Don’t Let Your Kids Get Caught in a Bureaucratic Snare this Summer

The extent to which we all have to jump through more hoops in life has expanded substantially over the past 15 years or so. You can easily test this idea by trying to use a financial power of attorney document at a financial institution, or better yet try to deal with someone’s IRA account using a power of attorney. Or, what if your child has to be hospitalized while out of town without you? Try to deal expediently with the HIPAA medical confidentiality rules, etc.

This post includes a sample “John Doe” authorization document (referring to Georgia law) for minor children who might travel this summer (or stay with relatives or friends) without their parents immediately at hand.  Click here for the sample pdf document. The hope, of course, is that no situations develop that require this document. But, taking a few minutes now to put the document in place could potentially help you and keep your away-from-home children from being caught in a snare (that you could have helped prevent).

The legal ethics rules require that I inform you that my blog is for marketing purposes and readers cannot rely on this blog post, nor on the pdf sample document, as legal advice from me or KaneTreadwell Law.   I recommend strongly you consult a lawyer for assistance with this pdf document if you wish to put it in place for your particular situation.

Here also is one of my previous blog posts on planning for our age-18 and over children, especially those off at college.  Click here.

Have a great summer.

I Revamped My View on Core Estate Planning

I try persistently in all aspects of my life and lawyering to test and challenge my assumptions and ideas.  Particularly in my law practice, I am open to self-criticism in order to expand my ideas and effectiveness as a lawyer.  I know fairly accurately what I do well;  I am more interested in learning and pondering what I do not do well, or what areas of change or improvement might work better for my clients, etc.

I spent years in the large law firm environment providing complex, trust-design planning for clients. I commented often at that time that putting clients in the most complex estate planning was easier than discerning more specifically what the particular client might not need. It was proper (and easier) in many cases to recommend for a wealthier client the broadest range of planning options, with much less need to stop, consider, and pick-and-choose, what might not be needed for the client. These are clients typically in the top 5-percent of net-worth, etc.

And for these wealthier clients, there were (and are) tax and non-tax benefits of placing those clients in the most complex planning available, including lifetime trusts, full GST (generation skipping planning, etc.), QTIP marital trusts, reverse QTIP trusts, defective grantor trusts, etc.

However, for the bulk of other clients not in the top 5-percent range, I now do not believe simply applying the all-complex approach is suitable. Furthermore, the more complex planning brings with it comparably more responsibility for the client to make sure he or she has named suitable advisors who will carry out the complex planning, including particularly the experience, skill, competency and trust of the named trustees, etc.

Bottom line, in all cases I do not recommend lifetime trusts for a client’s children when both parents die, unless there are specific circumstances that warrant the extended trust planning. What I recommend in many cases are lifetime trusts for the parents with thereafter an outright distribution to the children at age 30, but with the parents’ estate planning documents including — if later necessary — the power to make distributions in further (continuing) trust at the second parent’s death.

This later-trust feature provides an option to establish extended trusts for the children at that later time, if a child is under threat of divorce, lawsuit judgments, failed businesses, personal guarantee issues, etc. The key point is this trust decision can be made at that later time.

This later-trust feature also gives the children the responsibility of their own estate planning upon the death of their parents depending on the circumstances at that time. I, as a parent, believe that giving our children the power of independence and autonomy is a gift that goes well beyond a dollar valuation.

This simpler approach, however, of not using lifetime trusts for children does not eliminate a client’s need to review and consider the use of advisors and the naming of trustees.  Some of us also have personalities that result in a “I can do it all myself” perspective that can cut against a more open mind to the selection and use of advisors / trustees.

Why, if I speak above about a simpler approach to estate planning, do I suggest the selection and use of advisors / trustees?  The reason for each of us, whether later as a result of age-related disabilities or death, ultimately will not be able to “do it all” ourselves as to the functions where advisors / trustees can be significantly helpful. This ultimate need for assistance from others will arise regardless of the complexity, simplicity, or absence of our estate planning.

As to the selection of advisors, there are an abundance of individuals (attorneys, accountants, investment advisors) who, frankly, are not that good at their work. In my opinion, they are more focused on making the sale rather than on their services. There also are advisors, in my view, who are smart, but at the same time, to put it bluntly, stupid. These are not mutually exclusive terms.

