “between the living”.  A trust someone creates while alive.  By contrast, a trust that only becomes operative when the person dies is a “testamentary” trust. Such as a trust provision in that person’s Last Will and Testament.

As an important aside, and part of the inter-vivos QTIP design, it is possible for the funding spouse later to become a secondary beneficiary of the QTIP trust if the other beneficiary spouse dies first. Also, the written provisions of the inter-vivos QTIP trust can include provisions for the children after both spouses’ deaths, etc.

In broad terms, the above inter-vivos QTIP trust provides the following benefits:

    1. It gives a married couple – while they are still living — asset protection for the assets in the inter-vivos QTIP trust.
       
    2. The inter-vivos QTIP trust is defective for income tax purposes from inception up to the death of the second spouse. This both-spouses duration of the defective status means no trust income tax returns, no compressed trust tax rates, and no separate 3.8% Medicare tax during the remaining lifetimes of both spouses.
       
    3. I am purposely repeating this above point. That is, defective during the lifetime of the spouse who creates the QTIP trust and during the surviving spouse’s lifetime. This effect on both spouse generally is not available for testamentary QTIP trust planning.
       
    4. The defective income tax status of this QTIP trust also allows the substitution of assets, called a substitution power. This can allow, if needed, stepped-up basis planning by later substituting into the QTIP trust high-basis assets for low-basis assets, etc.
       
    5. The inter-vivos QTIP, in my opinion, provides the optimal flexibility for portability options.
       
    6. The spouse’s funding of the inter-vivos QTIP trust starts the 5-year lookback period for Medicaid nursing home eligibility. This may be important in the event later the spouses need governmental Medicaid nursing home assistance. Medicaid planning – although generally not at the top of most family’s estate planning checklist – can greatly help prevent financial impoverishment of the other spouse (and possibly the children).
       

For readers who wish to delve into more technical aspects of this inter-vivos QTIP planning, I highly recommend the following breaking-ground 2007 article by well-known estate lawyers Mitchell Gans, Jonathan Blattmachr, and Diana Zeydel.   Click here for the link. It is a well-written article.

Avoiding Costly Estate Tax for a Simultaneous Death

I ran into this estate tax question a few days ago that I found interesting. But not interesting so dramatically or spectacular to warrant a long law review article or other long-winded commentary. Nonetheless, many readers might find this brief summary useful.

This question centers on maximizing estate tax savings. Specifically, dealing with portability of the estate tax exemption for a married couple, and how the unlikely event of both spouses’ simultaneous deaths can adversely affect portability.

As a backdrop, a fundamental checklist item for any married-couple estate planning is purposely to preserve the use of each spouse’s full estate exemption. As I illustrate by example below, lack of planning for a simultaneous death can cause a loss of portability and a surprise increase in estate tax.

Point One. All married couples’ Wills need to include an express provision governing how the spouses’ estates operate in the (unlikely) event of a simultaneous death. For example, both spouses die in a plane crash. This express provision must be included in simple and complex Wills. In all Wills, in my opinion.

Point Two. If the Will does not include a simultaneous death provision, then state law generally by default applies. For example, Georgia law (like many states) provides that a simultaneous death is treated as though each person survived one another. Georgia’s default statutory law is the “Uniform Simultaneous Death Act in Georgia”, at O.C.G.A. § 53-10-1 et seq.

This “survived one another” is a brain-twister and might provide some level of novel, mental gymnastics over drinks. But, its operative essence – for example with a married couple – is that neither spouse is treated as receiving any of the estate from the other spouse. Their Wills are then applied to the next level of beneficiaries. Their children in many cases.

Point Three. You can google and find various tax commentators who make the point that the federal portability tax regulations do not address simultaneous death. This is correct. And another reason a Will must include its own simultaneous death provision, so as to trump the above state law “survived one another” result and insulate against the absence of clarity under the portability tax regulations.

Also, simply put, a state law “survived one another” result will cause a married couple to lose the benefit of portability. You can play around with the math and this concept, etc. And, below is an example:

Assume a married couple H and W die in a common disaster. W has $7.1 million of assets. H has $1.8 million. Combined total $8.9 million. H and W are both under the combined $10.98 million estate exemption amount. Ideally no estate tax.

But, in this example H and W have no provision in their Wills otherwise spelling-out that one spouse is deemed to have predeceased the other spouse in the event of a simultaneous death. Absent this Will provision, state law applies to H and W in this example so that H and W by default are treated as each surviving one another.

