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.

The late Robert Persig (4-24-17): Zen and the Art of Motorcycle Maintenance

Robert Persig, who wrote Zen and the Art of Motorcycle Maintenance, died yesterday (April 24, 2017). This book has had a continuing effect on me since my first reading during college. If I were asked to state in the briefest possible way why this book is so influential, my inarticulate attempt might be to say Persig compels us to examine, and more-fully contemplate, our lives rather than merely being swept along in a kind of half-asleep, herd-like, obsequious manner. And, that we possess an innate ability to sustain this level of self-reliance.

Immediately below, I am reposting my earlier 2013 blog post about Robert Persig and Zen and the Art of Motorcycle Maintenance as a gesture of my continuing appreciation for him and his book.

My earlier 2013 blog post:

This is not a legal or tax post, in the event you wish to stop reading at this point. Rather, it includes a couple of key thoughts in response to my recent second reading of the book Zen and the Art of Motorcycle Maintenance by Robert Persig. I first read this book during college.

For reasons I do not address more fully here due to my desire to keep this post short(er), this is one of those powerful books that affects readers permanently.

Among the many threads of thought in this book, two are the subject of this blog post: Quality. And Death.

As a trust tax lawyer, I deal constantly with both quality and death. Quality in terms of seeking to find the differences that make a difference for a successful, efficient, effective outcome for clients.

Death in terms of a great deal of planning for clients in anticipation of death and in handling numerous after-death issues and problems, both tax and non-tax. I have had a number of very likable clients die over the years. With strong nostalgia, I feel sometimes as though I am an undertaker.

As to quality, one of the aspects I enjoy most about lawyering is that many problems crossing my desk do not trigger immediate, easy, solutions or answers.

Rather, in most cases the idea, kernel, or thread of a solution or answer ends up surfacing in due course, unscheduled during day or night. It is the subconscious working of the mind that most often is the courier delivering these ideas to the forefront of consciousness.

Persig, in Zen and the Art of Motorcycle Maintenance, discusses in a very convincing way the subject of “Quality” and “stuckness”, including his reference to this subconscious aspect of the mind, as follows:

  • “But now consider the fact that no matter how hard you try to hang on to it, this stuckness is bound to disappear. Your mind will naturally and freely move toward a solution. Unless you are a real master at staying stuck you can’t prevent this. The fear of stuckness is needless because the longer you stay stuck the more you see the Quality-reality that gets you unstuck every time. What’s really getting you stuck is the running from the stuckness through the cars of your train of knowledge looking for a solution that is out in front of the train.  .    .    .
  • It’s this understanding of Quality as revealed by stuckness which so often makes self-taught mechanics so superior to institute-trained men who have learned how to handle everything except a new situation.”

Back to my own comments. What I like about Persig’s notion of stuckness is that our accepting and relaxing into these stuck moments results in the most effective and successful way to get unstuck. This is in contrast to fuming, fretting, and remaining doggedly impatient or upset that you do not yet possess an immediate solution or answer.

Back to my reference to death. Persig’s son Chris, who at age 11 rode with Persig on the motorcycle trip described in the book, was stabbed to death 10 years later in San Francisco during a street mugging.

In the book’s “Afterward” that he added in 1984, Persig describes his persistent stuckness about his son Chris’s tragic death. This stuckness appeared to have no possibility of resolution:

  • “I [Persig] tend to become taken with philosophical questions, going over them and over them and over them again in loops that go round and round and round until they either produce an answer or become so repetitively locked in they become psychiatrically dangerous, and now the question became obsessive: ‘Where did he go?’ “

In an extraordinary, moving, and comforting passage within this Afterward, Persig gives a response to the “Where did he go” question. Persig’s response similarly is what I hope can ultimately be in line with my own reaction if one of my family members were to die.

Also, for me to include here the content and substance of Persig’s response to this question would fill up a much longer portion of this blog post. You can read the Afterward for yourself and draw your own conclusion about Persig’s response [Google: Afterward Zen]. And my own praise for Persig’s response to this death question is not to suggest other readers agree or disagree with the response.

Rather, in my view, and because universally we each ponder death from time to time, I personally believe Persig’s commentary – at least for me — is one of the more satisfying responses to this hard, difficult question.

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.

“It’s Tough to Be Better.” Here is a Great Podcast.

I am a big fan of podcasts. They offer the best of new, cutting edge ideas that I might otherwise not stumble across. Among my favorites: The TED Radio Hour.  Click here. The Tim Ferris Show. Click here. RadioLab. Click here.

This past weekend I listened to a Tim Ferris Show podcast with 62-year old trainer / weightlifter Jerzy Gregorek.  Without boring you in this blog post with details of my own observations, I will say Jerzy’s commentary was compelling. I plan to listen again to the entire podcast.  I am also motivated (somewhat officiously?) to suggest that every person I know listen to this podcast.

Jerzy’s comments go well beyond weightlifting. He more broadly touches on the universal notion of what it takes to get better at something, whether weightlifting, exercise, diet, work, or music, and so forth. Jerzy uses the phrase:  Easy Choices-Hard Life;  and Hard Choices-Easy Life.  He also uses the phrase I added to the title of this blog: “It’s tough to be better.”

Here is the link to this podcast:  Click here. It is:  “The Lion of Olympic Weightlifting, 62-Year-Old Jerzy Gregorek (Also Featuring: Naval Ravikant)”.

We all have a tendency in areas of life to get no further than imagining our goals or improvement. In essence, we simply daydream away our present opportunity and never face taking actual steps forward toward goals we truly desire.

Spend some time with this podcast.  I hope you find it also compelling.