And, although the question of trustee selection often centers on the naming of successor trustees who will step in later (if necessary), I strongly suggest that clients (e.g., parents) begin today developing relationships with both advisors and trustees. Begin observing now an ongoing demonstration of an advisor or trustee’s competence and trustworthiness.

Of immediate importance for this client advisor-review process are investment advisors and CPAs.  Lawyer  relationships are also important;  but for most clients the hope is they will use a lawyer only sporadically.  By contrast, the ongoing threat of investment losses and schemes (e.g., Madoff scams, elder financial abuse), in my view, can wreck a family.  Having someone you trust to help oversee your investments is essential. CPAs are also crucial in helping to avoid costly, cumulative tax return and compliance problems.

I Am Proud of Georgia (trust / estate law revisions)

Georgia’s newly enacted revisions to certain trust and estate law provisions bring Georgia up to speed with many other states with similar provisions.  The changes are effective July 1, 2018.  This is a good move for Georgia.  Click here for a link to the legislative bill with the numerous changes.

As an important first aside, I will blog later on how these changes add even greater benefit to my favorite trust – the inter-vivos QTIP marital trust (created during the lifetime of the spouses).  I also will provide other short blog posts from time to time with certain commentary about these law changes.

For today’s post, I include the following discussion about how long trusts can now last under Georgia law:

360-Year Trusts. The allowable duration for a trust changes from 90 years to 360 years.  This is referred to under trust law as the “rule of perpetuities”, and applies generally as a duration limitation for non-charitable trusts.  A trust can now operate for 360 years before the rule of perpetuities law mandates its termination.

However, as a practical matter, I do not think 360 years in and of itself is significant. But, now having a period longer than the previous 90-year limitation helps make sure a trust can run long enough to cover (at a minimum) the trust creator’s (settlor’s) grandchildren’s entire lives.

In other words, making sure the grandchildren get the asset protection benefit of the continuing trust for their entire lifetimes (rather than the trust having to terminate in 90 years, possibly before the deaths of the grandchildren; thus, the earlier termination removing the protective effect of the trust set-up for their benefit).

The reason I think the entire 360-year period is not significant is that the number of downstream descendants a settlor will have if his or her trust lasts 360 years will be geometrically expanded beyond anyone’s realistic ability to keep up with all the descendants. I have seen various projections indicating, on average for example, a person will have approximately 115,000 descendants in 350 years. This adds another level to the notion of “laughing heirs”.

The Delaware Tax Trap.  This point relates to the new 360-year change.  The Delaware Tax Trap is a complex part of trust tax law.  It essentially triggers potentially punitive gift and GST tax results if a trust is changed where the duration of the trust is extended longer than the trust’s initial governing rule of perpetuities.

For example, assume I created an irrevocable trust in 1980 (when the law allowed a 90-year duration which means the trust essentially must end in 2070).  Is this trust now subject to the Georgia 360-year rule?  [There are some extensions to this 90-year period that get into the notion of “lives in being”; but I do not get into that point for this blog. You also can read one of my earlier blog posts on a creative potential use of the Delaware Tax Trap.  Click here for my earlier post.]

Under this Delaware Tax Trap rule, the tax law provides that if I extend the duration of my existing 1980 trust beyond its then-applicable 90-year period, the result is that I am deemed for gift and GST tax purposes to have withdrawn the trust property and re-contributed the property to the extended-duration trust.  In other words, I am treated as making a gift to the extended trust. This Delaware Tax Trap is a very esoteric tax law concept as a practical matter, but is an issue that most trust tax lawyers have many times grappled with (and debated) in great detail as part of their trust planning.

Below is my key comment for this blog post about Georgia and the Delaware Tax Trap.

The legislative act for these Georgia revisions to its trust and estate laws states “All laws and parts of laws in conflict with this Act are repealed.” Does this mean the prior 90-year limitation disappears with no continuing effect for an existing trust?

