PLANNING FOR
LIFETIME PROPERTY MANAGEMENT
AND
HEALTH-CARE PROTECTION
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QUESTIONS TO CONSIDER
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| INCAPACITY occurring at some point in your lifetime is the contingency to be planned for. |
If no planning has been done and incapacity should occur, state law by default will dictate the result, which is called GUARDIANSHIP. Guardianship can include:
Guardianship over your person, including health care decision-making, and/or
WHY GUARDIANSHIP SHOULD BE AVOIDED
| Guardianship is a public proceeding. |
● Private and possibly embarrassing matters, such as your weakened mental status and related behavior, would be revealed in open court.
| The Court will choose your Guardian, NOT YOU or your family. |
● A bank or other institution typically will be chosen as the Guardian of your property, especially if enough money is involved or if there is evidence of family disagreement.
● If an individual is appointed, he or she will have to post a bond and pay yearly premiums.
| Guardians have limited authority to act. |
● Court approval will usually be required for each expenditure for your living needs.
● Legal costs and delays will be incurred each time Court approval is sought.
TECHNIQUES FOR EFFECTIVE LIFETIME PLANNING
FINANCIAL DURABLE POWER OF ATTORNEY
| In a Durable Power of Attorney
you can appoint someone you trust to act as your agent to manage and
protect your property if you later become incapacitated.
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| In addition, you can (but do not have
to) authorize your agent to make gifts of your assets to your spouse,
children, grandchildren, or any other persons you may choose.
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| The Durable Power of Attorney can be amended or revoked at any time. |
| Your Durable Power of Attorney can be effective immediately upon its signing, or the document could say that it is effective only if and when a doctor has first determined that you are incompetent to handle your own financial affairs. |
| Preventing Abuse of Authority by Agents. To better ensure that the powers you give to your agent in the Durable Power of Attorney will not be abused to your detriment, especially when someone other than your spouse will be acting as your agent, consider including the following provisions in your Durable Power of Attorney: |
● Name two agents to serve together.
A "checks-and-balances" approach (e.g., requiring two signatures for check-writing) will avoid the risk of self-dealing, which can arise when only one agent has sole control over your funds.
● Require your agents to give you an annual report of their financial activities on your behalf, detailing all receipts, disbursements (including any compensation the agents have taken), and sales and purchases of assets.
Pennsylvania law requires every agent to keep a full and accurate record of all "actions, receipts and disbursements" made on behalf of the principal.
Why not have your agent disclose such information to you (and perhaps other interested parties, in the event of your incapacity) on an annual basis?
| Compensation. Pennsylvania law provides that in the absence of a specific provision to the contrary appearing in the power of attorney, an agent is entitled to reasonable compensation based upon the actual responsibilities assumed and performed. |
DURABLE HEALTH CARE POWER OF ATTORNEY
AND
ADVANCE HEALTH CARE DIRECTIVE
| You can sign a health-care document that contains both a: |
DURABLE HEALTH CARE POWER OF ATTORNEY, where you appoint one or more persons to make health care decisions for you if you later become incompetent to make your own decisions; and a
LIVING WILL, in which you can state your directions as to whether (and what kinds of) life-sustaining medical treatment should be withheld or withdrawn if you later are in an "end-stage medical condition" or a state of "permanent unconsciousness," where death is inevitable.
Artificial or Invasive Forms of Providing Nutrition and Hydration. Your health-care document should specify the conditions under which artificial or invasive forms of providing nutrition and hydration (e.g., a surgically implanted gastric feeding tube) can be withheld or withdrawn.
Advanced-Stage Dementia. Likewise, you should state in your Living Will if you want Alzheimer's disease or some other form of advanced-stage dementia to be included in the definition of an "end-stage medical condition" for purposes of triggering your Living Will. If you do not so indicate, a diagnosis of advanced-stage dementia or Alzheimer's disease will not be enough to make your Living Will effective.
● If properly drafted, your health-care document will have binding legal effect on your family as well as doctors and other health care providers.
● A copy of your health-care document should be given to your primary care physician for inclusion in your medical record.
NOTE: For more information on this topic, see the Article on Health Care Powers of Attorney and Advance Directives on this web site.
REVOCABLE LIFETIME TRUST
| A trust is a legal arrangement in which you as "grantor" would transfer property to a "trustee" to hold and distribute for the use of a "beneficiary." |
● With a Revocable Lifetime Trust, you can be the grantor, trustee, and beneficiary of your own trust.
● But in that case you should also name a backup trustee to step in if you would no longer be able to properly manage the Trust assets.
| The Trust can be established by yourself acting alone or by you and your spouse acting together. |
| The Trust is established simply by you (1) signing a written instrument called a "trust agreement" or "declaration of trust" and (2) transferring property to the Trust. |
Advantages of a Revocable Lifetime Trust
The primary advantage of a Revocable Lifetime Trust is that you select all its terms:
● You define the appropriate standards for distribution of income and principal to ensure that all of your needs will be provided for.
● You choose who will be your backup trustee.
◊ It is important that you name a successor trustee who has both the time and talent to do a good job for you.
◊ Many options are available as to the choice of trustees. You could appoint an individual and a corporate fiduciary to serve together as co-trustees, or you could authorize an individual trustee to act alone but be required to use a professional money manager as his or her agent to ensure prudent investments.
COMPARING THE FINANCIAL DURABLE POWER OF
ATTORNEY AND REVOCABLE LIFETIME TRUST
| The agent's primary job is to conserve and protect your assets. By contrast, the trustee has a more proactive duty to ensure that distributions will be made from the trust to meet your needs as defined in the Trust document. |
| The trustee's authority will likely be more readily recognized by banks and other institutions as compared to that of an agent. |
| The trustee only has authority over the assets that are owned by the trust. Thus the trust cannot cover all of your financial management needs. For example, the trustee would not be authorized to sign your personal income tax returns or deal with Social Security issues. That is where the Durable Power of Attorney would come in. |
| In any event, this is not an "either/or" issue. The Revocable Lifetime Trust ideally should work together with the financial Durable Power of Attorney. |
| The Trust does not need to be funded all at once. |
Your agent can fund the trust from time to time as your assets (e.g., residence, business interests, items of tangible property, etc.) are converted to cash.
| IS JOINT OWNERSHIP AN ALTERNATIVE? - Adding the name(s) of children or other family members to your bank accounts or other assets as joint owners is usually not an adequate solution for your estate planning needs, when compared to advantages offered by the Durable Power of Attorney and/or Revocable Lifetime Trust. |
Joint ownership with right of survivorship will allow only for probate avoidance after your death, and perhaps a partial savings in Pennsylvania inheritance tax. However, it does not provide for any property management or protection during your lifetime, and the survivorship rights may well contradict your underlying estate plan at death.
DON'T WAIT TOO LONG TO PLAN FOR LIFETIME NEEDS!
| Once you lose mental capacity to make decisions, all planning opportunities will be lost. |