H and W in this example have disastrous estate tax planning. They will pay $644,000 estate tax in W’s estate even though their estate values are below their combined $10.98 million estate exemption amount. [I do not compute any potential state death tax in this example.]

This estate tax exposure is because W’s $7.1 million estate value exceeds her $5.49 million exemption. Triggering W’s estate tax of $644,000 [40% of $7.1 million less W’s $5.49 million exemption = $644,000 tax].

Why this costly result?

H and W lose portability in this example. Under default state law they are treated as each surviving one another. No property from one spouse passes to the other spouse. Also, in this example H’s unused estate exemption does not pass to W. Here there is a complete loss of H’s portability for his unused exemption. [H has a $1.8 million estate less than his available $5.49 million exemption.]

Point Four. Each Will for a married couple must include a presumption of death provision in the unlikely event of a simultaneous death. In some cases, practitioners opt for designating the spouse with the greater estate value as being the spouse presumed to die first.

But, as to the specifics of this simultaneous-death provision, I frankly see no need in every case for portability purposes to worry which spouse has (or might have) the greater assets.  Rather, just make sure – likely in most all cases – you designate one of the spouses (whether H or W) as being the spouse expressly deemed to predecease the other spouse in the event of a simultaneous death.

Preventive Planning and Jazz Guitar

Bear with me. There is a connection in this blog post between my reference to preventive planning and jazz guitar. I use the term “preventive planning” in reference generally to estate and asset-protection planning.

The top 1-percent. A roster of high net-worth clients is a badge of honor among estate and asset-protection planning lawyers. A plume signifying success, financial reward, larger law firm profits, etc. The work is high-end, interesting, technically challenging, and typically underpins the ever-increasing hourly lawyer rates for this market segment. I am fortunate to have a small share of these top 1-percent clients. But, I also have many clients in my own group.  That is, the other 99-percent of us.

A focus narrowly only on the top 1-percent fails to address how important it is for our remaining 99% group to address preventive planning. Most current marketing efforts (and the bulk of related articles, commentaries) for estate planning and asset-protection continue to address options for the top 1-percent group. I find few discussions of what we (and our families) — in the bottom 99-percent — ideally need for excellent, cost-effective preventive planning.

The probable absence of estate tax liability for most of us in this 99-percent group also helps push this preventive planning to an even lower place on our “to-do” list. No pressure. No rush. Do it later.

This next point is for our 99-percent group.

One of my high-priority, personal goals is to prevent me and my family from wasting valuable time due to problems caused by lack of planning, outdated, flawed or missing documents, failure of estate planning, absence of asset-protection, etc. Coupled with this threat of lost time, I prefer my family not expend their financial resources on lawyer fees to clean up an oversight or mess I might leave for my wife and kids.

Now, why jazz guitar? I have played guitar since college and presently take improvisational jazz guitar lessons. I am committed to squeezing in 45 minutes of evening practice each day, as though it also is a job. I guard this 45-minute time-slot zealously.

I would be extremely perturbed if issues were to arise from a lack of planning, etc., that steal away my (and my family’s) valuable time. But, I have my preventive planning in place. And it gives me great comfort knowing my family and I will not lose time in dealing with problems, etc. We also will likely not incur substantial lawyer fees to fend off and resolve future problems.

But, bottom line for this post, I am far more concerned about wasted time than money (for fees, etc.). One can always make more money. But, can never get back lost time.

 

This Just Hit Me. Re Estate Planning

I grapple with how much information a client needs to read and consider when putting into place core estate planning.  The complex tax and non-tax laws — and how these laws affect a family and estate planning — have made this entire area almost unbearable for busy clients.  Most simply cannot easily take the time to deal with this right now.

I don’t want to overwhelm a client, but do strive constantly to have my clients end up with a good grasp of the fundamental design of their planning, and their key options.

This points to there being  no simple, easy approach to good estate planning. Choices and options are a necessary evil.  And, require time and thought.

Here is what hit me.  For clients who never take the time to deal with their estate planning, the choices and options do not simply disappear.  Instead, often the continuing need to address these items becomes centered under court-oversight, including potentially contentious litigation.

With the clients failing to deal with these choices and options, you now have opposing family members (fueled by in-laws) fighting to elbow in their own personal choice and options.  The court becomes essentially the forum.   A costly forum.

The potentially expensive court-option is why, as I stated in my last post, lawyers will still benefit financially at the expense of the client’s family in the absence of planning.

Do your family a favor, seriously.   Don’t make your family help line lawyers’ pockets.