I am merely raising the above question and have not yet fully examined the scope of an answer.  Nor does a simple, quick answer jump out at me at this time.  More broadly, the question becomes: “How best do trust lawyers deal with this new extended 360-year rule of perpetuities both for existing trusts and in creating new trusts?”

This 360-year rule of perpetuities question needs to be on every trust checklist.

Your 18-Year Old is Off to College in the Fall. HIPAA Confidentiality.

This first paragraph is the essence of this post. One of my children is now 18 and an adult for HIPAA medical confidentiality and disclosure purposes. Without a HIPAA release, no educational institution, medical facility or other personnel of any type can disclose to me — even as a parent — information, including whether or not my child is a patient at any of the random medical facilities or hospitals I call. I could potentially be completely in the dark, and upended with worry if I were to run up against this HIPAA hurdle. Without the HIPAA release, my calling simply to ask any hospital if my child is a patient there will fall on deaf ears.

[There are some extremely limited exceptions to this HIPAA constraint, but as a practical matter we all should plan as though HIPAA applies to all health and medical information.]

Now, a more expanded discussion. My 18-year daughter leaves for out-of-state college in the fall. I will MISS her, but she — for which I am proud — is developing her own strong, competent, and independent wings. As part of her continuing pathway as an adult, I had my daughter recently sign core estate planning documents, including a basic Will, a financial power of attorney, and a health care directive. The health care directive was the primary impetus motivating me to get my daughter to sign these core documents.

In broader terms, I do not anticipate problems that will trigger having ro rely on these documents at my daughter’s youthful, healthy 18-year stage in life. But, I also am well aware of the vast, difficult hurdles and challenges I would face if something completely unanticipated were to occur and I did not have these documents. More specifically, the following HIPAA element was the tipping point as to my getting these documents in place for my daughter.

Let’s assume my daughter, at college 1,000 miles away, is admitted to a hospital due to illness or an accident (let’s hope these events never occur!). We don’t hear from her for a few days; her dorm roommates and other friends do not know her whereabouts; there have been no phone texts, no Instagram, etc.  Let’s also assume we eventually learn my daughter has food poisoning to the extent she had to be hospitalized. But, where is she? No one will tell us.

However, my daughter has now designated my wife and me as agents under her health care directive. We have express authority from her for otherwise HIPAA- protected medical information. We can find out where she is much more readily and effectively, if ever necessary.

If you think this HIPAA worry is merely theoretical, then let me know if you change your mind after finding yourself in one of these worrisome, seemingly interminable, stonewall confidentiality situations. You can read a very good November 2017 WSJ piece on this same subject with reference to more examples. Click here for the WSJ link.

At a minimum, I suggest parents get a health care directive (that includes the HIPAA release) for their college-bound daughter or son before college starts. The fun college parties, beginning with fall football, start soon.

I will be glad to prepare these core documents, or you also can contact me at (470) 401-0101 if you have any questions or need additional information.

 

Horribly Annoying Music; Supreme Court Justice Felix Frankfurter

In restaurants, waiting rooms, dentist offices, airports, grocery stores, phone-hold, ad nauseam, we are bombarded persistently with music and television content, not of our own choosing.  This is akin to someone forcing a book or other reading material three inches away from our face with the admonition “READ THIS”.

U. S. Supreme Court Justice Felix Frankfurter and I would have likely agreed fully with one another. While reading a recent The New Yorker magazine, my wife ran across a short comment about Justice Frankfurter having recused [removed] himself from the following 1952 case.  Click here for a link to the supreme court opinion in Public Utilities Comm’n v. Pollak, 343 U.S. 451 (1952).

What triggered my interest was Justice Frankfurter’s spot-on reaction to this 1952 case, that I include further below. This 1952 anecdote also gives me pause (without my further comment) to ponder where Supreme Court justices (and potential justices) fall now in 2018 as to the notion that a Supreme Court justice lays aside private views in discharging his or her judicial function.

The issue in this 1952 Supreme Court case dealt with some Washington DC public transportation passengers who asserted their constitutional rights were violated by having to listen to streetcar, bus, and railway piped-in music, announcements and advertisements. This content consisted generally of 90% music, 5% announcements, and 5% commercial advertising. The Supreme Court did not side with these constitutional objections.

And, Justice Frankfurter had such a strong reaction (and opposition) to this forced audio content, that he recused himself from the case with the following comment (which is in the published Supreme Court opinion) [I added the underlining below]:

Justice Frankfurter:

The judicial process demands that a judge move within the framework of relevant legal rules and the covenanted modes of thought for ascertaining them. He must think dispassionately and submerge private feeling on every aspect of a case. There is a good deal of shallow talk that the judicial robe does not change the man within it. It does. The fact is that, on the whole, judges do lay aside private views in discharging their judicial functions. This is achieved through training, professional habits, self-discipline and that fortunate alchemy by which men are loyal to the obligation with which they are entrusted. But it is also true that reason cannot control the subconscious influence of feelings of which it is unaware. When there is ground for believing that such unconscious feelings may operate in the ultimate judgment, or may not unfairly lead others to believe they are operating, judges recuse themselves. They do not sit in judgment. They do this for a variety of reasons. The guiding consideration is that the administration of justice should reasonably appear to be disinterested, as well as be so in fact.

 

This case for me presents such a situation. My feelings are so strongly engaged as a victim of the practice in controversy that I had better not participate in judicial judgment upon it. I am explicit as to the reason for my nonparticipation in this case because I have for some time been of the view that it is desirable to state why one takes himself out of a case.

 

The Difficulty with Retirement Accounts

Here is an important question: Who can (and will) oversee and help safeguard your tax-deferred retirement accounts? The absence of an easy answer creates the following difficulty. [1]

The point underpinning this difficulty is that the tax law does not allow ownership of a tax-deferred retirement account by the account owner’s living trust. The law allows no living trust option. Without this trust option, there can be no successor trustee who oversees and manages the living trust assets in the event of the account owner’s age-related incapacity, etc. [A qualifying trust is allowable only after the individual dies; but the point of this blog post centers on the owner while still alive.]

This lack of living trust oversight creates exposure, for example, for failing to make the required annual distributions, etc., resulting in substantial tax penalties; threats of Madoff investment scams; friends and others persistently pressing for financial handouts resulting in larger distributions from the account than what otherwise is prudent, etc.

Realistically, while the retirement account owner is alive, the tax law limits ownership either (i) in the owner’s name; or (ii) in a financial institution trustee’s name, called a “trusteed IRA”, that in most cases I do not recommend. The last paragraph of this blog refers to the unsuitability typically of the trusteed IRA option.

Due to this individual ownership option, I recommend a separate, well-drafted retirement accounts power of attorney (“RPOA”), expressly covering a broad range of specific powers for the named agent, plus with the RPOA designed to help overcome the following increasingly difficult hurdle.

This hurdle is the refusal of many financial institutions to honor a broader, more general power of attorney. This is where banks, financial institutions, etc., simply balk at acting under the directive of a power of attorney.

Why the hurdle?  Financial institutions are understandably concerned about their risks when dealing with an agent under a power of attorney (rather than directly with the principal), and the related significant pressure these financial institutions face for anti-terrorism transparency, and their need to avoid lawsuits among family members, etc. But, this institutional self-interest cuts against the interest of the retirement account owner.

The RPOA, therefore, helps balance these risks for both the institution and the account owner. And, although I can provide no guarantee these institutions will honor this specific, particularized RPOA, its detailed provisions arguably provide reasonable and substantive strength in support of the institution not so easily being able to deny the document. The RPOA might also support a position that a financial institution’s denial of the RPOA is unreasonable, potentially opening the door for damage claims against the institution.

As an aside to this RPOA situation, I am fully aware some financial institutions are mandating that account owners use only the institution’s power of attorney form. But, these institutional forms include overly-generous liability waivers with indemnification clauses favoring heavily the financial institution for its own protection; these institutional forms exist for the institution’s benefit, not for its customers.

As another important aside, below are the heading topics for the RPOA document I recommend:

  • Scope
  • Applicable Jurisdiction
  • Successor Designation of My Agent
  • Written Acknowledgment by a Successor Agent
  • Coordination With Other Powers of Attorney
  • Effective Date
  • Release and Indemnification of My Agent
  • Third-Party Reliance on this RPOA
  • Conservatorship / Guardianship
  • My Intent
  • Annual Minimum Distributions
  • Additional Distributions
  • Exclusive Power to Direct
  • Roth Conversion / Medicaid Annuity Planning
  • Checks on My Behalf
  • Spousal Roll-Overs
  • Modification / Change of Accounts
  • Naming of Custodians for Minors
  • No Power to Change or Revise Beneficiaries
  • Investment Delegation Powers
  • Tax Elections
  • Incorporation by Reference of Fiduciary Powers
  • Permitted Use of Certified Photocopies

Finally, back to “trusteed IRAs.”  Under the controlling tax law, a trusteed IRA (i) does not allow a spousal rollover for the surviving spouse and (ii) requires that the financial institution overseeing the account must be the sole trustee. I also find most often a trusteed IRA agreement locks the financial institution in as trustee after the account owner’s death, thus barring any change by the beneficiaries of the investment management platform or removal and replacement of that institutional trustee.

________________________________________________

[1] I refer to “IRA” in this blog post, but, the same discussion applies generally to corporate or self-employed (“Keogh”) pension, profit-sharing, defined-benefit, and stock bonus plans, SEPs, 403(b) plans, IRA and Roth IRA accounts, inherited IRAs, spousal rollover IRAs, 401(k) and Roth 401(k) plans, and 457 plans. It also applies to a judgment, decree or order for any retirement plan, for payment on the owner’s behalf of child support, alimony or marital property rights, referred to typically as a “qualified domestic relations order.”

A Protective “No”

My father was a lawyer; I am a lawyer. I have never experienced not having a lawyer easily, and cost-effectively, at hand. And, I ponder often about the reality (and inequity) of most people not benefiting from a relationship with a good lawyer and often not having funds to pay for excellent legal work.

The email I reproduce below (names purposely changed) prompted this blog post, for the notion that more people might be able to avoid costly legal problems by at least getting a “no” from a lawyer. I provided my quick and prompt “no” response to the following email. By at least asking for my reaction to the email, the son now is able to stay away from the faulty prenuptial planning referenced in the email. He was smart to “cc” me with the email:

Hey dad,

As you know Jane and I are getting married soon.

We love each other and I can’t imagine anything bad happening in the future, but I’ve heard some really ugly divorce stories about other marriages.

Just to be safe and to protect my inheritance, I want to look into a prenup.

I’ve read online that you can print a free document and have it notarized, but I don’t know if this will hold up in court. (think it will)

If I go through an attorney, then it will cost $2000 for the document.

Can you check with James to see what he recommends?

Thanks,

John

This absence of lawyer-oversight, in my opinion, ultimately opens the door down the road for costly litigation and legal problems, far more expensive than if preventive planning had been in place. Jimmy Carter, during his presidency, spoke (in 1978) at the 100th anniversary of the Los Angeles Bar Association and, in part, said: “Ninety percent of our lawyers serve 10 percent of our people. We are over-lawyered and under-represented.”

I intentionally restrain in this blog post from railing against certain aspects of our legal system. But, the above email is in line with the point that many people can be much better off in the thicket of our legal system if they — at a minimum – seek legal counsel to ask if they should not do something, as follows.

Most typically, a client engages a lawyer to move forward and create something for the client; for example, a sales contract, stock agreement, estate planning document, lease agreement, intellectual property protections, tax-savings planning, etc.

This moving forward for generating a document or plan-of-action also includes the lawyer inevitably having to consider and take into account what the client should not be doing. [As an aside, my comments for this blog post center on non-litigation legal work and on preventive efforts to reduce or avoid exposure to litigation.]

The above slice of the lawyer’s work dealing with the “should not be doing” element is itself an independent option for people who, for whatever reason, do not wish to pay for the lawyer to move forward with document(s) or a plan-of action.

There can be great value in being able to ask a lawyer about what one should not do, such as not signing a proposed employment agreement, not signing a proposed business document, not signing lawsuit settlement papers, not obtaining an internet Last Will and Testament or other free or low-cost legal documents. In other words, at least knowing what not to do reduces a considerable number of costly legal issues and problems down the road.  A protective “no.”